The government of Venezuela hopes to save $2.5 billion this year by cutting the foreign travel allowance to $2,500 per person with effect from January 1, according to the head of the Foreign Exchange Administration Commission (Cadivi).
According to Cadivi chief Manuel Barroso, travel allowances totaled around $5 billion in 2008, a trend he attributed to the "perverse use" to which some people were putting their allowances. What was happening, he claimed, was that people had travelled to nearby islands and neighboring countries in the closing stages of 2008 to spend hard currency because they hadn't used up all their allowance.
"If the impact were to be linear, the measure would save some US$ 2.3 billion in 2009," says Miguel Octavio, head of research at Venezuela's leading investment bank BBO in this weekend's Latin American Herald Tribune. "However, by lowering the quota, the Government is also reducing arbitrage opportunities and will certainly reduce the number of travelers and thus the amount spent on airfares. Travel to nearby countries and islands made only to obtain the travel quota will also be less attractive and the margins for certain operators that take groups abroad in exchange for part of the profit from the arbitrage will be reduced to levels that are likely to shut down most of such operations."
The reduction in the personal allowance was announced shortly before the festive break as an emergency measure to confront a widely expected fall in state revenues in the wake of falling world oil prices and demand. However, critics see the projected saving as a drop in the ocean compared with he likely fall in the contribution of oil export earnings to the national finances this year. They see the measure as a populist gesture in response to growing awareness that the oil slump induced by the global financial crisis will inevitably have an impact on Venezuela's economic wellbeing, and is already doing so.
The government is deemed to have been slow off the mark in responding to the knock-on effect of the crisis on not only the oil sector but also the economy as whole – and budget spending in 2009. The 2009 budget was based on the assumption that the price for Venezuela's mix of medium-grade and heavy crude would average $60 a barrel.
The reality is that the price is now estimated to be down to not much more than a third of the forecast. However, Finance Minister Alí Rodríguez Araque has declined to make any adjustments, and the budget legislation has been approved by the National Assembly, leaving it to President Hugo Chávez to make cuts later this year. Chávez is not expected to do so until after the planned referendum of his proposal to amend the constitution by removing a ban on successive presidential re-election. That vote is expected to take place on February 15 at the earliest.
Legislators have voted through the legislation on a first debate. Current thinking centers on a second debate after the Assembly resumes business on January 5. Once the Bill was signed into law by Chávez, the National Electoral Council would have up to 30 days in which to organize the referendum.
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