The history of foreign exchange control shows that when oil revenue stop soaring and imports are higher than the inflow of foreign currency, companies try to anticipate devaluation, set prices based upon the unofficial exchange rate and, as a consequence, inflation rate grows rapidly.

Venezuela, which already endured this situation under President Jaime Lusinchi and during the second term of President of Rafael Caldera, is about to face the same scenario. The Venezuelan oil basket ended last week at USD 39.59, accumulating a 68.5 percent decline from its record high of USD 126.46 reached on July 18.

Imports will close this year at USD 50 billion and assuming that state-run oil company Pdvsa exports 2.9 million barrels of oil per day in 2009, as estimated by the Ministry of Finance, the petrodollars inflow would be around USD 42 billion. 

If we add foreign debt payments, the purchase of nationalized companies, remittances and foreign currency for travellers, the shortfall is meaningful.

The government might devaluate the official exchange rate, which remains at VEB 2.15 per US dollar since 2005, to contain the rise of imports. But the downside is that the inflation rate could grow quickly.

Another option is to restrict the amount of foreign currency that Venezuela's Foreign Exchange Commission (Cadivi) provides at the official exchange rate. However, the quantity of goods imported through the black market would increase (it is illegal to disclose the parallel exchange rate in Venezuela) and the result will be, again, a higher inflation rate.

Translated by Gerardo Cárdenas