Deep pockets: thanks to an oil boom, Venezuela pumps money into education and defense.

It's no secret that oil prices have been high during the last few years. Perhaps no country in the hemisphere could be happier about that than Venezuela. Oil accounts for the lion's share of the country's exports and, for 2006, that extra money is going to finance major social programs on top of paying public-sector salaries. Technology and defense sectors of the economy will rake in a nice chunk of the windfall. According to Finance Ministry estimates, the 2006 budget of US$41.90 billion will represent a 15% increase from the 2005 spending package.

"There's basically an overall 20% spending increase for defense, with military-equipment purchases, and also through sustaining social programs like Mercal, and paying 4 million national, state and local employees" says Carlos Berrizbeitia, a Congressional deputy and member of the finance commission. Mercal is the country's state-run food-distribution network Berrizbeitia is a member of Proyecto Venezuela, which is the opposition party to President Hugo Chavez. According to Berrizbeitia, a quarter of Venezuela's budget will eventually go to defense, a sector that already saw a headline-grabbing $1.50 billion purchase of Russian arms as well as Spanish ships earlier this year.

About 40% of the budget will fund social programs like Barrio Adentro, which provides medical attention to the country's poor, especially in urban shantytowns. Barrio Adentro will require $2 billion alone to operate. Those who have greatly benefited from these programs have included a small number of cooperatives that supply medical equipment, but the main beneficiary is the Cuban government, which has sent in medical professionals to treat Venezuela's poor, says Berrizbeitia. Most of the companies contacted by LATIN TRADE refused to comment on their dealings with the government.

Petroleos de Venezuela (PDVSA), the state-owned oil company, however, did say it paid $1.42 billion to suppliers and contractors during the January-April period of 2005. Most of those suppliers sold goods and service to explore and drill for oil and for improvements to refineries and shipping fleets. A little more than $481 million bought goods and services for general corporate purposes, although the company did not provide details.

According to analysts, government labor liabilities account for 9% of gross domestic product. The 2006 budget has set aside $5.16 billion to pay public-sector salaries. Hiring has risen due to the creation of new ministries as well as other new public functions such as "education missions," which provide $85 monthly government subsidies to more than 2 million Venezuelans who lack money to pay for basic education. While the Chavez administration wants more students in school, it also wants a larger technology and communications industry to hire those fresh, young minds once they graduate. Corporacion Venezolana de Guayana, the government's holding company and its telecommunications subsidiary CVG Telecom will tap $55 million from public coffers to create a fiber-optic network within four years. The company aims to provide fixed-line and wireless services in Venezuela, Colombia and Brazil. The company plans to compete with behemoths such as Telefonica, a Spanish telecommunications giant. CVG Telecom declined to comment for this story.

The Venezuelan government is tweaking its bidding process for 2006 by selling out more customized contracts, to avoid throwing money out by conducting more research on bids. Furthermore, the government has modernized is fiscal management in an effort to stamp out corruption and get more involved in the country's social development programs, as well as improve the national military and telecommunications network.

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