Economy
Demand in emerging economies is pushing up the price of oil and the Venezuelan crude barrel starts the week at USD 72.8 -91 percent higher than in January. However, Hugo Chávez's administration is implementing a new exchange system where the Foreign Exchange Administration Commission (Cadivi) will operate differently and the supply of foreign exchange at the official rate will be cut further.

According to the plan, the exchange control agency will only deliver foreign currency for essential food items, medicines, and to promote the development of strategic areas, while the rest of the economy will have to use the swap market.

Although the price of oil, which is the product that provides USD 95 out of every USD 100 entering the country, has rapidly recovered, Minister of Finance Alí Rodríguez announced that the foreign exchange budget will be cut next year by 40 percent compared to 2009. The current foreign exchange budget has been cut by 45 percent in comparison with 2008.

Additionally, Manuel Barroso, Cadivi's president, said that next year the government will enforce tighter control on the authorizations of foreign exchange for travels. He stressed that it will not be possible to spend freely the annual quota, since the Foreign Exchange Commission will only authorize the maximum quota based on the destination and duration of the travel abroad.

Nothing will be the same again
Asdrúbal Oliveros, the director of research firm Ecoanalítica, said that "in 2008, the parallel exchange market funded only 6 percent of imports. The balance of payments shows that in the first half of 2009, it has funded 49 percent of imports."

This may be viewed as logical, given the decline in oil prices amidst the global economic crisis. However, regardless of the oil prices rebounding, foreign exchange rationing will continue.

"Government officials considered that Venezuela had a runaway increase in imports and the international financial crisis has been the perfect excuse to shut down foreign exchange supply. We are headed for a new stage where regardless the price of oil, Cadivi will only authorize dollars for essential items. Therefore, our economy will be more sensitive to the ups and downs of the parallel dollar," Asdrúbal Oliveros said.

Cadivi delivers US dollars at the official exchange rate of VEB 2.15 per US dollar; while the price in the swap market is considerably higher (it is forbidden under the law to disclose the unofficial US dollar exchange rate). As a result, most of the inflation rate in 2009 is due to the percentage of imports that are purchased through the swap market.

"If the price of the dollar in the unofficial market increases, it will have a greater impact on inflation. This is the reason why Nelson Merentes, the president of the Central Bank of Venezuela, is concerned about stabilizing this market," Oliveros said.

Experts claimed that in a scenario where the amount of Venezuelan bolivars is likely to increase, it will not be easy to stabilize the swap market.

Translated by Gerardo Cárdenas

Víctor Salmerón
EL UNIVERSAL