With its '70s oil spree over, Venezuela looks to mopping up debt
When oil prices doubled a dozen years ago, Venezuelan leaders foresaw a bright future. But not Juan Pablo P'erez Alfonso, considered the father of Venezuela's modern oil industry. Mr. P'erez Alfonso warned that sudden wealth would corrupt this South American democracy and called for a freeze on oil production at a lower level to keep the government on a tight budget. ``It's impossible to use all that money wisely,'' he said in 1974.
But the former oil minister's advice was ignored by the administration of then-President Carlos Andr'es P'erez, which kept the oil fields pumping to finance a spending spree. These days, however, P'erez Alfonso is viewed as a prophet. ``We should have followed his advice,'' a local businessman says. ``The carnival is over, and we don't have much to show for it.''
In early August, Venezuela, a founding member of the Organization of Petroleum Exporting Countries, had to cut prices of its heavy crude oils by $2 a barrel, to between $23 and $24. This was in an effort to regain markets lost to non-OPEC member Mexico and other competing nations, which have undersold Venezuela in the past few months.
Energy and Mines Minister Arturo Hern'andez Grisanti warned that the country may again have to cut prices of heavy crudes, which account for 55 percent of oil exports and are not subject to OPEC price controls.
Venezuela is saddled with a $35 billion foreign debt, the fourth largest in Latin America, behind Brazil, Mexico, and Argentina. Oil still brings in two-thirds of government revenues, accounts for 25 percent of gross national product, and provides 95 percent of export earnings.
This has left many wondering what happened to the oil boom's promise.
``Today, at the end of the most promising decade in Venezuela's history, the expectations of unparalleled prosperity are little more than a painful memory,'' wrote the Roraima Group, an organization of business executives, in a recent report.
``The oil bonanza came and went, leaving an economy in deep recession, with high unemployment that shows no signs of diminishing. The growth, prosperity, and development that many expected did not materialize. Paradoxically, after 10 years of unprecedented oil revenues, Venezuela is greatly indebted.''
The Roraima Group said that although President P'erez promised to use the revenue to diversify the economy, the money instead fueled a sharp increase in imported products, a big rise in government employees, and flowed into overseas bank accounts. Corrupt government officials grabbed a share, too. A former minister of transportation and communication will be arrested on charges of embezzling state funds if he returns to the country.
Imports, which had risen an average of 7 percent a year between 1964 and 1973, increased 20 percent a year from 1974 to '83. Venezuela was said to have more yachts and private planes per capita than any other country.
Oil money also funded a big increase in bureaucracy. Billions of dollars were poured into public-works programs, and from 1973 to '82 public-sector employment doubled, while private-sector investment dropped 30 percent. Yet today, analysts say, the only well-run public-sector company, other than the state oil firm, is the Caracas subway.
``The money was eaten up by white elephant government investment projects, with bad money being thrown after bad,'' noted VenEconomy, a local consulting firm, in a recent study.
Oil money also flowed out of the country. Venezuelans are said to have enough money in foreign bank accounts to pay off the country's $35 billion foreign debt. Whereas the future looked so bright in 1974, unemployment today is an estimated 20 percent and living standards have declined to 1973 levels. Oil revenue, which was $15.3 billion in 1984, could fall to $12 billion this year.
But not all the news is bad. Before year-end, Venezuela is expected to sign an accord rescheduling the $21 billion that state companies and agencies owe 450 foreign creditors. The agreement will be the first a Latin American country has signed without intervention by the International Monetary Fund.
The IMF was not needed because the government had devalued its currency, the bol'ivar, in 1983. Since then imports have fallen and non-oil exports have risen. Moreover, President Jaime Lusinchi, who took office in February 1984, has cut government spending and reduced inflation to about 15 percent. He has also built up foreign reserves to about $13.5 billion.