Maduro Extends Planned “Shakeup” of Venezuelan State and Economy

Mérida, 18^th July 2014 (Venezuelanalysis.com) – Venezuelan president Nicolas Maduro has extended the date upon which significant changes to the government and state administration will be announced.

He has also revealed plans for a “fiscal revolution” as part of a series of major economic reforms currently being designed for the second half of this year.

The proposed “shakeup” comes as the country experiences on-going economic problems, which include an overvalued currency and pressures on state currency controls, widespread product shortages, and annual inflation topping 60%. The government also weathered a wave of mainly middle and upper class protests and violent street barricades earlier this year which left 43 dead.

Maduro initially said that the “shakeup” of his government would take place in the first half of July; however the changes will now be announced in mid-August.

The president explained the extension is necessary due to the large number of proposals for improving the government’s performance that had been submitted by the presidential State Council and local branches of the governing United Socialist Party of Venezuela (PSUV).

The postponement will allow the Venezuelan president to present planned reforms to party activists at the PSUV’s national congress, which will take place from 26 – 29 July.

Speaking on his weekly radio show on Tuesday, Maduro said that he would lead “a shakeup of the functioning of the old bourgeois state…to lay down the solid bases of a new state which is truly democratic, efficient, effective, [and] on course to socialism. The time has arrived”.

According to the Venezuelan president, part of this task involves closely examining the work of each of the government’s 30 ministries.

“I’m going to undertake a complete revision of the system of government; ministry by ministry, minister by minister, the whole structure: how it works, how budgets are implemented, how each plan advances,” he told listeners.

“Fiscal revolution”

Maduro also announced that his government is planning to change taxation laws as part of a “fiscal revolution” to increase income from taxation.

The reform would be part of a set of changes to governmental economic policies being planned in response to current economic problems and to achieve stability.

In order to boost international reserves, streamline imports, and increase national production, the government plans to collapse the multi-tiered currency exchange system into one fixed rate, centralise off-budget funds, “optimise” public spending, and reduce state subsidies to domestic gasoline, among other measures.

On Tuesday the Venezuelan president also revealed that officials will conduct a full audit of the use of foreign currency granted to companies for imports in the first half of this year. The audit is meant to ensure that businesses have not misused dollars purchased at the official exchange rate.

Under state currency controls, companies and individuals are granted permission to buy a certain amount of dollars at the official exchange rate each year, for travel, study and imports. Those who want to buy more must resort to the parallel or “black” market, where foreign currency is more expensive.

The controls have been in place since 2003 and are meant to prevent capital flight and aid economic planning. However the system has also been accused of facilitating corruption and hindering economic growth. A speculative activity has emerged whereby those with access to official-rate dollars can sell these on the black market for a profit, rather than using the dollars for the intended purpose such as importation or production.

In May last year the then president of the Venezuelan Central Bank, Edmee Betacourt, estimated that up to a third of dollars authorised for companies through state currency controls in 2012 had been granted to sources of “artificial demand”, including so called “ghost companies”. If true, this could mean that $20 billion of the $59 billion granted to companies by the government that year is currently unaccounted for.

Currency controls have since been tightened. A new state body has been created to administer the controls, while the list of companies approved for access to preferential currency purchases has been “purified”. Companies must also sign a contract pledging to use preferential dollars for the stated purpose.

On Tuesday Maduro reaffirmed his commitment to further reforming currency controls, stating his hope that if national production can be increased, then the amount of foreign currency granted for imports could be reduced by 20 – 30%.

“We need to achieve the creation of a stable currency exchange system and to invest foreign currency in production,” he argued.

According to Venezuelan daily Ultimas Noticias, the country’s largest business organisations have indicated their willingness to be audited, and say that companies which misuse official rate dollars should be struck from the list of those approved for access to foreign currency.

However some business groups have criticised the government for allegedly also restricting access to legitimate companies this year, arguing that this is one of the causes of shortages in the economy.

“The problem is that so far this year they [the government] haven’t approved us practically anything, and all our affiliates are shutting down,” said David Fihman, president of the Venezuelan Textiles Association.

The government affirms that current polices and planned reforms are part of an on-going “economic offensive” aimed to ensuring “production, supply and fair prices”.