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Venezuela’s Subsidized Food Feeds Unrest in Colombia

By: María Gabriela Díaz - Mar 28, 2014, 12:10 pm

Español Colombian representatives from businesses, unions, and trade associations in Cucuta, an eastern city in Colombia, have called for an across-the-board labor strike there on April 3. The city, located in the department of Santanter and on the border with Táchira, Venezuela, is experiencing its worst economic crisis in decades. Initially, the strike is set to last nine hours, but if their demands aren’t met, the representatives are threatening to extend it indefinitely.

Cucuta, ColombiaDaniel Suárez, president of the union of Northern Santander, said “we are tired of weak solutions, the government promises and announces that the reality we see on the streets will be different. There are no employment opportunities here, or actions that generate jobs for the high number [of unemployed] we have today, more than 14 percent.”

Suarez also confirmed support from the entire population. Businesses won’t open their doors, and transportation systems will stop. More than 20 organizations have requested that an extraordinary session of the Ministerial Council take place to take immediate action towards their crisis. High levels of unemployment, the economic crisis, and high prices in public services are at the top of their agenda. However, there is one problem that is affecting their local economy, and according to the organizations, is the most concerning of all: smuggling in the border.

Cúcuta has become a trade corridor between Venezuela and Colombia. Nonetheless, the increasing subsidies, mainly in food and fuel, from the Venezuelan government have negatively affected the economy in the neighboring state.

According to the union representative, Cúcuta should be included in Colombia’s development process, and should not depend on Venezuela’s economic dynamic.

“We can’t continue waiting for the Venezuelan government to solve its [economic] problems, so that Cúcuta can solve theirs,” Suarez stated.

The organizations have denounced the lack of differentiated, localized policies for this particular region. Enrique Pertuz Ariza, a union representative, stated that Cúcuta doesn’t have any initiatives that can generate formal employment: “the informality and unemployment rate clearly shows the lack of these policies.” But also, the union has demanded a policy that can help them fight the informal sector of the economy, including contraband to be smuggled into Venezuela.

According to Colombia’s National Administrative Department for Statistics, Cúcuta has the highest informality rate* in the country, with 72 percent, and the third highest unemployment rate in the country, around 14 percent.

The representative for the shopping centers association, Mayra Camargo, said that more than 4,000 businesses have closed since February due to the economic crisis. She alleges that they can’t compete in those conditions, “the informal sector is too big.”

“Made in Venezuela”

Beyond failure on the part of Colombian officials and the local economy, the unions denounce what they see as the big problem of smuggling into the region. Rice, butter, corn flour, soap, and cooking oil are some of the most common products that are brought from Venezuela — where those with access get the items subsidized — even through the customs, all the way to Cúcuta’s markets.

Lieutenant Rodolfo Carrero, Cucuta’s Chief of Customs Police explains that out of the total of merchandise that enters the country illegally, only 20 percent is confiscated. The remaining 80 percent is sold, without being declared and therefore, without paying any taxes.

According to the Secretary of Customs for Northern Santander, Édgar Rodríguez Silva, smuggling not only affects the private sector, but the state as well. Silva states that contraband generates a big negative impact in public finances.

“For example, we didn’t attain the [revenue] collection goal for 2013, and this forced us to enter into an austerity program, cancelling any investment we had for the sake of the community.”

Both governments have actively tried to stop this illicit activity without success, and corruption appears to be the leading culprit. Abelardo Díaz, a Venezuelan representative for Táchira, believes “the problem of contraband has become run-of-the-mill, where administrative officials and military personnel from the government end up being the ones who benefit from this huge business that’s generated.”

Why is smuggling such “good business” across the border? We asked university professor in economics Edgar Díaz to explain.

“The first main reason is the low currency valuation of the Venezuelan Bolivar, in contrast with the Colombian Peso, which makes it very appealing for these traders to smuggle. Another factor that benefits them is the strong price controls the Venezuelan government has applied on many basic goods. Since there’s no such control in the neighbor country, the Colombian market has become a paradise for these merchants. And on top of that, you have Mercal, the government-run market that sells subsidized products. So these smugglers then buy products at a very cheap rate, and then re-sell them across the borders.”

The economist continues: “unfortunately, this is yet another disastrous consequence of price regulation and subsidies. Free market always finds its ways, whether is in the formal sector, or the informal sector. The problem now affecting the economy in Cúcuta is that small and medium businesses that comply with the state regulations are the ones most affected. With more expenses such as taxes, salaries, and rent, it’s impossible for them to compete with the informal sector, and a subsidized economy such as that of Venezuela.”

In regards of what can be done to stop smuggling, the economist has one simple recommendation: “as long as there are price controls, there will always be a black market.”

*The informality rate is measured by dividing the informal economic population by the employed population.

María Gabriela Díaz María Gabriela Díaz

María Gabriela Díaz reported from Caracas, Venezuela, and led the PanAm Post internship program. She has a Bachelor of Arts in political science with a focus in international affairs.