Right before the end of the year, the Government made the decision to cut in half the travel quota for foreign currency given to Venezuelan residents to travel abroad. The quota was reduced from US$ 5,000 for credit card use to US$ 2,500 and the cash advance was reduced from US$ 500 to US$ 400.
The decision makes sense. Last year the Government gave out almost US$ 5 billion (US$ 4.76 billion to be precise). Thus, by reducing the allocation in half the Government should save at least US$ 2.4 billion, more than ten percent of what I estimate the Government will receive in foreign currency in 2009 if oil prices stay at current levels.
But the savings are likely to be much larger than that. First of all, the Government also gave out US$ 1 billion for airfares, which is likely to be reduced significantly as people travel less or closer, given that they have less money to spend using this subsidy to the rich.
But beyond that, the reduction also limits arbitrage opportunities which I mocked in my Oligarco Burguesito post a year and a half ago. In fact, the Government has wasted huge amounts of money by financing people who take travelers to Central America and the Caribbean for a weekend, all expenses paid, in exchange for a fraction of the quota. The organizers of these trips would then sell the dollars obtained in this way and sell them in the parallel swap market at the prevailing rate, which today stands at more than twice the value of the official rate. Since the total amount is now smaller, profits will be reduced significantly and the business is likely to be quite limited in 2009. Thus, the Government will probably save much more than 50% of the amount given last year.
The fact that this was the first measure by the Government to save foreign currency in 2009, indicates that there are no plans to devalue the currency so far, since reducing the gap between the fficial and the swap rate would have generated savings in itself.
Of course, the Government is simply reducing a distortion introduced by the Government itself. Besides the waste in the arbitrage created, the quota represents a perverse and silly subsidy to those that are better off and certainly makes little sense economically and least of all for a Government that calls itself revolutionary.
The decision to cut the quota also indicates that the Government has given up on trying to attract the middle class which was the main beneficiary of the subsidy and is likely o reduce the Government’s popularity within that strata of the population.
In fact, I have been amazed at how unpopular the measure has been, with groups going to the Supreme Court to argue that this was somehow a right that the Government could not take away as it represents a limitation on the freedom of movement.
Of course, what is perverse and incredible is that while Venezuelans are restricted in this way, the oil subsidies to Cuba, the Caribbean, Argentina, Central America and yes, the US, as in the previous post, continue in earnest. Venezuelans are indeed second class citizens for the robolution. Politics rules and Venezuelans be damned!!!
Those that can afford it will continue traveling by going to the parallel market, which will see more pressure in 2009, as the Government has moved many items off the CADIVI list. It is in some sense a stealth devaluation as more goods have to be purcahsed at the higher rate and it is the Government that sells foreign currency in the swap market to get Bolivars at the higher rate.
Quite a convoluted and distorted economic framework which Chavez still dares call as being part of the robust economy he has created.
Nothing robust about it, as we are likely to learn slowly over the next few months.