Santa Elena, Venezuela (VA) – On Tuesday, Venezuelan officials outlined the 2016 budget, making emphasis on debt payment, while synchronous steps in oil diplomacy reveal an ongoing attempt to raise global prices.
In a broadcast parliamentary address, Finance Minister Rodolfo Marco Torres said next year’s federal expenses would amount to 1.55 trillion bolivars, over double the amount earmarked for 2015 and equivalent to US $247 billion at the strongest official exchange rate of 6.3.
According to sources from Reuters who were given access to the budget document, the official rate of 6.3 bolivars per dollar will be carried into 2016, despite critics’ calls for more realistic currency controls. The dollar is currently valued at 814 bolivars on the black market, stimulating a parasitic parallel economy.
The announcements come amid severe economic stress, as Venezuelan foreign reserves hit a 12-year low of $15.3 billion this week and as President Maduro claims consumer inflation will hit 85 percent by the end of the year.
However, Marco Torres assured legislators that the government had the resources to meet upcoming debt payments, including a US $1.41 billion bond of the state oil company PDVSA which matures next Wednesday, and a $2.05 billion amortization of the PDVSA 2017 bond in November.
Additionally, the minister said that the government will seek to lessen dependency on oil revenue for 2016. Oil export and derivatives currently make up 95 percent of the country’s foreign income, leaving Venezuela particularly vulnerable to the ongoing drop in prices caused by the global market surplus set off by US shale oil production last summer.
Preparing for an extended price slump, the 2016 budget is based on estimates of a $40 benchmark price for oil.
On Saturday, Venezuelan President Nicolas Maduro announced that PDVSA would be buying a 25 percent stake in West Indies Oil Co. during a brief diplomatic visit in St. John’s, Antigua and Barbuda.
The head of state also presented plans to establish a regional bank with the island government to fund the new Simon Bolivar Resort Hotel, named after the 19th century Venezuelan liberator.
In a unique meeting in Vienna that brought together OPEC states with nonmember oil-producing nations such as Russia and Mexico, Venezuelan oil minister Eulogio del Pino yesterday unveiled a new strategy to raise oil prices.
Del Pino proposed a coordinated price for oil that would be act as a “moving target” based on the fluctuating investments needed to sustain regular production.
The strategy harkens back to a 1980s OPEC policy of a price ceiling meant to temper market surplus.
The Oil Minister said that $88 dollars per barrel would be the ideal potential target to begin, and asked that another meeting be arranged to forge an agreement before the next official OPEC summit, on Dec 4th.
According to the International Energy Agency, the global oil market will continue oversupplied in 2016 due to stalling demand and a recovery of Iranian exports as sanctions are lifted.
“We are concerned about the depletion of reservoirs and about the decline of production,” del Pino emphasized during yesterday’s meeting. “We are talking here about an equilibrium price to sustain the production.”
President Maduro reiterated the call for a special assembly between OPEC and nonmember heads of state to discuss the present situation, in a letter sent to the Austrian capital on Wednesday.
“The objective of such a meeting is to compare ideas and technical information about the international market behavior of petroleum, with special attention to the volatile scenarios which have become evident in recent months,” the Venezuelan leader said.
Financial journals reported lukewarm responses from Mexico, Russia and and delegates from the Persian Gulf, but no official notice has been given in response to the proposal.