Venezuela:The Effects of the Foreign Exchange Control System
Jun 28, 2014
For over a decade, the policies of Venezuela have led to the systematic weakening of respect for private property has been in place in Venezuela. The most illustrative example of it is the foreign exchange control regime established in 2003.
Applied as a State policy to achieve greater control over individuals rather than as a circumstantial economic measure, the exchange control constitutes one of the decisions of this government that has had the largest effect on the private property and economic freedom of all Venezuelans.
During its early stages, the exchange control combined with price controls has resulted in, among other things: (i) less foreign investment, due to the difficulties encountered in repatriating gains; (ii) restrictions for the import of raw materials, therefore limiting the productivity of the Venezuelan industrial sector, along with a shortage of products, many of which are basic necessities. With this exchange control it is the State -and not the private citizen exercising his property rights involving use, enjoyment and disposition- who determines what, how, and how much it is bought.
The problem stipulated above becomes exacerbated when we focus on the detail that the exchange control also extends to travelers. Evidently, such an exchange control translates into a form of limiting our contact with foreign countries and, consequently, with a world where access to information and technology are not limited, as opposed to what happens in a country where there are controls for almost every aspect of a person’s life.
At the present time, companies are in the presence of another detrimental effect of exchange control. If it was already difficult to manage their accounting with an exchange control and price control, today, with three rates of exchange, the difficulty is even greater. For instance, many companies are suffering a significant (or total) loss of their corporate capital when having to adjust their foreign currency debts to an exchange rate considerably higher than that initially anticipated.
Obviously, in these circumstances the possibilities for foreign investment and production of goods and services become drastically reduced. For as long the exchange control is understood and applied as a political measure, the rights to property and freedom of choice of individual will be frankly jeopardized.
*member of academic committee CEDICE Libertad