Government reduces travel quotas for Venezuelan residents

January 8, 2009

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 purchased 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.

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