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Venezuelan Companies Drowning under State Forex Controls

By: Contributor - Jun 2, 2015, 4:14 pm
Venezuela's foreign-exchange controls, established in 2003, have only become even more cumbersome.
Venezuela’s foreign-exchange controls, established in 2003, have only become even more cumbersome. (Impacto CNA)

By Andrea Rondón GarcíaEspañol

The right to ownership consists of using, enjoying, and disposing of tangible and intangible property in any way the individual sees fit. In the words of Chilean constitutional lawyer José Luis Cea Egaña, ownership involves “keeping the asset in question, growing it, and taking advantage of the benefits it may produce … such a right is constantly being enforced in managing the asset to satisfy its essential purposes.”

Put another way, the right to ownership is not only violated when the asset is taken away or stolen, it is also infringed when individuals are prevented from using their possessions in the way they want.

This point is crucial for many companies in Venezuela. Their ability to manage their assets isn’t governed by their own interests; instead, they’re restricted by onerous foreign exchange and price controls.

Foreign exchange controls have been in place since 2003. The purchase and sale of foreign currency — from dollars to euros — is strictly monopolized by the Central Bank of Venezuela (BCV).

Anyone seeking to acquire foreign currency through legitimate means, at the official rate, was already required to jump through multiple, time-consuming hoops. For example, in order to get dollars to pay for import transactions, travel, overseas studies — to name only a few examples — you first had to enroll on the Foreign Exchange Administration’s Register of Users (RUSAD). Then, you had to request authorization from the National Center of Foreign Trade (CENCOEX) to make the purchase.

Eventually, the BCV would hand over the requested amount — provided that you met guidelines laid down by the government, and that enough foreign exchange was actually available. Yet nearly 13 years later, the foreign-exchange system has become even more complex and cumbersome.

Among other new regulations, Venezuelans can now only withdraw dollars for travel or foreign purchases via credit cards issued by state-run banks. In a grim irony, those waiting to get such a credit card are having to wait for months — due to exchange controls, banks don’t have enough plastic to manufacture them.

Double Bind

Price controls were also established in 2003. They were already impacting on many companies, and the first signs of shortages could be observed years ago. After President Nicolás Maduro passed the Organic Law on Fair Prices by decree in November 2014, controls have become generalized. As a result, goods rapidly disappear from shelves and producers are dissuaded from catering to the market.

Shortages have escalated, inevitably followed by measures which purport to prevent scarcity (threats, arrests, and expropriations of private business owners are the Maduro administration’s tactics of choice).

Shortages are further worsened by foreign exchange controls: when the supply of dollars becomes torturous and unreliable, firms are dissuaded from importing food products.

While companies could resort to their own reserves of foreign currency rather than waiting for official authorization, such a decision would only drive up final prices.

Some companies have been able to import raw materials through official means. However, they’re not at full liberty to decide what to do with those materials, because they don’t know when the next installment of dollars, euros, or other currency will be made available. They may then opt to reduce the pace of production, thus making the raw material last a while longer. But this decision is not made freely, but imposed on companies by the system.

Even the law itself is being turned against the liberty of producers to supply the market in a free and effective manner. Consider Article 60 of the Organic Law on Fair Prices, which establishes the crime of “hoarding” as follows:

Those who jointly or separately perform or carry out any actions or incur any omissions that prevent directly or indirectly the production, manufacture, importation, storing, transportation, distribution, and marketing of goods, as well as the provision of services, will be penalized through judicial channels with 10 to 12 years of prison.”

It’s not hard to see the motivations behind this legal tough talk. Those found guilty of the generic crimes laid down in Article 61 are fair game for the state to seize their property:

When the boycott, hoarding, speculation, extraction smuggling, usury, cartelization, or other related crimes are intended to destabilize the economy, alter peace, and attempt against the security of the Nation, the contemplated penalties will be applied at their highest and the property will be also confiscated, according to the provisions of the Constitution of the Bolivarian Republic of Venezuela.”

The essential attributes of the right to ownership — namely the ability to manage property in the way the owner sees fit — have been abused to the fullest extreme in Venezuela.

This should worry not only business owners, and appeal to the material interests of those who want to see basic goods on their shelves. It also threatens to undermine the very fabric of the Venezuelan state. Without respect for private property, the rule of law itself can no longer be said to apply.

Andrea Rondón García holds a doctoral degree in law from the Central University of Venezuela. She is also a member of the Academic Committee at CEDICE. Follow: @arondon75.