Imports are 7.8 percent cheaper than domestic goods

Venezuela is faced with economic problems such as currency overvaluation and loss of competitiveness, the Central Bank of Venezuela (BCV) authorities acknowledged in the 2007 economic report issued this week. Such imbalances have resulted in imported goods that are cheaper than domestic products. BCV authorities use an economic indicator called Effective Real Exchange Index (IRCE) to measure this effect. IRCE detects changes in competitiveness by taking into account inflation and exchange rates in the countries that are Venezuela's major trade partners. When IRCE increases, Venezuelan competitiveness improves. On the contrary, when it falls, IRCE deteriorates. According to the report, last year the index showed a '7.8 percent annual reduction.' This means that in 2007 Venezuelan imports were, in average, 7.8 percent cheaper than the goods manufactured in the country. Such a decline comes amidst stringent exchange controls under which the US dollar is traded at a fixed exchange rate, while the inflation rate continues to soar. This means that what consumers buy in Venezuela with VEB 2.15 (the official exchange rate to the US dollar) is far less than a consumer can buy with USD 1 abroad.