CARACAS, Venezuela – Venezuela’s government on Thursday, August 1, loosened the tight currency controls it 1st put in place 15 years ago, in a bid to attract foreign investment and ease a 4-year recession that has led to economic collapse.
The Constituent Assembly, dominated by President Nicolas Maduro’s loyalists, announced the passage of a decree authorizing money exchange operations.
The text establishes the “repeal of the illicit exchange law” that imposed fines and up to 15 years of prison for those trading currency on the black market.
The new rules grant citizens “the widest guarantees to improve their participation in the socio-economic development of the country.”
Minister of Industry and National Production Tareck El Aissami said people would now be able “make any exchange operation in a legal and safe way.”
The ruling comes two days after Maduro admitted his economic model had “failed” and urged his loyalists to stop “whining” and find “solutions.”
In oil-rich, cash-poor Venezuela, whose economy crashed as crude prices sank, the government of then-president Hugo Chavez in 2003 instituted strict controls on its currency, the bolivar, and the country’s exchange rate – a policy pursued by his successor, Maduro.
It gave the government a monopoly over foreign currencies such as the dollar and euro, as well as exchange rate control.
It created a black market in which the dollar changed hands for 30 times its official rate.
Analysts also criticized the controls for encouraging corruption and accelerating hyperinflation.
Compounded by US sanctions in response to accusations of political repression by the government, Venezuela’s economy has continued to collapse.
The country has been paralyzed by food and medicine shortages, and failing public services including water, electricity and transport.
Maduro’s sober admission of failure came after the International Monetary Fund forecast a mind-boggling inflation rate of one million percent this year.
The president has shown signs of trying to react to the crisis, announcing in March a redenomination of the near-worthless currency involving the removal of 5 zeros, a move analysts have branded as half-hearted.
The president also ordered state-owned oil company PDSVA to increase production, currently at a 30-year low of 1.5 million barrels a day, just a decade after reaching a high of 3.2 million.
He said on Tuesday, July 31, he wants to increase production to “6 million barrels a day by 2025 or sooner.”
Maduro has been forced to act by the ever-worsening economic situation in the country. Earlier this week, 80% of Caracas was plunged into darkness by a power cut.
The IMF predicts GDP will plummet 18% this year, meaning a 4th consecutive year of double-digit falls.
Industry is operating at just 30% while – despite the ever diminishing oil production – crude oil sales account for 96% of the country’s revenue. – Rappler.com