Problems relating to Trade and Investment on Venezuela
12. Exchange controls |
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Issue |
Issue details |
Requests |
Reference |
| (1) Stringent Foreign Exchange Restrictions | - To purchase foreign exchange (USD), there are two methods: (1) Filing application to Foreign Exchange Administrative Commission (CADIVI) and (2) Participation in the State Controlled Foreign Exchange Market SICAD (Fund Procurement Scheme in Auction Format, SICAD I, SICAD II). However, it is difficult to procure foreign currency, frustrating payments in foreign currency. It has led to the massive social problems by way of import stagnation, chronic shortage of goods and products, decline in the domestic productivity, etc. - In regard to import settlement of account, Foreign Exchange Administrative Commission (Comision de Administracion de Divisas=CADIVI) compels vexatiously complex procedures in acquisition of and payment in foreign currency. - CADIVI provides, as means of foreign exchange (USD) procurement: In addition to the existing (1) Foreign Exchange Quota Allocation, from March 2013, (2) SICAD (Procurement System in Auction Format), and (3) SICAD II (Procurement System closely resembling Free Exchange Market) have been introduced. However, exchange rates substantially differ among (1), (2) and (3). Moreover, there remain various problems such as restrictions in the use of foreign exchange so procured. |
- It is requested that GOV: -- streamlines, expedites and -- deregulates the stringent procedures for foreign currency allocation approvals. - It is requested that GOV deregulates the restrictions. |
- SICAD |
| (Action) - The New Foreign Exchange Control System, introduced in February 2002, requires application to and approval of CADIVI, for an FFE to procure foreign currency at the official parity rate, for the purpose of making external remittance of the profits gained from imports. - Since 2009, GOV's foreign exchange allocation has dropped by about 40% due to the nosedive of the petroleum price. As a result, it has become difficult to obtain CADAVI's licence for external remittance in foreign currency of cost of imports and profits. Enterprises have been forced to procure foreign currency through buying and selling in "the parallel market". - On 19 May 2010, the new "Regulations on Purchase and Sale Transactions of Foreign Currency Denominated Securities through the Transaction System for Foreign Currency Denominated Securities (SITME)" was promulgated, amending the "Regulatory Measures To Control Illegal Foreign Exchange". Banco Central de Venezuela (BCV) under SITME will exclusively determine the buying and selling rates of foreign currency bonds, including the operation for procurement of foreign currency in "the parallel market". By this Amendment, the transaction method in the buying and selling of foreign currency bonds has been shifted to intervention by the banks under the supervision of BCV (in exclusion of intervention by the securities companies). |
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| (2) Foreign Exchange Policy not reflecting the Prevailing Market Conditions | - Official parity rate is affixed at 6.3BsF to USD1.00, provided, however, that prevailing rate has escalated nearly 10-times of official parity rate. An enterprise's business performance being evaluated at official parity rate does not reveal its actual business performance. - Since 2003, under the chronic shortage of foreign currency, GOV had severely restricted imports in USD/foreign currency. Especially after the demise of former President Hugo Chavez in January 2013, the official parity rate against USD remained the same at 6.3, whereas the market rate soared "in excess of 170 (as of January 2015)", forming a wide gap. In January 2014, CADIVI released renovation of foreign exchange control, expanded USD import, and the SICAD's average exchange rate of "11.3" has been turned to the actual exchange rate. While the official rate still remains at "6.3", the plural exchange rates system remains. Forceful foreign exchange control has fomented the domestic inflation, with estimated rate of inflation at 80% or more. It would exceed 120% by 2015, should it remain the same without policy changes. Drop in crude oil prices in the latter half of 2014 has further tightened the dollar procurement. |
- It is requested that GOV introduces foreign exchange system that reflects the actual market conditions. - Despite the adverse economic climate described in the left column, member firm's subsidiary (MFS) continued its Business Continuity Plan (BCP). It scaled down its organisation, minimising to the extreme all outgoing expenses to ensure markup, and manages to continue its business. |
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| (Action) - On 8 January 2010 GOV devalued the Bolivar "Fuerte" into the dual official rates:- BsF.2,60 (for imported food & medicine) and BsF.4,3 (for the rest.). - On 13 January 2010, GOV published the itemised list of articles for which the dual official rates of exchange apply. - Since 2010, GOV introduced "Regulations on Purchase and Sale Transactions of Foreign Currency Denominated Securities through the Transaction System for Foreign Currency Denominated Securities (SITME)", repealing the transactions system through the securities exchange. - After demise of President Chavez in January 2013, the official parity rate had been established at US$1.00 to 6.3BsF, while the SICAD (Sistema Complementario de Administracion de Divisas) Average for January 2014 at US$1.00 to 11.3BsF had become the effective exchange rate (forming the two-tier market scheme at 6.3 and 11.3). |
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| (3) The Risk of Currency Devaluation | - Enterprises are faced with a perpetual devaluation risk for the local currency, BsF (VEF). MFS is compelled to maintain the assets and liabilities balance in USD so that the assets are greater than the liabilities on a long-term basis, in order to avoid the foreign exchange loss in the account report in the local currency. Namely, MFS must hold down import within the limit of USD actually procured. In order to minimise foreign exchange loss in the consolidated account report in USD with its parent in Japan, MFS has been endevouring to minimise the net assets in the local currency. President has announced, "there would be no devaluation in 2014." |
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| (4) Rigidity in Foreign Exchange Control | - In addition to fixed exchange rate of US$1.00= VEF 6.3 (Venezuelan Bolivar) as of January 2015, under central bank's control, official means of foreign exchange procurement, SICAD (introduced in March 2013) and SICAD II (introduced in March 2014) are in operation. - Eligibility is restricted by business sector, while under SICAD II, high level of all-in swap rate is set at USD 1=VEF 50 (Venezuelan Bolivar) that incorporates, in substance, the impact from the exchange rate devaluation. |
- It is requested that GOV: -- repeals restrictions on the SICAD eligibility and the purposes of foreign exchange procurement, -- promotes liberalisation in exchange rate, and -- makes transparent the nebulous foreign exchange allocation rules. - It is requested that GOV: -- repeals restrictions on the SICAD eligibility and the purposes of foreign exchange procurement, -- promotes liberalisation in exchange rate. |
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