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Falling Oil Prices Pushing Venezuela to Boost Taxes, Issue Debt

Associated Press
Published | Updated

CARACAS, Venezuela – Falling oil prices are pushing Venezuela to boost sales taxes, sell debt and revise its 2009 budget to reflect an expected 6.7 percent decrease in income, President Hugo Chavez said Saturday.

The socialist leader said he will ask lawmakers to increase sales taxes on goods and services to 12 percent from 9 percent in a bid to make up for plunging state revenue in the oil-rich nation.

The government now expects $72.7 billion in income, and the revised budget anticipates crude prices of $40 a barrel, not the $60-a-barrel forecast by lawmakers last year, Chavez said in a televised speech.

Venezuela will also sell an additional $22 billion in bonds to raise cash this year, bringing internal public debt to $60 billion by year's end, Chavez announced, giving no details on the issue date, term or interest rate the debt will carry.

The government may be forced to reign in years of steep increases in public outlays, Chavez added, promising that salaries for high-level public officials would be cut. He said he would send a revised budget to the legislature, which is controlled by his allies, in coming days.

Soaring crude prices have fueled years of record public spending in oil-rich Venezuela, winning Chavez support among millions of the country's poor. The government has not run a budget deficit since 2003.

But Venezuela depends on oil for 93 percent of exports and nearly half its federal budget, and crude prices have slipped 65 percent since their July 2008 peak, cutting off a key sourcing of income.

Chavez has insisted the country can avoid steep spending cuts by tapping some of the nearly $100 billion in currency reserves and development funds that his government says it has collected in recent years.

Yet analysts warn that falling oil income and shrinking reserves may push Venezuela to devalue its currency, which has been fixed by the government since 2003 but now trades at nearly three times the official rate on the black market.

Chavez insisted again on Saturday that no devaluation is planned.