Friday, October 28, 2011





In my business we depend for 80% on imported raw material to be able to manufacture whatever we may have in our order books.  We do not have 5 products that can be made 100% with raw materials found in Venezuela.  Thus, CADIVI fights are an essential part of our daily routine to an extent that is hard to imagine.  As a political control I can assure you that it is a very effective tool although somewhat overrated and by now overused.  The basic reason is that instead of spending time conspiring I have to spend it in the myriad of permits that are required for me to ask for dollars, even before I know whether they will be granted.

Things can be pretty bad sometimes.  We almost went bankrupt last year because they did not sign our "solvencia laboral" for four months.  They were not refusing it, we had all the requirement, there was just no one around to sign it, allegedly.  But when finally they came around and started signing, ours was rejected because by then some of our required permits had expired!  Luckily we were ready and they had already been renovated but we had to rebuild the dossier and to have it signed required an extra month. For five months we could not import anything and at the end we were working less than half speed.  A couple of month more and we were out of anything to sell, closing down.  Just because of some incompetent and/or malevolent bureaucrat somewhere.  And stop me from starting of the bundles we lost to corruption because a comma was ill placed according to CADIVI, or the custom agent, or the Nazional Guard signing the port exit paper, etc...  All made possible because of the strict CADIVI requirements.

Thus CADIVI has become an enormous source of graft, from shady financial transaction worth millions of USD to petty corruption in Venezuelan entry points.  It is not that CADIVI is particularly bad, Venezuela had other experiences before, it is becasue CADIVI has now lasted 8 years and a whole "economic" system has developed around it.  Too many people, chavistas or not but all pretending to be fanatics, live out of that and they are certainly not going to willingly give it up.  Confronting these people outright could bring down to a halt all import activity of Venezuela as they cannot be replaced from one day to the other unless you simply decree free entry to any goods, something that will not fly even with your anti Chavez electoral base support.  But then again you cannot leave the system in place because those people who stay quiet in the first weeks of your presidency will get ready to sabotage you if they sense your desire to dispose of their major income source.  Amen of your credibility shot for allowing such corruption.

True, the financial aspects of CADIVI can be dealt from day one as they involve big sums but relatively few people (who are already rich enough), but the corruption of CADIVI and the harbors is not something you can tackle just like that. There are two reasons for this.

First, CADIVI has affected and penetrated economic decision to such an extent that removing CADIVI at a single stroke will affect the most the people least connected with international financing. The paradox of CADIVI is that for many small business like mine it has been the perfect excuse not to depend on credit lines or paying in advance for the goods we buy. Our providers must accept CADIVI terms or give up their sales in Venezuela. In fact the delays of CADIVI have been sometimes long enough that when the time comes around for us to pay our foreign bills as much as half of our imports are already processed or sold and we have the money in the bank to pay. Suppression of CADIVI will favor immediately foreign companies who already have a foot hold in Venezuela and who will be able to immediately flood the market while local folks like us will require to set up a credit system to stay in business. A fast removal of CADIVI could wipe out the remains of Venezuelan industry except for the big ones like Polar who have managed to have some reserves outside.

Does a new administration want to take such a risk?

Second, there is the historical fact that lack of real justice and property rights has made Venezuelans a race of business people who take out of the country all that they can take out. Judicial insecurity at all levels has gone much, much worse under Chavez but it always existed, trust me on that one. Thus the tradition in Venezuela is for people who have access to a significant amount of money to send enough abroad so as to be able to retire outside of Venezuela if needed, and if you really have a lot of money, set up your kids outside, just in case. Chavistas have followed that tradition and plus, because they have much less problems than us to access the financial deals existing as a consequence of CADIVI (Miguel has a blog almost devoted to the different schemes).  And you may note that even those who have not much money still manage to have a checking account in the US with a few thousands of dollars, just in case.

Removing CADIVI controls implies liberating the exchange and I can guarantee you that if you add the chavistas out of office and expecting to go to jail for corruption to the anti chavistas that are afraid of a prompt and violent return of chavismo, the run on the Bolivar will be epochal.

