Discipline, stability, and sustainability in Venezuelan public finance (original) (raw)

Fiscal Rules in Latin America: A Survey

SSRN Electronic Journal, 2012

This survey first discusses general characteristics, advantages, and disadvantages of different types of fiscal rules. It then reviews the experience with fiscal rules in seven Latin American countries. Only Chile targets cyclically adjusted indicators although Colombia is going the "Chilean way" and the Mexican rule offers some stabilization properties. Argentina, Brazil and Peru apply numerical rules targeting the overall/primary public balance and/or the public spending. The Venezuelan framework has been substantially diluted or abandoned after introduction. The institutional coverage depends on the degree of decentralization of the fiscal systems with many countries including debt limits to the subnational governments as a key tool to face the common pool problem that emerges in federal states. All in all, it seems that fiscal rules in Latin America have been more effective in helping to strengthen the long term sustainability than in responding to shocks as proved by the recent financial crisis. Fiscal rules have had to be fine-tuned along the years and a "second generation" of fiscal rules may be necessary in order to increase their efficiency.

In Search of Stabilization and Recovery: Macro-Policy and Reforms in Venezuela

Journal of Post Keynesian Economics, 2016

Venezuela is currently immersed in a severe economic crisis as a result of years of domestic mismanagement and the recent reversal in oil prices. Against this backdrop this paper attempts to formulate a proposal for stabilization and recovery which includes upfront key policy actions to deal with the drastic foreign exchange constraint. A logical and obvious priority is the redesign of the foreign exchange regime. The recovery of readily available foreign currency liquidity is of paramount importance since it will allow the lift of the exchange control and the implementation stable and competitive real exchange rate (SCRER), but also will provide the required level of liquid foreign exchange that the economy needs to remove shortages across the board and promote the recovery in economic activity. The recovery of domestic output will also require supply-side relief in the form of broad deregulation, institutional changes and a sensible policy to lift price controls. We argue that to maintain a stable and competitive exchange rate, very rapid suppression of inflation and the causal mechanisms built through the years is needed. We propose a plan that comprises three steps: (i) a rapid return to a non-inflationary vector of relative prices through price liberalization (ii) a fiscal and monetary strategy centered on the correct monitoring of the demand for money and (iii) the introduction of unit of indexed value and a new currency to deal with inflationary persistence. The support of monetary and fiscal policy for successful stabilization and recovery efforts is also discussed.

Reverse Causality between Oil Policy and Fiscal Policy?: The Venezuelan Experience

2021

This paper uses a model of intergenerational accounting to simulate the intergenerational distribution of oil wealth in Venezuela. Venezuelan oil production does not seem to follow an optimal extraction path. Nevertheless, this is true if we do not consider what the government does with the resources received from the oil sector. In this paper we explored the interaction of oil policy and fiscal policy using an intergeneration accounting model. We found that these interactions could explain certain outcomes. In particular, the model could explain why the sector was open for investment in 1991 and then “re-nationalized” in 2001. Results suggest that when fiscal policy could leave an important burden to future generations, voters seem to favor a more tax oriented oil policy, leaving the oil in the subsoil.

Oil & Debt Windfalls and Fiscal Dynamics in Bolivia

SSRN Electronic Journal, 2000

During 2004-06 Bolivia experienced a five-fold increase in oil revenues due to tax/contractual innovations, higher prices and larger volumes at the same time that a multi-lateral debt reduction initiative trimmed roughly one third of the public external debt. The political economy setting of this environment entails a new hydrocarbons law that automatically decentralize expenditures to local governments and nationalization of the oil industry. We model fiscal dynamics in Bolivia in an stochastic framework and find that the new status-quo will generate double reversions of primary surplus and a public debt path that may fall short of being pleasant in the presence of unfettered fiscal spending and/or decline in international energy prices and gas demand from its neighbors. Even though it is difficult to asses the underlying fiscal policy reaction function to future developments in Bolivia, we conclude that governance of the process of allocation and distribution of the oil rent is essential to the short to medium term sustainability of the new Bolivian model. JEL codes: E62, O23, Q43. We acknowledge useful discussions with and suggestions from collegues and friends in Bolivia and Argentina that motivated this draft. In particular we are (sustainably) indebted to Juan Luis Bour and Daniel Artana from FIEL and to Guillermo Zoccali from the IADB. The usual disclaimer applies.

The Political Economy of the Budget Process in the Andean Region: The Case of Venezuela

2007

During the last decade, most Andean countries implemented a set of fiscal reforms aimed at strengthening public finances, enhance resource allocation and contribute to macroeconomic stability. However, despite recent improvements in fiscal performance, public finances remain vulnerable, fiscal policies have often been pro-cyclical and debt sustainability continues to be a challenge in the region. Although considerable attention has been given to fiscal rules and institutional reform to address some these weaknesses, there is a growing effort to try understand the outcomes of fiscal policies from a political economy perspective.

Fiscal Rules and Economic Size in Latin America and the Caribbean

World Bank Publications, 2020

Following the collapse of commodity prices in Latin America and the Caribbean (LAC) in 2014-15, many countries in the region were unable to cushion the impact of the shock in order to experience a more gradual adjustment, to a large extent because they had not built adequate fiscal buffers during the commodities’ windfall from 2010-14. Many LAC countries entered 2020 and the COVID-19 crisis in an even more difficult position, with rising debt and limited fiscal space to smooth the negative impacts of the pandemic and adequately support their economies. Fiscal policy in most LAC countries has been procyclical. Public expenditure and debt levels have expanded in good times and contracted in severe downswings due to insufficient fiscal buffers, making crises deeper. Fiscal rules represent a promising policy option for these and other economies. If well-designed and implemented, they can help build buffers during periods of strong economic performance that will be available during rainy...