Foreign Exchange Administration Commission continues to be at the center of debate

<a href=www.vheadline.com>Venezuela's Electronic News Posted: Friday, May 09, 2003 By: Jose Gregorio Pineda & Jose Gabriel Angarita

VenAmCham's Jose Gregorio Pineda (chief economist) and Jose Gabriel Angarita (economist) write: The Foreign Exchange Administration Commission (CADIVI) set up on January 21, 2003 continues to be at the center of a debate among national and international analysts, who worry that the reasons for its behavior may be political rather than economic. The government is viewed as trying to gain political ground and channel foreign exchange in a discretionary form to alternative productive enterprises politically allied with it.

There are no good reasons for the exchange controls to continue in force, or in their present form at any rate. The main argument against the inefficient foreign exchange restriction lies in the 3.353 billion recovery of foreign reserves since January. This is, in any case, a fairly small growth considering that oil exports have reached 3.2 million barrels per day.

Why have the reserves not grown more rapidly?

One of the factors the advocates of these government interventions in the economy may be underestimating is the terrible damage being done to the economy as a whole. They are provoking an enormous contraction of productive activity, raising unemployment, and generating shortages of staple foods and medicines.

A great many recommendations have been made to the government and Cadivi regarding the undesirability of keeping the exchange controls in force. Spokesmen for the Central Bank of Venezuela (BCV) and he Venezuelan Banking Association (ABV) have expressed concern about the Commission's delay in distributing foreign exchange; US$1.2 billion are available but only about 100 million have actually been authorized.

Commission members and the President of the Republic himself have spoken out in favor of the controls and ruled out any possibility of lifting them, in the short term at least. There is no clear posture regarding a potential relaxation of the supply of dollars.

A great deal of controversy has been generated in the national private sector, which tends to believe the controls are intended only to punish the opposition by preventing trade with the rest of the world in the goods and inputs needed for import and export operations. If the foreign exchange market is not opened up and dollars distributed to the different sectors of the economy, this argument will become ever more convincing. But the controls do not only harm the opposition; they injure all participants in the national economy, and especially the population by raising unemployment and provoking shortages of goods.