Mérida, 7th May 2014 (Venezuelanalysis.com) – Venezuelan president Nicolas Maduro yesterday announced the creation of a new national investment fund to boost production and help overcome existing economic problems.
The initiative is part of an “economic offensive” which seeks to use regulatory and investment mechanisms to create an equilibrium between production, supply and “fair” prices. The approach responds to the emergence of economic problems over the past 18 months, which include shortages in some basic goods and foodstuffs, high inflation, and an overvalued currency.
In addition to tackling what officials term “economic sabotage” and reforming currency exchange and price controls, boosting national production has been identified as way to overcome the problems.
The new national investment fund will draw upon US $500 million, and 3 billion in the local bolivar currency, worth a further US $476 million at the official exchange rate.
The fund will be administered by five of the government’s top economic officials, each of whom will be in charge of investments in a specific geographic zone of the country. The fund appears designed to get state investment to enterprises and productive projects in a more targeted, speedy manner, with the president terming the rules governing the fund as “expeditious”.
“This is so that the five [national fund] heads can respond en situ to problems…to make investments, and approve credits that are needed,” Maduro said on his weekly radio show. He also told fund heads to focus investments on the food, textiles, shoes, auto-assembly and construction sectors.
Further, three geographic zones were designated as special priority for economic development, due to their tourism, energy, industrial or agricultural potential.
The Venezuelan president called upon the working class to support efforts to create a productive economy and depend less on imports, referring to workers as “the national fundamental collective that produces the country’s wealth” and mentioning recently announced benefits for working people, including boosts to housing construction and public transport.
It was also reported that following the recent inspections of businesses, just under one in five (17%) of commercial outlets were found to be flaunting price controls on the sale of basic foodstuffs and goods.
Evidence of product hoarding was also discovered, including the hoarding of enough coffee by companies in Lara state to supply the local market for almost a year. Four in ten stores in Lara state didn’t have coffee in stock at the time of the discovery. One coffee production company found responsible for hoarding, Pacca Sanare, has been temporarily occupied while the sale of the coffee at the regulated price is carried out.
The focus on production comes as officials recognise that while higher salaries, employment and living standards have created a “powerful” market for domestic consumption, national production has not kept up with this.
In a recently-published World Bank / Economic Commission for Latin America and the Caribbean (CEPAL) study, Venezuela was found to have the second highest GDP per capita as measured by purchasing power parity (PPP) in Latin America, second only to Uruguay.
This measurement, which “eliminates the [distorting] effects of both prices and exchange rates”, found that Venezuela’s GDP per capita is $16,965, compared with a regional average of $12,443.
As such, in an interview yesterday United Socialist Party of Venezuela (PSUV) legislator Jesus Cepeda said that while the government’s social policies had been successful, “There have been deficiencies in the productive sector at the moment of responding to the population’s growing demand for services and consumer goods”.
Meanwhile business groups continue to criticise the government’s economic policies, saying that currency controls are reducing imports and price controls are removing the incentive to produce.
Under the multi-tiered currency control system, in place in different forms since 2003 to prevent capital flight and ensure state control over oil income and spending, companies are allocated certain quantities of foreign currency they can buy at the official exchange rate, which they use to import goods for sale or materials for production.
To buy more foreign currency they resort to the more expensive parallel or “black” currency market.
Mauricio Tancredi, the president of business and trade group Consecomercio, argued in an interview today that the government should further liberalise currency controls and give companies greater access to official-rate currency, in order to allow them to produce more and meet demand.
“There have been some allocations and liquidations [of dollars in the new currency exchange system, SICAD II], but they have been few and slow. At the moment, stocks are worsening,” he said.
However some economists disagree with these arguments, and suggest that companies are trying to use or aggravate existing problems to push for pro-market liberalisation and reforms.
“This is about pressuring and demanding for more dollars and less control of business…which evidently isn’t feasible in periods of high uncertainty like in Venezuela currently,” wrote recently economist Claudio Della Croce, a member of the Argentine Association of Radical Economics.
The Venezuelan Communist Party (PCV) and other left groups which support the government argue that the management of foreign imports should be entirely nationalised, and “not one more dollar given to the bourgeoisie”.
Meanwhile domestic and transnational companies in various sectors have complained that a lack of dollars have been approved to them for the importation of materials and parts, affecting their economic activity.
The government recently met with representatives of auto-assemblers Ford and Toyota, after the two companies suspended production in Venezuela due to alleged lack of parts for assembly. Foreign currency allocations were approved following the meetings, with Ford to re-start production within two weeks.
This week’s SICAD I currency auction will also be directed toward the auto-assembly industry, officials reported.