Venezuela's exchange control system expected to be relaxed in the near future

<a href=www.vheadline.com>Venezuela's Electronic News Posted: Wednesday, June 11, 2003 By: Jose Gabriel Angarita

VenAmCham economist Jose Gabriel Angarita writes: Since January 21, the date on which restrictions were placed on Venezuela's foreign exchange market, it has been impossible to perform overseas credit card transactions. But CADIVI President Edgar Hernandez Behrens announced that the lifting of that restriction is under consideration: "we are doing studies and analysis of proposals, which are quite far along;" "now only a few important details remain."

This action by the foreign exchange regulatory body could imply a relaxation of the exchange control system in the near future ... though it would retain its current form and there would be no legal parallel market to satisfy the massive repressed demand.

Discussions in VenAmCham's economic department indicate that access to foreign exchange will increase after June has passed, but there is no clear indication as to whether the current system will be modified or kept in place as is, only with a lower level of discretionality.

Most sectors of the national economy are aware of the distortions to which a managed economy is subject. Proof of that is the statement by Central Bank Director Domingo Maza Zavala, who explained that "every surplus dollar in the foreign reserves represents the amount being withdrawn from economic activity, and that does not help the productive sectors to revive."

In the absence of a rapid relaxation of the restrictions on the foreign exchange market so that resources can be allocated to the different sectors of the national economy, the political punishment interpretation of the controls will continue gaining strength.

The upshot, however, will not only be harm to a particular economic sector or group, but to all the participants in the economic system, and especially the consumers, due to rising unemployment and product shortages.

Everything will depend on the changes that CADIVI may make in its mode of operation, to improve current conditions. If it makes no changes, the economic consequence may be a further intensification of the unprecedented contraction we have seen in recent months.