Capital Flight Takes Off in Venezuela

It's perhaps not quite appropriate a week before state and municipal elections are held next Sunday, but it would appear that prosperous Venezuelans are increasingly voting with their purses and wallets.

Despite strict - but apparently not very effective - currency controls and a law making it a criminal act punishable with prison to trade in foreign exchange outside the regulations, the amount of money creeping out of the country has shot up in recent years. Estimates at the Venezuelan Central Bank suggest that during the first nine months of this year, $19.718 billion somehow made its way out of the country.

This compared with $18.916 billion that left the country during the whole of 2007, which was preceded by $7.31 billion in 2006, and is the highest figure recorded since 1997. The central bank doesn't describe these transactions as actual transfers of one sort or another of hard currency, but as "errors and ommissions." Just how the central bank keeps track of deals that are clearly illegal is not explained.

Currency controls were imposed in a bid to curb capital flight as a two-month national strike orchestrated by the opposition began to bite in early February 2003, but were never lifted. They have been enforced ever since by the Foreign Exchange Administration Commission (Cadivi), which authorizes applications to obtain access to hard currency. The actual money is disbursed by the central bank , which has a degree of autonomy in the process and doesn't always release all the money permitted by Cadivi.

The commission has long been under pressure from the business community at least to ease up on the controls if not eliminate them altogether. While the government, from President Hugo Chávez downwards, consistently insists that the controls are here to stay, the rules were eased earlier this year and a simplified procedure introduced for sums of $50,000 or less was introduced.

Cadivi says the improvement in the economy means that more money can be allowed out of the country. However, talk in official circles now has it that controls on foreign exchange and domestic prices could be beefed up in light of the rumbling global financial crisis.

The Venezuelan Bolivar Fuerte is fixed at 2.15 to the dollar, but currently trades at 5.1 in the black market. That black market rate has fallen from 3.25 to the dollar in August.