Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Sunday, January 26, 2014
Venezuela updates - January 26 , 2014....Venezuela Enacts "Law of Fair Prices" Banning Profits Over 30%, with 10-Year Imprisonment for Hoarding ...... Law of Fair Prices comes into effect as food shortages loom , foreign airlines are cutting off access to overseas flight due to Venezuela's failure to pay 3 billion owed and as Venezuela Overhauls Foreign-Exchange System - Denies 'Stealth Devaluation' Of The Bolivar
The Fair Prices Act, an instrument with which the Government of Nicolas Maduro intends to control prices and eliminate shortages, includes a ban on profit margins over 30%, with penalties of up to 10 years imprisonment for hoarders.
The law passed in November, and the Supreme Court ratified the law yesterday.
The law, published in Official Gazette, states that the profit margin will be established annually "addressing scientific criteria" by the National Superintendency for the Protection of Socio-Economic Rights (SUNDDE).
The law provides for the application of preventive measures and sanctions such as confiscation, temporary occupation of premises or property, the temporary closure of an establishment or suspension of licenses and the "immediate adjustment" price.
In the section of the law regarding hoarding, those who "restrict supply, circulation or distribution of regulated goods or cause distortions in prices, shall be punished with imprisonment judicially 8 to 10 years."
The law also provides for fines ranging from 107,000 bolivars ($17,000) to 5.3 million bolivars ($850,000).
SUNDDE will "fix maximum prices for the production or importation, distribution and consumption according to their importance and strategic nature for the benefit of the population as well as the technical criteria for assessing the levels of exchange equitable and fair of goods and services."
Under this preposterous measure, no companies will be able to import and sell goods at anything but a loss. Expect all goods and services to vanish soon.
Venezuela's government is tightening a much-used loophole in rigid currency controls as part of an overhaul of its foreign-exchange system to safeguard a dwindling supply of dollars.
As part of the changes announced last Wednesday by Oil Minister Rafael Ramirez, Venezuelans travelling abroad will no longer be able to purchase air tickets or obtain cash at the official rate of 6.3 bolivars per dollar.
Instead, they'll now be required to make purchases at a higher rate established at weekly central bank auctions, where the greenback currently fetches about 11 bolivars.
The fluctuating rate also will apply to the limited quantity of money Venezuelans can send abroad to family members and to foreign companies investing in Venezuela.
Ramirez, who is also President Nicolas Maduro's top economic adviser, denied that forcing travellers to pay more for dollars signals a stealth devaluation, as many economists have argued. He said that more than 80 per cent of the nation's dollars will still be sold at the official rate.
The central bank's international reserves have fallen to a 10-year low as demand for air tickets and dollars has soared in tandem with 50 per cent inflation and the bolivar's plunging value in the black market. Foreign airlines say they have an equivalent of US$3.3 billion in bolivars tied up in Venezuela by decade-old exchange controls that make it impossible to send earnings abroad.
Ramirez said that last year alone more than US$8 billion leaked from the oil-dependent economy as even some non-Venezuelan travellers purchased hard currency at the "preferential" rate.
"The big debate here is whether we give dollars to travellers or we import food," Ramirez told reporters in Caracas.
Ronald Balza, an economics professor at the Andres Bello University in Caracas, said that using multiple exchange rates won't stop the haemorrhaging of dollars, galloping inflation and shortage of basic goods created by years of government controls and excessive spending.
"The distortions the government is facing right now and the type of policies it is pursuing lead us inevitably on the path of more devaluation," he said.
The currency overhaul came as Venezuela's biggest food company warned that it may be forced to idle some assembly lines because of government delays of up to 230 days processing its request for US$463 million needed to pay overseas suppliers.
Empresas Polar said in a statement last Wednesday that foreign-credit lines have dried up and suppliers abroad are threatening to cut off the shipments of food, packaging and other supplies unless they receive payment soon.
Quito (AFP) - Ecuador's state-owned Tame airlines resumed flights to Caracas Saturday after a three-day hiatus over Venezuela's failure to make $43.2 million in overdue payments, a Quito airport official said.
Tame Flight EQ524 departed Quito at 9:30 am (1430 GMT) on route to Caracas via a layover in Bogota, the official told AFP on condition of anonymity.
Maiquetia International Airport outside Caracas announced on its website the departure of Flight EQ525 for Bogota, where it is due to stop before reaching Quito.
Another flight is scheduled to leave Quito for Caracas to service passengers who had tickets for Thursday or Friday, when the flights were suspended.
And Tame also plans a flight to Caracas on Sunday for previously ticketed passengers.
Tame officials could not immediately be reached for comment.
Ecuador's flag carrier announced Wednesday that it was temporarily suspending its service between Quito and Caracas due to "the failure of the BCV (Venezuelan Central Bank) to transfer funds to Tame."
Tame, the only airlines operating between the two countries, said that passengers who purchased tickets to Caracas were entitled to reimbursement.
Foreign airlines claiming about $3 billion in debt from the Venezuelan government began to suspend ticket sales this week in Caracas and even cancel flights.
