By , according to the data provided by the Central Bank of Venezuela, only 2. Another aspect to highlight has been the increase in operations carried out in foreign currency especially in US dollars , which for March have reached At that time, given the drastic decrease in aggregate demand and low economic activity due to prolonged power blackouts throughout Venezuela, the speed of inflation had slowed significantly, registering in that month At the end of that year, as can be seen on Figure 1, the banknotes of lower denomination those of Bs.
This change did not solve the basic problem of cash availability and the Venezuelan population continued to use deposits as means of payment representing In addition, the new value notes lost their purchasing power very quickly, given that in inflation closed at 7, Chart 1 Source : Central Bank of Venezuela, own calculations.
By early March , on the eve of the first year of the pandemic in Venezuela, the Central Bank of Venezuela which is controlled by the Maduro regime announced that it would introduce three new higher face value pieces in the Monetary cone, with the largest of these having a value of Bs. In other words, the introduction of new bills to the monetary cone is just another indication that the hyperinflationary outbreak that Venezuela is going through is not close to ending.
Among the reasons is the lack of credible policies by the Maduro regime, due to a combination of lack of technical knowledge and lack of political will to stop the monetization of fiscal deficits. Even though monthly inflation during March stood at only 9. The process is so slow and the penalties are so low that the system does not deter counterfeiters. Data from industry representatives indicates that copyright piracy, including piracy over the Internet, and trademark counterfeiting remains widespread.
However, there are examples of cooperation. According to an Interpol press release, Venezuelan law enforcement officials participated in an international operation Operation Jupiter VII in October against criminal organizations involved in counterfeiting of goods that included 11 South American countries.
Financial services account for a relatively small but growing share of GDP. According to BCV data, financial services represented seven percent of GDP in the first three quarters of , the latest data available. Financial services growth until was driven by increasing monetary liquidity M2 resulting from loose fiscal and monetary policy and strict currency controls, which traps VEF earnings in Venezuela.
Venezuelan capital markets are underdeveloped and thinly traded. The leading Caracas stock market index, the Caracas Stock Exchange Index, nearly tripled in bolivars year on year as of April 1, Private brokerages have not been allowed to participate in the BPVB. Trading volumes in both the BVC and the BPVB are low and dominated by fixed-income public- and private-sector securities offering negative real interest rates due to an excess of VEF liquidity trapped in Venezuela by currency controls.
Foreign investors can buy or sell stocks and bonds in Venezuelan capital markets as long as they have registered with the securities regulator, the Superintendent of Securities SNV. Venezuelan credit markets are heavily regulated.
The law of banking sector institutions describes banking as a public service and banks as public utilities, permitting the GBRV to nationalize financial institutions without National Assembly approval. Public-sector banks held an estimated 33 percent of total banking sector assets in February Universal and commercial banks enjoyed return on equity of roughly 72 percent in the twelve months to February , with a sector-wide default rate of less than 1 percent, driven by M2 growth and currency controls that constrain capital transfers out of Venezuela.
Financial analysts believe reform to the currency control regime would have to be paired with banking sector reforms to avoid widespread stress to the financial system. The BCV sets maximum and minimum interest rates banks can charge.
Limits, as of April , included 24 percent on commercial and personal loans, 29 percent on credit cards, and 16 percent on car loans. With inflation of percent in and estimated at nearly percent in , real interest rates are negative, giving banks a disincentive to lend.
Banks are required to allocate roughly 59 percent of their portfolio for loans to the housing, agriculture, small business, manufacturing, and tourism sectors, at preferential interest rates that have been negative, in real terms, since Universal and commercial banks are prohibited from making commercial loans for terms longer than three years.
The BCV also regulates interest rates on savings accounts and time deposits. Limits as of April have included 16 percent on savings account balances from 0 to VEF 20,, Such rates have been negative, in real terms, since , discouraging household saving and incentivizing domestic consumption and the purchase of U.
Faced with negative real interest rates on bank deposits and VEF-denominated securities, multinationals with VEF earnings trapped in Venezuela have increasingly invested in commercial real estate in an attempt to mitigate inflation risks. Total banking assets, at roughly USD 1. Public and private universal and commercial banks control 99 percent of total banking sector assets. The three largest private universal banks are: Banesco, with 15 percent of total sector assets March ; Banco Provincial, with 12 percent; and, Banco Mercantil, with 11 percent.
Citibank is the only U. The two largest state universal banks are Banco de Venezuela and Banco Bicentenario. Banco Bicentenario was formed in through the nationalization of four private banks; it held six percent of assets as of March The BCV promulgated regulations in September outlining conditions under which businesses and individuals may open USD-denominated bank accounts at Venezuelan universal and commercial banks.
