Controversy surrounds Venezuela's foreign exchange controls
<a href=www.vheadline.com>Venezuela's Electronic News Posted: Thursday, June 19, 2003 By: Jose Gabriel Angarita
VenAmCham economist Jose Gabriel Angarita writes: Nearly five months after exchange controls were imposed by Venezuelan authorities, and in the midst of speculation on what system will replace them, there is still no clear definition of the actions that could be taken once they are lifted.
Finance Minister Tobias Nobrega announced to the media that he will shortly be revealing to the Venezuelan public the changes to be made in the foreign exchange system. But the proposals, which Minister Nobrega indicated were quite far along, have not even been submitted to the Central Bank of Venezuela (BCV), according to Board member Domingo Maza Zavala: "I can tell you, as a director of the BCV, that I have no knowledge that the Board has received any proposal from the government to alter the foreign exchange scheme."
One of the most powerful bases for endowing these announcements with credibility is the reputation of the policy makers during the period of restricted foreign exchange availability; they have transmitted signals of a coming relaxation of controls but have done nothing concrete about it. The exchange control system should have been conceived as a temporary expedient, which became unnecessary and inefficient once the resumption of oil exports normalized the inflow of foreign exchange.
The longer the foreign exchange market continues to be restricted, the higher will be the cost of its eventual liberalization, though that cost will depend on the arrangement that is adopted. However, relaxation of controls will be accompanied by a major devaluation of the exchange rate, perhaps to the levels at which CANTV ADRs are now trading (an average of 2,400 bolivares per US dollar); that is the reference exchange rate for the parallel market. Liberalization will also have an impact on interest rates and inflation.
Whatever the follow-on arrangement is, there is no way to prevent a demand repressed for five months, which has put pressure on interest rates and led to a growth of deposits from the public in the financial system, from moving massively to the foreign exchange market ... unless the authorities continue certain restrictions with the aim of gradually reducing them or continuing to dole out foreign exchange in discretionary fashion. Hence, the prospects are not encouraging. The damage is already done and there is no sign of a willingness among the authorities to speed up the liberalization process, despite all the pressure being applied by the different economic sectors and even the international community.