Hugo Chávez brags that Venezuela is armor-plated against the impacts of the world economic and financial crisis and irresponsibly maintains that, even though oil drops to zero, the country will not suffer.
No one believes such a whopper. It is more than evident that the President is trying to deny the obvious, simply waiting to get the referendum on the reelection amendment behind him. It is more than likely that, after this unconstitutional referendum, the government will have no alternative but to take drastic measures in order to cope with the collapse of oil prices and the fiscal crisis that this entails. There are already signs of what form these measures will take. It is thought that, among other things, the government will make the exchange control policy more stringent and that it will tighten up controls of all types.
Cadivi, the foreign currency administration agency has already sent out a number of signals: it has taken more than 90,000 users out of circulation on the grounds of alleged illegal use of their foreign currency quota; cut travelers’ access to foreign currency for payment of expenses abroad by half (Regulatory Order No. 093); and restricted cash withdrawals from automatic tellers in border countries to $62.5 a week, equivalent to one quarter of the total monthly foreign currency withdrawal quota authorized by Cadivi.
Another signal comes from the Ministry of Light Industries and Commerce (MILCO), which, to date, has not issued the automotive industry the import licenses for the quotas for 2009. This signal clearly indicates that imports at the official exchange rate will be restricted still further. In fact, it is already practically impossible for any businessman to obtain foreign currency at the official rate other than for food and medicine. It is thought that the government could implement a dual exchange rate, similar to the rate implemented by Recadi, for non-essential imports.
Yet another signal, this time from the Executive, is the decision to control the prices of all food products (domestic and imported) manufactured using regulated inputs. Along the same food control lines is the regulatory order of January 13, which sets import and production quotas for a large number of regulated products. And while the signals in the matter of tax policy have been ambiguous, it is thought that the government will also increase VAT and reintroduce the financial transactions tax.
The government has also demonstrated that it will go ahead regardless and use both orthodox and unorthodox methods to keep its neck above water. One example of this is the transfer of $12 billion from the Central Bank’s “surplus” reserves (which are no such thing) to Fonden for regular expenditures, so condemning the Central Bank to bankruptcy and fuelling inflation.
Unfortunately, these measures have not only come late, they are also superficial and bland and do not get to the bottom of the problem.
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