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The two-month national strike against the
government of Hugo Chávez ended at the beginning of January. However, the
strong deterioration in the currency and international reserves resulting
from the political disarray has prompted the government to impose foreign
exchange, capital and price controls. With the first month of the year
practically lost and the political crisis anything but solved, the economy
promises to fall deeper into recession this year. |
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Government imposes exchange controls amid heightened volatility in markets
The currency deterioration observed in December, when the bolivar
depreciated 5.2% to the US$, accelerated notably in January, as the
prospects for a negotiated agreement between the government and opposition
dimmed and the stifling seven-week nationwide strike threatened to
persist. From the beginning of January through 22 January, the currency
depreciated 24.4% to reach 1,843 bolivares to the US$. The currency slide
observed in December and January was accompanied by an 11.1% decline in
international reserves, as investors sold off Venezuelan assets and
monetary officials intervened in the exchange rate markets by selling an
estimated US$ 70 to US$ 80 million in reserves daily. To stem the strong
capital flight, the government decided to suspend foreign exchange trading
for five days on 22 January in order to give monetary and government
officials time to study more permanent exchange and capital restrictions.
On 6 February, a new exchange rate regime came into force. The measures
adopted include:
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Fixed exchange rate.
The exchange rate will be fixed at 1,596 bolivares to the US$ for buying
and 1,600 bolivares to the US$ for selling. The Central Bank and the
government are authorized to adjust the exchange rate as required.
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Commission for the administration of currencies.
A newly formed Foreign Currency Administration Commission (CADIVI,
Comisión de Administración de Divisas) is charged with coordinating,
administrating and controlling the new exchange rate regime. According to
the preliminary draft, the commission is composed five-members
representing the government and Central Bank officials. The members of the
CADIVI are an ex-military captain and associate in the military coup
Chávez staged 1992, Edgard Hernández Behrens (new president of the CADIVI),
Adina Bastidas (ex-vicepresident of the Republic), a former brigadier
general, Alfredo Pardo Acosta (current president of the National Budget
Office), Mary Espinoza de Robles and Maigualida Lobos Calzadilla (Central
Bank official).
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Individual foreign currency exchange restrictions.
Venezuelans travelling abroad will be limited to an annual US$ 9,000
foreign exchange quota (US$ 6,000 for minors). Daily exchange limits are
set at US$ 300 per person (US$ 200 for minors). The maximum limit on
credit cards will be set at US$ 1,000 annually. Furthermore, daily foreign
currency exchange limits for business travel will be US$ 300 with a
maximum of six trips a year allowed. Maximum monthly foreign currency
remittances for individuals studying abroad will be US$ 2,000 in addition
to required registration fees. Finally, monthly remittances to individuals
abroad are set at US$ 300.
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Contractual exchange limits.
Private dollar denominated contracts must be paid in domestic currency at
an exchange rate of 1,000 bolivares to the US$. Currency availability for
trade will be limited to raw material importers. Exporters of goods and
services will be required to sell foreign currency to the Central Bank at
the official exchange rate. Foreign currency for purposes of capital
repatriation or the remission of dividends will require authorization with
the National Office for the Administration of Foreign Currency (ONAD,
Oficina Nacional de Administración de Divisas).
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Fines for violation of restrictions.
The government will seek congressional approval for a new law that
penalizes violations of the exchange rate controls with fines of 100% to
300% of the foreign currency amount used in an illegal operation.
The new exchange rate is 15.8% stronger than the closing rate on the last
day of official trading in January and the currency is currently estimated
to be trading in the rapidly established black market at around 2,000
bolivares to the US$. Participants anticipate that the currency will be
adjusted to the new realities before the end of the year, as the bolivar
is seen depreciating 29.6% to 1,982 bolivares to the US$ by year-end. |
