Instability threatens Venezuelan participation in foreign trade

<a href=www.vheadline.com>Venezuela's Electronic News Posted: Tuesday, May 27, 2003 By: Jose Gregorio Pineda & Jose Gabriel Angarita

VenAmCham's Jose Gregorio Pineda (chief economist) and Jose Gabriel Angarita (economist) write: At this time, Venezuela is in the midst of great instability and distortions that are exerting pressure on internal and external markets. Political and social conflict, as well as the economic paralysis stimulated to a great degree by exchange and price controls, stand out. All these elements can be significantly endangering Venezuela's participation in foreign trade, given that our commercial partners could be taking measures to replace the absence of Venezuelan products in their respective markets.

The handling of economic policy, above all the intention of the Government to continue with a strongly restrictive policy toward the delivery of foreign exchange to economic sectors has had an effect on opinion. This is the case of the member countries of the Andean Community of Nations (CAN), who a few weeks ago gave a time limit to Venezuela to at least make the exchange system more flexible.

Simultaneously, these countries are trying to promote negotiations for a bilateral agreement with the United States, in the first place because of the delay in the agenda of the Americas Free Trade Treaty (AFTT) and perhaps because of the reduction of sales to Venezuela, the other member country, to avoid a contraction of markets for their products. This situation could be further affected by the perspectives of Venezuela's actions in the commercial sector, given its open refusal to advance negotiations to join AFTT.

Other commercial partners who seek commercial alternatives to reduce the negative consequences provoked by exchange control in Venezuela include the Group of Three (G-3), Colombia, Mexico and Venezuela. The need to compensate the absence of Venezuela in commercial trade could mean losses of more than $1 billion in Venezuelan exports.

The difficult environment in which Venezuela is operating, the high dependence on the petroleum sector, the existence of an anti-export bias and a lack of competitiveness of the non-petroleum sector are sufficient obstacles to assume a more open commercial policy, but the new exchange control measures could come to represent an important loss for Venezuela given that its commercial partners are looking for new markets.