Concern over the effects of the controls imposed on the Venezuelan economy
<a href=www.vheadline.com>venezuela's Electronic News Posted: Wednesday, May 21, 2003 By: Jose Gregorio Pineda & Jose Gabriel Angarita
VenAmCham's Jose Gregorio Pineda (chief economist) and Jose Gabriel Angarita (economist) write: The price controls imposed on our economy comprise a mechanism by which the government regulates the prices at which a set of goods and services can be sold. In other words, the government sets mandatory prices for the sale of certain goods or services to the consumers.
One of the arguments for price controls is that the State will not allow corporations (large monopolies or oligopolies) to set the prices of goods and services at their discretion, and that on the contrary, it is the State which should administer and regulate those prices t prevent the corporations from speculating. However, apart from the "good intentions" policy makers may have, there is an enormous difference between the desired effects, in terms of benefits for the general population, and the effects actually provoked by controls. And it is also necessary to consider that there is a regulatory agency (Procompetencia) which ought to be the party responsible for keeping companies from engaging in monopolistic and oligopolistic practices; price controls can only achieve the same goal in a highly inefficient way.
Under the current circumstances in the Venezuelan economy, price regulation is not yielding the results anticipated by the authorities. Proof of that is the fact that the Central Bank's inflation statistics show a 1.7% increase in the Consumer Price Index (CPI) for April, chiefly reflecting increases for products subject to control.
Venezuelans still remember what happened in 1996 when inflation surged to 103.2% after the price control system was dismantled. Estimates for this year point to an inflation rate on the order of 50%, and it is important to recall that production costs have been rising for a number of reasons, and once the price controls are lifted, businessmen will seek to pass those cost increases along to the prices of their final goods. An indication that this is already happening is the disproportionate growth of the producer price index, which will sooner or later have to be reflected in consumer price increases as well.