Venezuela’s government is about to unleash the biggest economic reform set forth in the last 11 years. A currency market is about to be set in place, with far fewer restrictions than the previous systems.
This reform is a step back from the toxic policy of exchange control, and it is exactly 11 years late. The exchange controls led to not only incredible distortions in the economy, but also forced productive companies into bankruptcy. It is the main reason behind the proliferation of an importers ecosystem which added very little value. Chavista forex controls have, when all is said and done, given rise to the biggest episode of plunder of public resources in Venezuela’s history.
Many details are still to be disclosed. The government has said there will be no limits on the exchange rates nor restrictions on the participants. That banks and brokers will handle the transactions. That BCV will publish the average daily rate. We’ll see.
CADIVI and SICAD I will continue to exist, very likely for shenanigans only, but given the restrictions on profits, I don’t see why serious companies would follow all the hurdles of these two mechanisms unless price competition is what they are worried about, and they need subsidies.
This reform is so huge that in Bank of America’s own words:
To the best of our knowledge, this is the first time in more than a decade that Venezuelan authorities have tried to fix a problem by reducing instead of increasing regulation.
But is every one looking right when we ought to be looking left?
This shuffle has not been planned. This shuffle hasn’t been years in the making. It has been improvised, as a way of patching up huge balance of payments and monetary imbalances. People such as this UNT deputy have it all wrong. This isn’t a disguised devaluation. This is the Government finally succumbing to market forces and giving up its control over the currency’s value via decree.
As with all improvisations, there is no clear plan on how, with the new set of constraints, the BCV will fulfill its mission of preserving the Bolivar’s value. The only thing so far said, is that the BCV will offer $30 million per day, which is not that much. With no signs of a reasonable fiscal and monetary policy, or any policy for that matter, our hopes are dim.
Perhaps Ramirez is right. Maybe this will be the end of the parallel market. Maybe this will turn out to be the implementation of the parallel currency market to the official market. In that regard, Ramirez may have just acquired DolarToday.
Will the government’s plan to keep riots going as long as possible be enough to distract the public sphere?
I doubt it. Although this made nearly no headlines today, it will be a matter of time before people realize that, quietly, the government has dismantled Cadivi.
Shock therapy is on today’s menu again. This time the chefs are not the IMF wonks but the Bolivarian Socialist Revolution.