VenAmCham economist: The State wants to compete with the private sector

<a href=www.vheadline.com>Venezuela's Electronic News Posted: Monday, May 05, 2003 By: Jose Gabriel Angarita

VenAmCham's Jose Gabriel Angarita (economist) writes: More than 100 days since January 21, 2003, when the Venezuelan foreign exchange market closed its doors and the supply restriction became absolute, the chief executive explained that "the State has no intention of monopolizing foreign exchange, but rather, of competing with the private sector" and confirmed that exchange controls will continue to be very strict. He also acknowledged the shortages of some regulated products and announced a massive import plan to counteract them.

About 6,200 tons of chicken will be imported from Brazil, by land and by sea; 80,000 bags of wheat flour will come from Italy, and a reserve of 12 million eggs will be built up to cover demand. The Venezuelan government made clear its intention of continuing with its food import plan to cope with shortages.

It is very important to stop and analyze the implications and consequences of the government's good intention to relieve the Venezuelan consumer's plight, only in the short run.

In the first place, under the Andean Community of Nations (CAN) rules, imports from Brazil must meet the Andean Community requirements and the health requirements spelled out in Resolution 449 on Trade with Third Countries, and are subject to a tariff in accordance with the prescribed variable rates.

In the second place, we should not forget the negative effect of imports of these products on Venezuelan producers, for whom the exchange controls and price regulations have imposed inefficiencies in productive processes, generating unemployment and leading to company failures. Foreign competition will intensify the critical situation in the food sector.

Neither should we neglect the potential macroeconomic implications of the massive import policy the government plans to apply when the main goal of the exchange controls --rebuilding the foreign reserves -- is threatened by the outlays made for external purchases. There may also be distortions in the current account of the balance of payments, since the tradable goods sector is deeply depressed.

Obviously, this situation will be sustainable only in the short term; in the medium term, national private enterprise will continue weakening even more, and if the current policy remains in force the smaller companies will tend to disappear, adding large numbers of employees to the ranks of the unemployed. Reversing the process will require an industrial policy designed to strengthen national capital for transfer to all the sectors of the economy, stimulus for an efficient allocation of resources, and creation of new jobs.