Maduro enacts spending cuts and restructures debt as oil prices fall

With oil prices plummeting nearly 7% over the past several days, Venezuelan President Nicolas Maduro has enacted legislation in order to combat the South American nation’s crippling economy. Accounting for over 96% of the country’s income, the crashing price of oil has accentuated a financial crisis that has lasted for the majority of Maduro’s tenure. Faced with such bleak prospects, the Venezuelan president has decided to cut government spending by nearly 20% while also working to restructure detrimental foreign debt deals. SEE ALSO: Venezuela is about to join the UN Security Council The policy changes are the result of an extended crisis that has no clear end in sight. As Kejal Vyas and Justin Baer of The Wall Street Journal report, “In a country that was already spending beyond its means for the past several years, the falling oil price stands to worsen the country’s finances. Venezuela’s fiscal deficit—the difference between what it spends and earns—stands at about 17% of annual economic output, a level economists say is unsustainable.” The decision highlights the precarious position Maduro currently finds himself in as he attempts to prolong the welfare programs instituted under his predecessor’s social safety net agenda, while also trying to balance the country’s budget. With his approval rating currently at an all-time low of 24.5%, Maduro faces increasing opposition and disapproval from all socioeconomic strata of Venezuelan society who have grown increasingly displeased with his administrative inefficiency. The Wall Street Journal goes on to explain the dire circumstances: “Venezuela’s economy is expected to contract by 3% this year, with an inflation rate topping 60% and a dollar crunch that has created frequent shortages of imported food and consumer goods. The falling price of oil sets the stage for worse to come.” Meanwhile, despite the dire financial situation, Venezuela has decided to extend its financially disadvantageous PetroCaribe program, which ships Venezuelan crude oil to twelve neighboring countries on very favorable terms for the recipients. SEE ALSO: Venezuela’s president is bullying a Harvard professor However, reform has begun to be brought about on other fronts as Venezuelan government officials have reached out to Goldman Sachs in order to restructure their debt contracts with the Dominican Republic, whose investments the bank handles. Vyas and Baer report that, “Under the proposed structure the governments discussed, Goldman would acquire the Dominican debt from Venezuela at a steep discount, one of the people said. “The Dominican Republic would in turn sell bonds, using the proceeds to retire the debt now held by Goldman.” All in all, the new fiscal moves instituted by the Maduro regime are rational, but will likely further weaken the economy in the short-term before their long-term effects have any tangible consequences.The post Maduro enacts spending cuts and restructures debt as oil prices fall appeared first on Voxxi.

Plunge in oil prices forces Venezuela’s Maduro to slash government expenses. (Photo by Andrew Burton/Getty Images)

With oil prices plummeting nearly 7% over the past several days, Venezuelan President Nicolas Maduro has enacted legislation in order to combat the South American nation’s crippling economy.

Accounting for over 96% of the country’s income, the crashing price of oil has accentuated a financial crisis that has lasted for the majority of Maduro’s tenure. Faced with such bleak prospects, the Venezuelan president has decided to cut government spending by nearly 20% while also working to restructure detrimental foreign debt deals.

SEE ALSO: Venezuela is about to join the UN Security Council

The policy changes are the result of an extended crisis that has no clear end in sight. As Kejal Vyas and Justin Baer of The Wall Street Journal report, “In a country that was already spending beyond its means for the past several years, the falling oil price stands to worsen the country’s finances. Venezuela’s fiscal deficit—the difference between what it spends and earns—stands at about 17% of annual economic output, a level economists say is unsustainable.”

The decision highlights the precarious position Maduro currently finds himself in as he attempts to prolong the welfare programs instituted under his predecessor’s social safety net agenda, while also trying to balance the country’s budget. With his approval rating currently at an all-time low of 24.5%, Maduro faces increasing opposition and disapproval from all socioeconomic strata of Venezuelan society who have grown increasingly displeased with his administrative inefficiency.

The Wall Street Journal goes on to explain the dire circumstances: “Venezuela’s economy is expected to contract by 3% this year, with an inflation rate topping 60% and a dollar crunch that has created frequent shortages of imported food and consumer goods. The falling price of oil sets the stage for worse to come.” Meanwhile, despite the dire financial situation, Venezuela has decided to extend its financially disadvantageous PetroCaribe program, which ships Venezuelan crude oil to twelve neighboring countries on very favorable terms for the recipients.

SEE ALSO: Venezuela’s president is bullying a Harvard professor

However, reform has begun to be brought about on other fronts as Venezuelan government officials have reached out to Goldman Sachs in order to restructure their debt contracts with the Dominican Republic, whose investments the bank handles.

Vyas and Baer report that, “Under the proposed structure the governments discussed, Goldman would acquire the Dominican debt from Venezuela at a steep discount, one of the people said. “The Dominican Republic would in turn sell bonds, using the proceeds to retire the debt now held by Goldman.”

All in all, the new fiscal moves instituted by the Maduro regime are rational, but will likely further weaken the economy in the short-term before their long-term effects have any tangible consequences.

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The post Maduro enacts spending cuts and restructures debt as oil prices fall appeared first on Voxxi.