Needless to say that the regime is well aware of all of that, that it set up itself in such an impossible situation, such as it happened with the gas price, to cite another example of chavismo paralysis.  They use CADIVI as a political tool for survival alright.

What is the way out?  Because we need a way out as the corruption is simply unbearable for the country, blocking any real economic growth.

My plan would be for the opposition candidate to announce that CADIVI would be removed ASAP, in a delay no greater than one year, once measures to protect the poor are set in place (promising Mercal subsidies only in poor areas?).  However from day one there is one thing that the eventual winner can do: devaluate, let the currency float, free it for travelers and make CADIVI a mere clearing house.  That is, you need to avoid a run on the Bolivar and only a prompt devaluation and some controls may avoid that.

In this scheme CADIVI does not approve for imports anymore, anyone can have access to dollars, but you only get them once your importations have cleared customs in Venezuela.  That is, buying dollars will remain limited to people who travel and to those who need to pay their bills for legally received goods.  PERIOD.

As time passes, as the macroeconomic imbalances of the country start resolving, as subsidies for the people really affected by devaluation and adjustment take hold, then you can start lifting other restrictions until you have a free economy again. I personally think that some mild controls, as they exist in many a prosperous country, are necessary because it will take years to reinvent the Venezuelan judicial system well enough so that people want to consider retiring in Venezuela.....

This, my friends, is the view from ground zero, for those who depend on CADIVI today and know it is easier to get worse than better.


  1. RabbiBulla5:36 AM

    Nothing like real-world working
    experience. Well written.

  2. This is a very important post, Daniel. Worthy of being published elsewhere.

  3. torres5:44 AM

    Gathering 200k signatures could force a referendum to decide if it the controls are killed before election. Going against such a referendum would have political costs, too.

    I would think the opposition would want to set up a series of such requests and booths to gather those signatures for all the requests simultaneously. Forcing the referendums would either get results, or get chavismo to pay political costs for going against them.


  4. Aristobulo just said what everyone knew, as you said, and that's why I wrote at CC the other day on the debate between Juan and Miguel, that HCR is just playing to the gallery, and carrying on with his non-confrontational campaign to ensure that chavistas don't see him as a threat.

    For HCR keeping CADIVI is as much a political decision as it is for chavistas.

  5. Sounds logical to me....good post!

  6. Island Canuck5:35 PM

    Trying to force the CNE to run referendums before the election would be fruitless.

    They would never agree to it using technical difficulties or some other excuse.

    It would also deflect attention on the main course - the presidential elections.

  7. Charly7:57 PM

    This comment has been removed by a blog administrator.

  8. In my book, what you are proposing is eliminating controls, if the rate is floating. But yo know I would do away with the whole thing, it is the only way to have money flow back.

  9. Great post, Daniel.

    I'm always fascinated by the chutzpa of Chavismo. They make the most outrageous statements as if nothing can happen, because nothing actually happens, really. Today it was Isturiz claiming proudly that CADIVI exists for political reasons. A few months ago it was Adán Chávez implying that the "revolution" must be defended by any means, including non -electoral. Or who can forget when the Comandante himself said on TV that the Tascón list had served its purpose, or that he purposely orchestrated the conditions prior to the PDVSA strike for precisely that purpose. Still, it's amazing to me that nothing ever happens. No public outrage, no legal consequences, nobody goes to jail, nothing.

  10. Miguel

    No, not all controls. I am in favor of monitoring the flow of money for a while and limit it only for importations, travel and family support. Only later can money flow freely, when some stability is regained by Venezuelan economy. But for the time being you cannot remove it all.

    I suppose that what I am saying is that I want to take away the privileges of some and let all play on an even field.

