CARACAS, Tuesday December 23, 2008 | Update
Exchange control has had little impact on capital flight

Experts think that regulation has been a political tool

Ending the third quarter of this current year, capital flight amounted to USD 19.7 billion (File photo)
Tuesday December 23, 2008  10:22 AM

Throughout 10 years, the exchange policy under the government of President Hugo Chávez has gone through three stages. The regulatory stage, involving the determination of the amount of foreign currency that should be allocated to the public sector, has been the longest one. Exchange control came into force six years ago. Sure enough it has become a political tool with little impact on capital flight.

During the first three years, the government kept a schedule of exchange bands that had been implemented under the prior government. During that stage, the Executive Office took a conservative stance. As stated in the 1999-2000 program, the exchange band scheme would remain including the participation of the Central Bank of Venezuela (BCV). The purpose was to attain price stability. As a matter of fact, inflation control was based on exchange anchoring.

The orthodox exchange policy, as termed by analysts, remained effective in 2001. The economic and social plan for 2001-2007 stressed the need to keep the exchange band system with the BCV participation. However, falling oil prices in 2001 and the resulting drop of revenues made the government disregard the band system in the first quarter of 2002. Then, the exchange rate depreciated 30 percent in one month.

After that, a new stage in terms of exchange policy began. The BCV implemented a scheme of daily auction in order to keep exchange rates under control. This model remained effective through January 2003. At that time, the sale of foreign currency was discontinued and both the private and oil sector were at a standstill.

Protracted regulation
Uncertainty moved to the exchange market. As a result, the capital flight sped up and international reserves plummeted. In view of such situation, the exchange control was enforced to date.

International reserves recovered for a while, but the capital flight did not stop. And the government itself has prompted the capital flight, as it has issued foreign-currency denominated debt bonds and placed structured notes, that is, US-dollar denominated notes, backed by the debt of other countries in the hemisphere.

Ending the third quarter of this current year, the balance of payment showed that capital flight amounted to USD 19.7 billion, far beyond USD 18.9 billion in 2007. Some firms estimate that the outflow last year exceeded by more than 150 percent the figures recorded in 2006.

Regardless of these results, the Executive Office will keep its strategy, and it is anticipated that it will be still more stringent. Under the economic and social plan for 2007-2013, the government insists on foreign currency administration, and spokespersons have announced a budget for imports in 2009.

Translated by Conchita Delgado

The end of a cycle

Hundreds of thousands of demonstrators took to the streets of Brazil on March 13 to demand the ouster of embattled President Dilma Rousseff, carrying banners expressing anger at bribery scandals and economic woes. A banner read "We don't want a new Venezuela in Brazil." Estampas
Alianzas Estampas