The derogation of the law that prohibited buying and selling foreign currency in the country is an opportunity for entrepreneurs in trouble
The National Constituent Assembly repealed the measure established in 2005, and reformed in 2008 by the Government, to try to abate the rise of the dollar in the so-called “parallel market” after prior request of the Sectoral Vice President of Economy, Tareck El Aissami.
This derogation, which is aimed at attracting private investment to the country, will allow Venezuelans to go to the exchange offices -authorized by the government- and make any operation legally as of August 20, 2018.
"From August 20, the country is authorized to go to the exchange offices and make any transaction transparently, legally, and safely. This decree seeks new situations in the field of the national economy and lay the foundations of support and security for all investments and operations in convertible currencies", said the sector vice president.
On the other hand, the president, Nicolás Maduro, cataloged this law as "very important", since it will allow to unfold a new exchange system of the country, "where the dollars of the people that enter are guaranteed for housing, education , health, production".
However, this does not mean the elimination of exchange control, but rather its "relaxation".
This repeal eliminates the Exchange Regime Law and its offenses, and Article 138 of the Central Bank of Venezuela (BCV, in Spanish) law, which penalizes those who carry out currency exchange operations.
This measure is part of the "Recovery and Economic Prosperity Program", announced by President Nicolás Maduro on July 25.
Who benefits with the decision?
Private companies, yes.
In recent years, transactions in the parallel market have been increasing as a result of the shortage of foreign currency in official mechanisms. According to the Ecoanalítica Fima, an average of 9.5 million dollars was traded in the parallel market during 2017.
Asdrubal Oliveros, Economist and director of Econanalítica, explained to El Nacional that even though there are no details of how it will be put into practice, the repeal of the Law of Illicit Exchange is good news. Especially if it allows that what the private ones have been doing so far, which is to work with their dollars, is not penalized.
"In 2017, 53.4% of private imports were made with currencies other than official mechanisms. In the first quarter of 2018, the proportion rose to 90%", said Asdrúbal Oliveros.
Oliveros said that this action only provides options to private companies and that it will not stop hyperinflation, since the government has not taken the measures that are necessary to stop the price increase.
It can 'unlock imports and prices'
The deputy to the National Assembly (AN), José Guerra, reacted to the announcements of Diosdado Cabello, president of the National Constituent Assembly (ANC, in Spanish) when approving the repeal of the law, with the consideration that the ANC does not have the power to repeal the Law of Illicit Exchange, since "it is not a legal entity".
On the other hand, for the analyst and president of Datanalisis, Luís Vicente León, the repeal of the Law of Illicit Exchange may mean an opening, although this will depend on the role of intermediary institutions in setting the price of foreign currency and access to foreign currency.
Through his Twitter account, Leon said: "If private market operations can be carried out freely and the exchange rate is fixed by supply and demand, it would be a permeabilization that will help unlock imports and prices, but if the government tries to control the change with skewed operators is more of the same".
But if the gob tries to manipulate the exchange rate that is set for private operations through its authorized exchange houses, the black market will prevail and the possibility of economic readjustment will be null. https://t.co/zkJkB5pZdB- Luis Vicente Leon (@luisvicenteleon) August 13, 2018
In addition, Orlando Camacho, president of Fedeindustria, said that the proposal "will allow any Venezuelan to buy foreign currency", which in his opinion will fight the speculation.
Finally, Cabello said that "with this law is likely to put a brake on all this economic disaster and that all this investment that is going to generate is directed to the social programs implemented by the Bolivarian Government."
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After the announcement, Venezuelans positioned the trends "Tareck El Aissami" and "Law of illicit exchange" on Twitter, and expressed confusion at this new measure.
The origin of the black market currency
In 2003, the then President Hugo Chávez established a foreign exchange control to stop the flight of capital in the midst of a political and social crisis, which caused a speculation between the differences in the official rate offered by the government and the parallel , result of the commercialization in the black market.
Subsequently, in 2005, the Foreign Exchange Law was approved aiming to eradicating the foreign exchange market, which penalized any person or entity that bought or sold dollars without the mediation of the BCV, or the prior declaration before the same.
Therefore, this law gave the BCV exclusive jurisdiction in the sale and purchase of foreign currency. In this way, any operation with foreign currencies carried out outside the control imposed by the Government, would be considered a crime.
Article 6 of the law stated: "Whoever purchases, sells, transfers, offers, receives, exports or imports between $ 10,001 and up to $ 20,000 dollars will be punished with a fine equivalent to twice the surplus of the illegal operation. Exceeding the $ 20,001 dollars will be sanctioned with the same fine, with prison of two and six years, in addition to reintegrating the currencies".
LatinAmerican Post | Camila González C
Translated from “Venezuela: La posibilidad de comprar divisas es un rayo de luz para empresarios”