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  HOME | Venezuela (Click here for more Venezuela news)

Venezuela Currency Controls Tightened as Economic Clouds Gather

By Jeremy Morgan
Latin American Herald Tribune staff

CARACAS -- The government has tightened up hard currency controls amid a flock of signals that Venezuela's oil-dependent economy is running into hard times in the wake of the global financial crisis and its subsequent impact on world oil prices and demand.

The Foreign Exchange Administration Commission (Cadivi) did not announce any of this. But industry figures are taken to suggest that Cadivi clamped down on access to hard currency during the first two months of this year. Permits during that period totalled $3.394 billion, down from $5 billion in the same period of 2008.

The motive for this, it would appear, was that imports began to outstrip exports as oil export income fell sharply during the final three months of last year -- the first time the balance of trade has gone into the red for several years.

The value of imports -- which include large amounts of food, of which Venezuela buys in an estimated 50 to 60 percent of its needs -- surpassed export earnings by $3.724 billion during the fourth quarter of last year, compared with the same period of 2007.

"The lights were at orange, and a clear danger signal was there," said an economist who asked to remain nameless, not least because he's employed in the state sector. "There'd been warnings this was more or less inevitable for some months before, but they were slow off the mark. Maybe they didn't want to know, or they thought it would go away as fast as it arrived. Well, it didn't, it hasn't and it won't."

That would seem to be the thinking at the Organization of Petroleum Exporting Countries (OPEC), of which Venezuela is a founding member but is often at odds with its more conservative partners, most notably Saudi Arabia, the biggest oil exporter on the planet.

OPEC's latest forecast is that world oil prices could recover to perhaps $60 a barrel by the end of this year, assuming that measures to arrest the economic economic crash succeed. That isn't good enough for Venezuelan Energy and Oil Minister Rafael Ramírez, who still wants OPEC to fix on a price range of between $70 and $90 a barrel for the year as a whole, and to take measures to make it happen. In other words, more production quota cuts if need be.

Apart from Cadivi's move, there's no shortage of other signs that the pips may be starting to squeak for President Hugo Chávez and the economy, to the point that his pet social welfare programs or "missions" are heading towards the proverbial rock and a hard place -- or maybe they're already there.

Chávez has vowed that, come what may, there'll be no cutback in spending on these programs. Many of them are financed by the National Development Fund (Fonden), on the back of direct contributions of export earnings from the state oil corporation, Petróleos de Venezuela (PDVSA) or the official reserves at the Venezuelan Central Bank (BCV).

The president has shown a willingness to tap the reserves, while just what's going on at Fonden remains something of a black hole in the absence of regular official figures, much less an official audit there.
At the latest count as of last week, the reserves stood at $28.749 billion. Not only was that below the $30 billion "watershed" officials deem the "optimum" of reserves for an economy such as Venezuela's; more to the point in the circumstances, it marked a $1 billion drop on a week before, and compared with $42.054 billion at the end of last year.

This came on top of a $12 billion transfer from the reserves to a "special fund" under the direct control of the president. This fund is financed on the basis of the idea that if there's an optimum level of reserves then there must be a level of "excess" reserves as well.

"It's questionable how much longer he can go on drawing down the reserves like this," said that same economic observer.

However, as always, keeping mum won't make the bad news go away, and there seems to be no shortage of it. That doesn't mean Venezuela's hit the buffers, or at least not yet. But the gloomy tidings are piling up.
Venezuelan exports to Colombia -- the country's second largest trading partner after the United States -- slid by 58 percent to $118 million during the first quarter of this year, from $282 million a year before.
And that didn't include oil, of which Colombia doesn't at present need any from Venezuela, but might within, say, half a decade. The big detail in these figures from the Venezuelan-Colombian Economic Integration Chamber was that the drop was in non-oil exports. These are supposed to fill in the gaps when oil lets down the side.

Meanwhile, oil, the big item among Venezuelan exports to the energy-hungry United States, is in the doldrums. Venezuela's oil basket averaged $45.62 last week and $39.59 for the year so far. Venezuela looks to the United States for a significant share of its food imports, and you can't eat oil. The same applies to Colombia, which also supplies a lot of what gets put on the table in Venezuela.

In contrast to the slide in Venezuelan exports, Colombian deliveries in the other direction all but held up. They slipped by just three percent to $1.273 billion in the first quarter from $1.313 billion last time round. Colombia remains very much in the driving seat in this relationship.

In another sign that the economy is decelerating, and people's incomes and standards of living with it, Consecomercio, which claims to represent retailers and distributors, warned that consumer sales were down in the first three months of the year.

While Consecomercio President Nelson Maldonado didn't put a figure on the decline, he noted that there'd been a four percent drop in sales during 2008 compared with 2007 -- the last year in which sales rose, by a whopping 17 percent on 2006.

Maldonado said the government had yet to get to grips with the economic downturn. And he appeared to be of a mind that there wasn't going to be any easy escape from the inevitable. "I believe that 2010 will be much more difficult," he said.

By the way, next year is set to see the elections to the National Assembly, where at present there are hardly any Opposition voices after the mainstream opposition shunned the last parliamentary vote in 2005 as unfair and unjust.

Even as Cadivi tightens the screws, industrialists and importers are pleading they can't meet even the limited and lower level of demand because of foreign exchange controls. It's not just Cadivi's getting mean with real money, they complain, it's that it also tends to sit on applications and slow up the pace of business.

Amid all the indicators suggesting that belt-tightening's appropriate to the times, the government is still moving ahead with its potentially expensive program of expropriating the assets of big companies from both home and abroad.

Legislators at the National Assembly -- ie, Chávez' over-arching United Socialist Party of Venezuela (PSUV), a scattering of minor allies and a handful of lone voices in the wilderness -- continue to plough on with their concept of "social property". The basic thrust of this is that the state should take over -- by force if necessary -- assets and other property that are judged not to be in use in the "national interest" at present.
The trouble with this, critics argue, is who gets to judge what exactly the "national interest" amounts to, and who isn't serving it. Unsurprisingly, these people see the proposed new law as nothing more than another grab by the state at property that doesn't belong to it.

Talks continue between the government and Cargill, one of the so-called Seven Sisters that dominate global grain markets, over a proposed state takeover of a rice processing plant in Portuguesa state. For all officials' tough talk out in front, the issue here is compensation, and Cargill's big enough to throw its weight around -- and all the more so when it comes to a country that imports such a large chunk of its food needs.

The government is also under pressure from workers to take over employers they're not in accord with. One case in point is Cerámicas Carabobo, where there's been a running labor dispute since September last year, the solution of which it would seem the workforce believes would be for the government to march in and take over the company.

In theory, any such move in this instance and a growing number of others as Venezuela finds itself in the throws of the annual round of collective bargaining negotiations would be further steps towards "social control of production." Skeptics argue it's a consequence of presidential promises made in better days that the workers would get a still brighter future.


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