Venezuelan residents may use such accounts for international transfers, overseas debit card transactions, and transactions through the DICOM FX mechanism see Section 6 on Foreign Exchange and Remittances. Venezuelans may not withdraw U. Since , the GBRV has maintained strict currency controls. In practice, access to hard currency for the private sector has been severely limited in the last year.
The second mechanism, the Complementary Rate or DICOM, is a managed floating rate, used for imports of non-priority goods and services. The government has not yet published regulations defining which sectors are eligible to purchase FX at either rate. Multinational firms have announced numerous accounting losses due to exchange rate depreciation.
As a result, many multinational firms have deconsolidated their Venezuelan subsidiary from their global financial statements. There is also an unauthorized parallel market for dollars. Private websites hosted outside of Venezuela publish the parallel exchange rate.
State Owned Enterprises SOEs are dominant in diverse sectors of the Venezuelan economy, including agribusiness, food, hydrocarbons, media, mining, telecommunications, and tourism. Private firms are at a disadvantage when competing with public enterprises, specifically in terms of accessing foreign currency at the official exchange rate. In March the GBRV amended its customs and tax regimes to favor imports by the public sector over those of the private sector.
The new rules exempt SOE importers from providing certain customs documentation and grant waivers on value-added taxes, customs duties, and fees on a broad range of imported products. The exemptions do not generally apply to the private sector. The GBRV has extended such benefits to certain private-sector firms. GBRV direct appointment of SOE executives is commonplace, such as in the Venezuelan Corporation of Guayana CVG , a state holding company that includes firms in basic industries such as aluminum, iron ore mining, electricity generation, and steel.
Private sector firms are at a disadvantage vis-a-vis SOEs in Venezuelan courts. Article of the Venezuelan constitution declares a general duty for all non-state actors to respect laws regarding social responsibility. Various Venezuelan laws set forth requirements intended to advance principles generally included under the concept of RBC.
GBRV regulation and enforcement of these laws is weak and uneven. The Venezuelan private sector is generally aware of and promotes RBC. The Venezuelan Federation of Chambers of Commerce Fedecamaras promotes RBC through a standing working group devoted to the dissemination of best practices and an annual award to recognize RBC excellence.
Corruption is endemic in Venezuela, including in government procurement; the awarding of authorizations, particularly in the foreign exchange regime; dispute settlement; the regulatory system; and customs and taxation. Increased discontent over the political and economic management of the country by the current administration have led to anti-government protests in cities across the country, some of which have turned violent.
Increased scarcity of basic foods and medicines over the last few years has also led to protests. In response, the government agency Superintendent of Fair Prices SUNDDE has at times taken action against private businesses it accuses of price gouging or other unfair practices by confiscating merchandise or forcing businesses to cut prices. Roughly 10 percent of the total workforce is unionized. The GBRV extended in December for three more years a firing freeze in place since that shields most private-sector workers from termination, including for cause.
Venezuelan labor law explicitly forbids employers from using contractors in place of direct employees, since May , labeling the practice as a fraud. The law prohibits employer discrimination on the basis of race, sex, age, civil status, religion, political beliefs, social class, nationality, sexual orientation, union membership, criminal record, or disability. The law prohibits termination without legal justification and requires employers to consult labor courts regarding the lawfulness of a termination.
The law guarantees a retirement pension for workers in both the formal and informal sectors. The law reduced the legal workweek from 44 to 40 hours and guaranteed workers 15 days of vacation, plus one day for each additional year of employment, up to a total of 30 days per year. The law also introduced new rights for female workers with children, including: 26 weeks of paid maternity leave for mothers six pre- and 20 post-natal ; two breaks per day for mothers who are breastfeeding; and access to a lactation room, if they work for an employer with more than 20 employees.
In , Venezuela saw continued protests and work stoppages by unions across the public and private sectors. While no official statistics are available for , according to the non-governmental organization Venezuelan Observatory of Social Conflict the number of labor protests increased in compared to registering labor protest, an increment of approximately 26 percent compared with The GBRV has delayed negotiations over collective bargaining agreements for workers in the public sector, leaving more than two million public employees without collective contracts, including teachers and electrical workers.
No figures from were available, but protests and work stoppages continued due to a variety of economic, social, and political concerns.
INE estimated 41 percent of the employed worked in the informal sector and 59 percent in the formal sector. No official numbers have been released since the end of In , the United States determined that Venezuela failed to make sufficient or meaningful efforts to adhere to its obligations under international counter-narcotics agreements and conventions. However, former President Obama issued a national interest waiver, determining that support for programs to aid Venezuela is vital to the national interest of the United States.
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