Tame started serving New York last year and provides service to Bogota, Buenos Aires, Cali, Caracas, Havana, Lima, Panama City and Sao Paulo.
Tame's fleet is made up of four Embraer planes, 10 Airbus jets and three ATR planes.
Ecuadoran President Rafael Correa is a political ally of Venezuelan President Nicolas Maduro.
CARACAS, Venezuela (AP) — Tempers flared at airline offices in Caracas on Friday as Venezuelans reacted angrily to international carriers' refusal to sell tickets after the government devalued the bolivar for flights abroad.
The offices of American Airlines, Delta, United and Panama's Copa were all either closed or had halted sales for several hours on Friday as the higher exchange rate took effect, adding to uncertainty as carriers try to collect $3.3 billion they say they're owed by the socialist government.
"Don't waste your time," a United representative, sticking her head out from behind a closed glass door, told a group of 10 waiting customers standing outside a ticket office at Caracas' Centro Lido shopping mall. "It's out of our hands. We can't sell any more tickets."
When customers protested that they would never experience such poor service in the US, the agent, who didn't identify herself by name, said "our situation is different than the US" and then quickly closed the door shut.
Megan McCarthy, a spokeswoman for United in Chicago, said the airline continues to sell tickets in Venezuela but acknowledged that they had been halted for a few hours as prices in its system were adjusted. United has a single daily flight between Houston and Caracas.
"When the exchange rate was updated, we had to hold selling them," she said, adding that online sales had resumed and its ticket office in Centro Lido would reopen at regular hours on Saturday. "We apologize to our customers who we did not explain this to."
Gretty Sivira, a 39-year-old teacher, traveled six hours overnight by bus from Barquisimeto to change the date of a flight to Mexico with Copa after trying for two weeks unsuccessfully through her travel agent.
"There's no solution," she said with look of helpless worry.
Airlines are also losing patience.
For the past few months they've been locked in a battle with President Nicolas Maduro's cash-strapped government to repatriate $3.3 billion that it says is trapped inside the country by rigid currency controls. The situation worsened this week when the government said that revenue from ticket sales in bolivars would now be converted at a new exchange rate almost twice as high as the official 6.3 bolivar per dollar exchange rate.
That nominally makes flying costlier for the vast majority of Venezuelans. But tickets purchased in the country are still a bargain, in dollar terms, given the bolivar's plunge to less than a tenth of its official value on the flourishing black market.
Weeks of closed-door meetings have so far failed to produce a deal, with airlines balking at the government's offer to honor the debt with a combination of bonds, cash and jet fuel, which is cheaper to produce in the oil-rich nation.
On Thursday, United Chief Financial Officer John Rainey said the airline has about $80 million in cash "trapped" in Venezuela while it waits to find out which exchange rate the government will make it use to bring the money back to the U.S. The airline said it works to adjust prices for tickets sold in Venezuela to account for the changes in currency exchange rates.
In the meantime, the travel plans of millions of Venezuelans are in doubt amid fears that some airlines could follow the example of Ecuador's TAME airline, which this week announced it was suspending its daily flights to Venezuela until the government pays it $43 million it says it is owed for ticket sales in the country.
Images broadcast on Ecuadorean television Friday showed several Venezuelan passengers, some of them children, stranded at Guayaquil's international airport.
"We're stuck here, without money, we're hungry and we're desperate to leave," Lorena Villasagua told Ecuavisa network.
Attempts by The Associated Press to make reservations by phone at several airlines including Copa, United and Air Canada also failed, with agents saying that they're waiting for the government to clarify the new travel restrictions. Travel agents also said they were blocked by most airlines from making reservations.
Airlines insist they are being overwhelmed by demand.
"There may not be any availability but that doesn't mean we're halting sales," Martha Pantin, a spokeswoman for American in Caracas, told the AP. She refused to comment on how the government's measures would affect the airline.
Adding to travelers' misery are tighter restrictions on the amount of US dollars Venezuelans can spend abroad in Florida and other international destinations that have been inundated by Venezuelans desperately trying to shuttle abroad as much hard currency as they can under the rigid foreign currency exchange system.
Travelers just to Florida will be allowed to charge a maximum of $700 annually on their Venezuelan credit cards and will be allowed to buy no more than $300 in cash, according to the rules published in the Official Gazette on Friday. That compares with limits of $2,500 in credit and $500 in cash they were previously allowed for trips to Florida, an amount that will be maintained for the remaining 49 US states. Cash allowances were also reduced for Costa Rica, Colombia, Panama and Peru.
The socialist government hopes that the tighter restrictions will help cool capital flight, which has drained central bank reserves by 30 percent over the past year.
But in Doral, a suburb of Miami known as "Doralzuela" for the large number of Venezuelans who live and visit there, tourists were stunned by the new rules.
"They're holding the population hostage," Julie Gonzalez said at the Baymont Inn & Suites. The 62-year-old doctor said she already received cash and credit totaling $3,000 under the previous rules for her current trip but that future travel to Florida, where her son lives, would be impossible.
She said $300 in cash and $700 in credit wouldn't be enough to cover food and lodging. "It's an extreme measure for us because it means we won't be able to leave the country."