Venezuelan Government Takes Measures in Key Economic Areas

Mérida, 8^th July 2014 (Venezuelanalysis.com) – While planning macroeconomic reform in a bid to stabilise the economy, Venezuelan authorities are attempting to tackle problems in key economic areas such the supply of goods, labour, and international air travel.

Since early 2013 the South American country has faced product shortages, high inflation, and pressures on the system of fixed currency exchange controls.

Opposition critics have blamed “excessive” state intervention and government “mismanagement” for the situation, while officials have accused business groups of trying to undermine the economic model as part of an “economic war”.

As part of the effort to combat shortages and inflation, authorities have been monitoring and inspecting companies to prevent them from flouting price controls, hoarding goods, or sending products as contraband to Colombia where they fetch a higher price.

The inspections are to ensure observance of the Fair Prices Law, which outlaws usury and obligates companies to limit profit margins to a maximum of 30%. Around four in five companies have been found to keep to price controls in recent inspections.

According to trade minister Dante Rivas, since April this year 1,046 companies have been charged with price speculation offences and 150 people have been jailed for economic crimes such as speculation and usury.

However, it is estimated that almost half (40%) of food produced or imported to Venezuela is smuggled to Colombia as contraband.

Minister Rivas argued that more inspections and other efforts are needed to tackle this. He said that the measures being taken, including increasing national production of foodstuffs, were “resolving” shortages in key areas. The last statistics on scarcity to be published were in January, when some level of scarcity was experienced in 28% of products in the economy.

“We’re going to factories to stimulate [production] and move toward maximum productive capacity, in order to…substitute imports, diversity production, and stop depending on oil income,” said the trade minister on Sunday.

Labour

On Friday the government announced an average salary increase of 43% for public administration workers and civil servants. The increase was pledged by President Nicolas Maduro in May, when the minimum wage was increased by 30%.

Further wage increases later this year have not been ruled out in the light of the high inflation rate, which is currently running at just over 60% annually. A new collective contract for public sector workers is also under discussion.

The electric energy minister, Jesse Chacon, has also announced the payment of the final instalment of bonuses due to electricity sector workers. The money was due for Christmas bonuses in 2011 and 2012, and its payment was one of the requests that workers in the electricity sector, which is state managed, had been demanding recently.

Meanwhile auto-assembly workers are set to march to the Presidential Palace in Caracas next Wednesday in order to draw attention to the “critical situation” in the sector and engage authorities in dialogue to reach solutions.

In a press release, the Auto Assembly Workers Federation (FUTAAC) said that companies such as Chrysler, General Motors and Ford were seeking to fire workers by arguing that production had to be reduced due to difficulties importing parts through state currency controls. The workers also accused some auto assembly companies of refusing to negotiate new collective contracts and of worsening the conditions of existing contracts.

According to the Venezuelan Chamber of Auto Industry, the number of cars assembled in Venezuela plummeted by 83% in the first half of this year compared with the same period last year.

The FUTAAC also criticised the government for allegedly prioritising meetings with companies’ management over the unions. “We don’t think it’s right that…Vice President [Jorge] Arreaza has had meetings with the companies, instead of us, the workers,” the statement read.

In other labour news, workers of the country’s biggest steel plant, Sidor, have criticised slow progress in the discussion of a new collective contract. They complain that inflation has reduced the value of wages agreed in previous contracts, which are now out of date. Yesterday a protest was held in the eastern city of Puerto Ordaz, near where the nationalised plant is located, over the issue.

A commission has been formed to discuss the new contract, and President Maduro has reportedly given orders that the negotiation process be sped up so that an agreement can be reached.

Airlines

The government has announced that domestic airlines will be able to buy US$ 186.9 million through currency controls for necessary importations and other transactions. This is the amount requested by local airlines, and will allow them to prepare for the summer holiday season.

Officials have also confirmed that ticket prices with international airlines will be calculated at the SICAD I rate ($1 = 11 BsF) instead of the proposed SICAD II rate ($1 = 50 BsF) for the rest of 2014. This should ensure that international flights are cheaper for Venezuelans than would have been the case under SICAD II.

International airlines are currently submitting their proposed price tariffs for the coming period. If these are agreed by regulators, then the turbulence the sector has experienced over the previous year could begin to settle.

The difficulties in the sector have been due to on-going negotiations between the government and various international airlines over the repatriation of airlines’ profits from bolivars to dollars.

Airlines say the government is not allowing them to repatriate their profits at the previously agreed exchange rate of $1 = 6.3 BsF. A sticking point is that airlines have been charging far higher prices in bolivars than their value in dollars at this rate, meaning that they stand to reap unusually large profits if the government agrees to allow them to repatriate the profits at this rate. Airlines defend their prices, saying they have had to hedge against the risks posed by an unstable local currency.

In order to reduce their exposure in bolivars due to what airlines claim are uncertain currency exchange conditions, airlines have reduced the sale of flight tickets in bolivars, increased the bolivar price tariffs, and have reduced the frequency of international flights to Caracas per week.

The latest airline to reduce flights is Delta Airlines, which from August will only run weekly rather than daily flights from Atlanta to Caracas. A total of 11 international airlines have reduced the frequency of their flights to Venezuela over the previous year, while Air Canada and Alitalia have suspended flights altogether.

As a result, international flight prices for Venezuelans have rocketed over the previous six months, while demand for flights far outstrips supply.

Authorities are meeting regularly with international airlines. The air transport minister, Luis Graterol, said that there exists a “positive expectation” that agreement on the repatriation of profits will be reached soon.  

A closed door agreement on the repatriation of airline profits was reached with six international airlines in late May.