Central Bank of Venezuela symbol. Photo: Dagne Buschbeck.
By Franco Vielma – Apr 28, 2023
Venezuela’s economy has continued to grow during 2023, but at a much slower pace compared to the first quarter of 2022.
Economic activity continues to have crude oil production as a key indicator. During 2023, the production of barrels has grown by only 5%, and part of this increase is due to the joint work of Petróleos de Venezuela SA (PDVSA) with the US multinational Chevron under the joint venture scheme.
This means that the general oil activity and the various projects of PDVSA remain stagnant, largely due to the operational shortcomings caused by the blockade against the commercial operations of the Venezuelan state-owned company.
Given that the political framework of the coercive measures does not provide a clear panorama for oil activity, the economy must necessarily be dynamized by other areas. Recently, there have been significant developments in that regard, with pros and cons.
1. Growth of credit
In the first quarter of 2023, the consumer credit portfolio increased by 33.5%, while total bank loans rose by 68.9%.
However, credit issuance has significant weaknesses, according to the economy website Banca y Negocios. If only credit card financing is compared, the increase was only 7.74% in the first quarter of 2023. This means that the credit card lending situation remains stagnant.
According to Banca y Negocios, loans via credit cards amounted to Bs. 391.1 million and were equivalent to 80.7% of the consumer portfolio, adding another Bs. 93.5 million granted in installment financing, a portfolio that is practically on its way to extinction.
Loans via credit cards have always been a factor that influences the level of consumption, which, in turn, is a component of the growth matrix.
The Central Bank of Venezuela (BCV) has maintained its policy of containing the increase in liquidity in order to control the increase in the exchange rate and, therefore, devaluation and inflation.
2. The ‘Chevron effect’ on foreign exchange
A structural weakness of the Venezuelan economy is that, irrespective of whether there is exchange control, the state is generally the only supplier in the foreign exchange market. However, this situation is changing for the time being.
Financial sources indicated that Chevron’s foreign currency placements in the official exchange market vary between $20 million and $25 million every week, due to significant reinvestment of the income generated by the company, especially in personnel and equipment, according to Bloomberg.
Chevron’s contribution to the foreign exchange market, through its participation in several joint ventures, has become a stabilizing factor for the exchange rate, according to the consulting firm Síntesis Financiera, which estimates the foreign currency sales of the US oil company at around $100 million in March.
“Chevron will remain a stabilizing factor if it continues to cover 20% of the foreign currency demand served by the banks and will surely alleviate the BCV’s intervention burden,” the firm stated.
However, according to Banca y Negocios, based on exclusive information, the BCV sold $295 million to the banks in March, placing Chevron’s offer in a proportion equivalent to 33.9% of the amount injected into circulation by the BCV.
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Nevertheless, this will have variable rhythms according to the level of investment maintained by Chevron. The company may maintain a similar pace of investment and, therefore, of foreign currency placement in the exchange market if its current license, granted by the US Treasury Department, is extended in future.
Despite the dollarization of many operations in the country, the Venezuelan government has regulated Chevron’s activity so that it places foreign currency in the exchange market to obtain bolívars and thus pay off part of its commitments.
3. On the exemption of certain activities from Large Financial Transactions Tax
Presidential Decree 4,784, published in the Official Gazette on February 23, 2023, exempts the debits generated by the purchase, sale and transfer of custody of securities issued or guaranteed by the state or the BCV from payment of the Large Financial Transactions Tax.
The decree also exempts from the tax the debits or withdrawals related to the settlement of capital or interest thereof and securities traded through stock exchanges and the agricultural stock exchange made in currencies other than the bolívar or cryptocurrencies and cryptoassets other than the Petro.
This measure could be a clear stimulus to certain economic activities in two key areas: the issuance of securities and the agricultural stock exchange. Both are components of the investment scene with greater fluidity in Venezuela.
Although the Venezuelan state has strengthened a policy to discard activities in foreign currency, it makes some concessions with these exemptions to stimulate the transfer of goods linked to the aforementioned economic activities.
Translation: Orinoco Tribune
OT/SC/SF
Franco Vielma
Franco Vielma is a Sociologist, writer. He is part of the Mision Verdad collective.
