The Indecent Genealogy of Exchange Controls

The foreign exchange system is nothing new and the current one -not the first in Venezuela’s history- is the longest-lasting one to date. After 13 years, we tend to forget the details… so, inspired by Perez Abad’s Wednesday announcement, I’ll try my hand at a stroll down Venezuelan forex control memory lane.

This craziness started on February 2003, when the Government announced what should have been a temporary foreign exchange control and CADIVI was born.

CADIVI wanted to think he was an only child….but he was obsessively aware of the permuta, the secret, shameful love child hidden away in an attic. The Government didn’t like the permuta, claimed it was harmful for the economy and in mid 2010 decided to ban it. In turn, the Government created SITME to provide an alternative for the economic agents that used to trade with the love child.

SITME was not an exemplary child and the Government decided to get rid of it on February 2013. Jorge Giordani -the, at the time, Minister for Planning- claimed that SITME was the “blanket of Venezuelan bankers” and close to US$ 25 billion in capital flight were “lost” through it.

But there is an even more shocking figure: according to Giordani, one of the brains behind Venezuela’s complicated net of government controls, from 2004 to 2012 around US$ 215 and 250 billion fled Venezuela. That’s 33% to 40% of the dollars Venezuela received vía oil and non-oil exports in those years.

In 2013, CADIVI turned into CENCOEX. Also, SICAD 1 was born on March 2013. Originally they said it would follow a Vickrey auction format: a sealed-bid auction in which the highest bidder wins but the price paid is the second-highest bid. What followed ressembled no Vickrey auction I’ve ever heard of. SICAD 1 was a pathetic little weakling next to its older sibling: for every dollar assigned vía SICAD 1 in 2013, CENCOEX assigned more than 19.

A year later, SICAD had grown to over three times its original size and its fraternal twin was born: SICAD 2. So in 2014, for every dollar assigned vía SICAD 1 and 2, CENCOEX assigned close to 2. No se me pierdan, ok?

it’s not about reorganizing the system, it’s about eliminating the distortions and arbitrage possibilities.

But the heavy burden of imports, foreign debt and “commitments” to international suppliers -the Government refuses to call it “debt”- forced the Government to reorganize the foreign exchange system.

More announcements came on February 2015: CADIVI – now named CENCOEX – would be used to assign dollars for priority sectors (food and medicines), SICAD 1 and 2 would be unified and SIMADI was born.

But the three-tiered exchange rate system was a major fail last year. SICAD practically stopped operating, SIMADI assigned an average 4,14% of all official dollars and CENCOEX assigned 58% fewer dollars than in 2014.

This showed what most economist have been saying for quite a while: it’s not about reorganizing the system, it’s about eliminating the distortions and arbitrage possibilities.

And…here we are again. The Government just announced yet another new foreign exchange system: SICAD was officially killed, CENCOEX is now DIPRO and SIMADI is now DICOM. Apparently, the actual announcement was a simple name change.

So, to  recap:

Cadivi

Cadivi + Sitme

Cadivi

Cadivi becomes Cencoex

Cencoex + Sicad 1

Cencoex + Sicad 1 +Sicad 2

Sicad 1 and 2 are unified

Cencoex + Unified Sicad + Simadi

Cencoex is now DIPRO

Simadi is now DICOM

DIPRO + DICOM

CADIVI, CENCOEX or DIPRO, however you may want to call it- is a 13 year old child. But control years are sort of like dog-years, so I say it’s close to 91. At least living in a country where you can’t always find food or medicines, that’s how long it feels. The rest of its siblings were born pretty weak and the only strong one seems to be the love child, now banished execrated, reviled, scapegoated for everything…but going strong.

We don’t have much hope for this family…

 

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