Chavez to Use Reserves to Maintain Spending

In a press conference with Brazil’s president Lula, Venezuela’s Hugo Chavez said he will order the central bank to move $12bn in reserves to the government off budget discretionary spending fund (Fonden), media reports indicate. According to Venezuela’s central bank, the country’s reserves add up to $41.86bn and Chavez has said the optimum level of reserves is $30.00bn. A central bank spokeswoman tells LatinFinance that it has not made an official announcement on the transfer of funds and does not say if or when funds would actually be transferred. The announcement has analysts scratching their heads. Goldman Sachs says the move is “likely to further weaken the balance sheet of the central bank” and that it “should keep inflation high.” UBS says the “transaction is nothing but a monetary financing of the deficit and therefore, inflationary. Additionally, it leaves the country more vulnerable to a balance of payment crisis, a growing risk given the large external shock Venezuela is going through.” Headline inflation reached a high 30.9% in 2008 according to Goldman Sachs.