Fiscal Policy

The government's fiscal accounts generally showed surpluses until the mid-1980s because of the immense oil income. In 1986, however, the drop in oil prices triggered a fiscal deficit of 4 percent the deficit exceeded 6 percent in 1988.

The major actors in fiscal policy were CordÍÍÍiplan, which was responsible for long-term economic planning, and the Budget Office of the Ministry of Finance, which oversaw expenditures and revenues for each fiscal year ( FY--see Glossary). Cordiplan also oversaw the fiscal status of the FIV, PDVSA, the social security system, regional and municipal governments, the foreign exchange authority, state-owned enterprises, and other autonomous agencies. But economic planning and budgeting suffered from a serious lack of interagency cooperation, and five-year plans and annual public-sector investments often lacked cohesiveness.

Total government spending reached about 23 percent of GDP in 1988. Current expenditures accounted for 70 percent of overall outlays, compared with 30 percent for capital expenditures. Capital investments, after a decline in the mid-1980s, expanded slowly during the late 1980s. Interest payments, two-thirds of which serviced foreign debt, represented 11 percent of total expenditures in 1988, a typical figure for most of the decade.

The revenue structure in the late 1980s remained excessively dependent on oil income. In 1988 petroleum revenues, both income taxes and royalties, provided 55 percent of total revenue. Although oil's contribution to total revenue had declined in the 1980s, most economists felt that it had not declined sufficiently. Overall, taxes contributed 80 percent of total revenue in 1988, with the remaining 20 percent derived from such nontax sources as royalties and administrative fees. Tax exemptions, deductions, allowances, and outright evasion greatly reduced the effectiveness of fiscal policy. Officials planned to inaugurate a value-added tax in 1990 as another means to widen the revenue base.

Data as of December 1990