Person counting Venezuelan bank notes in a popular market vegetable stand with tomatoes and onions in the background. Photo: Misión Verdad/file photo.
By Mision Verdad – Apr 11, 2023
In March, inflation in Venezuela experienced a significant slowdown, reaching around 4%, according to unofficial data published by the Venezuelan Finance Observatory, which represents a cut-off point with respect to the rate of price variation registered in the first two months of 2023, which was at least double digits.
The year 2023 began with signs of a slowdown in economic activity, dragging the negative effects of the depreciation of the exchange rate registered in the last quarter of last year, whose main impact was expressed on the consumption of the population.
The inflation figure registered in March represents a reversal of said trend for almost two consecutive quarters, and expresses the macroeconomic anchor point of a moderate variation in prices and the exchange rate that the Venezuelan government wishes to recover, seeking to emulate the cycle of stability achieved in the first half of 2022.
There are several factors that explain the change in the pace of inflation.
1. Exchange rate
According to the registry of the Central Bank of Venezuela (BCV), exchange transactions (foreign currency sales to banks) were strengthened, with a total of eight operations in February, four in March, and two so far in April. According to the Banking and Business website, the accumulated figure for foreign currency sales were $569 million in February, with another $295 million in March, to total an increase of 19.26% compared to the allocations made in the first quarter of 2022. Consequently, foreign currency sales could not be absorbed by the market in view of the legal reserve that restricts liquidity, which caused banking institutions to return the foreign currency to the BCV.
Pensamos que el mercado no logrará absorberla totalmente y los bancos revenderán una porción de esas divisas al BCV el viernes.
— Síntesis Financiera (@SintesisFinan) March 14, 2023
This caused the variation of the exchange rate to be only 0.6%, propitiating a decrease in the inflationary rhythm.
2. Payment of taxes
The payment of income tax to the National Integrated Customs and Tax Administration Service (SENIAT) contributed to taking bolívars out of circulation in the market during the month of March, which acted as a multiplier effect of the restrictions through the reserve requirement, whose echo had repercussions in the already mentioned controlled variation of the exchange rate. The convergence of the payment of taxes and the upward sale of foreign currency by the BCV allowed the increase in liquidity from bonds and transfers through the Patria System not to distort the price of the bolívar against the dollar.
3. Oil prices
In the last week, both the OPEC basket and the benchmark WTI and Brent indicators have risen significantly to reach $85, $81, and $85, respectively, at press time. The increase in prices implies a recovery after the fall experienced in the energy markets as a result of the bankruptcy of regional banks in the United States and its effects on European institutions in the middle of last month. Despite the fact that Venezuela sells its oil at discount prices due to US illegal sanctions, the rise in prices implies an improvement in the value of its exports that translates into greater financial muscle for exchange rate interventions against inflation.
4. Anti-corruption operation
The special anti-corruption operation carried out by the Venezuelan government in Petróleos de Venezuela, SA (PDVSA) has made it possible to break a structure of looting and plundering of national income, freeing up and recovering vital resources to continue with the strategy of controlling the exchange rate. In addition, the operation has made it possible to unlock the operational problems generated by corruption, restarting crude oil shipments under new conditions and resuming some export contracts, as reported by Reuters.
5. Bonus track
Through Official Gazette number 42,588 of March 14, 2023, SENIAT exempted primary activities related to agriculture from paying VAT and the Tax on Large Financial Transactions (IGTF). On February 23, through Presidential Decree No. 4,784, the payment of the IGTF was also exempted for consumption by national and international credit cards, the sending of remittances, and operations related to the use of cryptocurrencies to purchase goods in the country. These movements seem to be the beginning of a pragmatic adjustment of the scope of the IGTF, initially devised to favor internal taxation and the appreciation of the bolívar, in order to encourage consumption and avoid an overload on prices, with a view to controlling inflation for the second quarter in Venezuela.
Translation: Orinoco Tribune
OT/JRE/SL
Misión Verdad
Misión Verdad is a Venezuelan investigative journalism website with a socialist perspective in defense of the Bolivarian Revolution