  11. Anonymous9:31 PM

    The chavista supported exchange control program provides the number one avenue by which Chavez rewards his cronies and minions. They have wide open access to Venezuelan government US Dollar denominated bonds which they can purchase in bolivares at the official dollar/bolivar exchange rate, sell for cash dollars abroad, and then sell the cash dollars in Venezuela at black market. What a gold mine if you can get it! Make money with out risk. What a sweat deal. Except every Venezuelan is getting screwed in the process.

    No other government program provides a higher opportunity for corrupt gains than currency control programs such as the one run by Cadivi.

    Oh God how stupid are we? First Recadi, now Cadivi; call it whatever you want. They are a loaded weapon for politician to rob the pockets of the country and enrich themselves and their organizations.

    Alejo VZLA Paraiso Perdido

  12. torres12:41 AM

    Island Canuck, read up on the timelines for forced referendums; they are quite specific. Not meeting them would have a political cost, regardless of the excuses.


  13. Anonymous12:57 AM

    But of course it's political, it always was - nothing new here, except that Isturiz admits it. It is used to destroy democracy by democratic means.

    Specifically here it interfers in the free market of exchange controls and is used as a weapon to destroy enemies by e.g. not allowing them to get $$ to import stuff that they need for their business and such bankrupt them, as it almost happened to DD.

    Additionally, The system offers endless possibilities for corruption, from e.g. a few bucks to get a signature on a piece of paper by a bureaucrat, to bond schemes, to import transactions, where large amount of preferential $$ are given to somebody connected, or who's loyalty needs to be bought, and the actual importation of the goods never takes place. 

    I am with Miguel, it's a cesspool that should be #1 on the list of an oppo president to be eliminated, period. Of course it's a dangerous move and whoever does it will instantly create a lot of powerful enemies, but s/he will at the same time gain a lot of goodwill by a large amount of businesspeople and citizens in general.


  14. Controls or no controls, the potential for corruption is enormous. I guess a gradual move towards less arbitrary Bolibanana arbitration is better advised. And with all due respect, who is this loud primate called Aristobulo and why isn't he trying to pass 3rd grade by now? Only in Venezuela.. as they say.

  15. Daniel:

    This is an invaluable account from someone who suffers first hand the effects of the currency exchange control.

    I am, of course, no economist, but the first impulse is always one to suppress a regulation that greatly distorts the economy.

    However, as we doctors say, first, do no harm. The unintended consequences of abruptly freeing the currency exchange could conceivably produce a lot of damage. The important thing is that it has to be done, but in a way that would minimize damage to the economy. If it takes months or a year, so be it, as long as those that need protection are duly protected.

  16. Boludo Tejano3:28 AM

    Aristobulo Whatshisname: "...building socialism.."

    Apparently a Soviet appartchik has risen from the dead and taken over a live body. At least I haven't heard such phrases since the Soviets blessed us with them.

    Speaking of Chavista bureaucrats enlightening us on socialism, here is an oldie but a not so goodie: Gucci Socialism.

  17. The fact that controls stay is a reflection of the ignorance of the population. Costs are much higher for exports, thus Venezuela exports virtually nothing except oil. It also serves as a tax on wealth as anyone who tries to get money out of the country has to pay much higher rates for dollars and risk going through the black market, plenty do but I'm sure they wouldn't given their druthers. Finally, if businesses fail because of the currency controls, chavismo blames capitalism when chavismo is really at fault. The fact that so much of the Venezuelan public buys that line doesn't reflect well on them, but their hardly the first to fault for this hyperpopulist nonsense.

  18. Anonymous3:20 AM

    New currency exchange controls have been announced this weekend in Argentina, that will start tomorrow. No more CADIVI runs to Buenos Aires for the Venezuelans!

  19. Anonymous, those new Argentine restrictions on cash are only for exchanges of more than $250K. So it won't make a difference for MOST Chavistas. ;)

    (All kidding aside, the controls are on purchasing foreign currency, not pesos, so if anything, those trips will be more welcome in Argentina than ever. They're desperately trying to staunch the outflow, but unwilling to actually implement policies that will make people not want to get their money out.)


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