Sunday, September 25, 2005

What a difference a couple of years makes 

A couple of years ago the opposition used an oil strike to try to starve the Venezuelan government and its supporters into submission. Of course they failed as oil production was restarted and the economy regained momentum that led it to have 17% growth last year and almost 10% so far this year.

At the low point of the strike foreign reserves fell to as low as $14 billion. As Chavez turned the economy around the reserves began growing again and now stand at an all time historical record for Venezuela of over $32 billion. This spectacular recovery has led Venezuela to have more money squirreled away than it needs to keep for emergencies.

To deal with these excess billions of dollars a new fund, Fonden, was set up that would use these excess monies for capital projects the country needs. This year $6 billion are expected to go into this fund and the Central Bank just transferred in the first $3 billion. And the first $900 million of projects were announced:

Among the budgeted items are:

$500 million for medical equipment for hospitals.

$204 million to finish the new construction of Caracas’s new subway line.

$109 million for the light rail system in Valencia

Hundreds of millions more for other rail lines throughout Venezuela

$28 million for power plant expansions in the state of Lara.

And this is just the first billion. They’ll be five billion more. Not to mention another $6 billion next year. This is how you physically build a country and put an economy in overdrive.

As the advertisement says: With Fonden, the oil gets to (benefits) everyone.

UPDATE: Chavez announced on Alo Presidente that the government will use $1 billion of the excess international reserves to create a new steel company. Venezuela currently has a steel company that was originally created by the government but then privatized called SIDOR. SIDOR has been barely scraping by. The primary reason for its difficulties was that the Bush administration put high tarrifs on imported steel which hurt Venezuelan exports to the U.S. This means the new company would do well to focus on other markets - China maybe? But Venezuela has very large iron deposits along with large hydroelectric projects (expanded by Chavez) to supply cheap electricity. So there is no reason this new venture should not be succesful.


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