Maracaibo, March 28th, 2013 (Venezuelanalysis.com) – The Venezuelan government has announced a number of measures in recent days to combat currency and price speculation, both of which have become increasingly problematic in recent months.
In a speech last week, Acting President Nicolas Maduro called on the police to “come down hard” on the “mafias” that engage in speculative activities.
“We can’t be afraid of the mafias. We want to see the currency speculators put in prison,” he said.
Since 2003 the Venezuelan government has maintained currency controls and a fixed exchange rate that is set by the government in order to limit capital flight and assure foreign reserves are used for priority expenses.
Both importers and consumers are to access foreign currencies through various state agencies, however an unofficial parallel market has long been the outlet for those unable to gain access through official means, creating an increasingly inflated price that is often several times the official rate.
The government has outlawed such illicit trading in foreign currency, and has made it illegal to publish the price of foreign currencies on the parallel market. However, the trade has continued, creating inflationary pressures on the Venezuelan Bolivar and recently creating a scandal that erupted earlier this month.
“I have ordered an investigation and am demanding quick action so that those who are behind this economic sabotage go to prison,” said Maduro at a public event this week.
The scandal erupted after an illicit Venezuelan website known for publishing the parallel exchange rate for foreign currencies went offline earlier this month when it was discovered that they were engaged in a scam that affected thousands of consumers.
The website was selling dollars at prices far below the going value on the parallel market through a sort of Ponzi scheme that eventually collapsed, leaving thousands of Venezuelans who had lost money demanding an investigation into the case.
“An investigation is immediately being launched into this case of currency speculation. We will defeat the parallel market,” announced Attorney General Luisa Ortega Díaz on Tuesday.
In addition, the government has sought to curb the demand in the parallel market with a new currency auction system known as the Complimentary System of Foreign Currency Acquirement (SICAD), which allows importers and consumers to bid on foreign currency being sold by the government at higher rates than the official exchange rate.
The first auction began yesterday, with the government selling US$200 million to 383 different companies at an average price estimated at 13 to 14 Bolivars per dollar, a rate that is 100 percent more expensive than the official rate, but much cheaper than the parallel market rate which is used for some imports.
The auction system is designed to increase the supply of foreign currency as a way to counter illicit trading, and bring down the price in the parallel market, but critics argue that it is an additional devaluation of the currency, above the 32 percent devaluation implemented earlier this year.
“We have one objective with the SICAD system: squeeze out the parallel dollar, and we are going to do it. Those who want to sabotage our economy are screaming because they know we are going to neutralize the problem,” said Maduro earlier this week.
Restrictions on foreign exchange have also lead to price speculation in various sectors of the economy as the supply of certain imports cannot meet demand, allowing importers to set artificially high prices.
Auto prices have been one of the more notorious objects of speculation in recent years, as Venezuelan consumers have often been known to pay prices for new cars that are much higher than the international equivalents.
Government officials have called for a new law to control and regulate auto sales, a project that is currently under review in the National Assembly.
“If a new car costs a certain price in dollars, it should be sold at that price in the local market. No one can raise the price 100, 200, or 300 percent. If a car dealer is caught doing that, he has to be closed down and be brought to justice,” said Maduro last week.
State officials accuse car dealers and manufacturers of hoarding new cars in order to artificially increase their price, whereas representatives from the auto sector claim there simply is not enough supply to meet demand due to currency restrictions and insufficient local assembly production.
The new law will set maximum sale prices for new cars and used cars of up to 10 years old. Car dealers who are caught selling at higher prices will be fined up to BsF. 2 million (US$ 317,000).
State officials will also be inspecting local auto assemblers and dealers to find out if new cars are being hoarded along the supply chain.
“The auto dealers say that they haven’t been given any more vehicles. This is a type of organized mafia that has been scamming the Venezuelan people for about 5 years now and we want to verify it,” said Elvis Amoroso, the legislator promoting the new law.
The Law to Regulate the Buying and Selling of New and Used Vehicles is to be presented for the approval of the National Assembly next week.