Flexibility. The United States returned to the Central Bank of Venezuela (BCV) the fundamental role of trading currencies in the international market, a reconnection to the global financial system that was suspended after the 2019 sanctions.
Now these hardships are made more flexible in an environment that outlines hints of changes towards economic stability, projecting a path of growth.
The US Department of the Treasury, through the Office of Foreign Assets Control (OFAC) issued general licenses 56 and 57 on April 14, which opens the floodgates that had been locked when the Central Bank and state banks were included in the sanctions.
License 57 has the greatest immediate effect for the Venezuelan economy because it authorizes financial services transactions with the BCV, the Bank of Venezuela, the Banco Digital de los Trabajadores and the Banco del Tesoro. While 56 refers to commercial agreements with the government and maintains limitations.
These licenses represent a turning point for the financial system by allowing the restart of reconnection with the global system, and favor banking users who, by not having to use outsourcing mechanisms, reduce the costs of their operations.
A respite for the people
The standard covers a wide range, including account opening and closing, fund transfers, banking services, remittances, payments with debit and credit cards, transfers, digital wallet, correspondent banking services in dollars and currency exchange operations, among others, added economist Ana Isabel Belmonte, professor at the School of Economics at the University of Carabobo (UC).
With these transactions there will be a greater flow of capital and the BCV, as the core of this movement, recovers its function as a facilitator of interbank currencies, regularizing the quantity and delivery periods and thus favoring the expectations of exchange agents, with a clear objective: less pressure on the parallel market, Belmonte said.
This flexibility “It is an important and fundamental step for the organization of the economy and in particular for the exchange system that has been experiencing setbacks in the allocation of dollars,” confirmed economist José Guerra, former manager of Economic Research at the Central Bank of Venezuela.
Guerra explained that after the sanction of the BCV, the correspondent banks disappeared so there was no possibility of money transfers or transacting dollars using the issuing entity’s platform. Reactivating this mechanism is key because they are intermediaries that are now authorized by the US.
Guerra considers that these licenses facilitate the importation of foreign currency, which was closed until now, which is why the domestic market was limited in obtaining dollars in cash.
For his part, the Dean of the Faculty of Economic and Social Sciences (FACES) of the Andrés Bello Catholic University (UCAB), Ronald Balza, recalls that the purpose of the sanctions was to promote changes in behavior in the government, which, in his opinion, has been happening so the same criteria that originated them could not be maintained.
The order in which other penalties are lifted will have to do with internal negotiations between the United States government and the government in charge of Venezuela. But, in the first instance, transactions through the global financial system were privileged, added the UCAB academic.
Improves BCV intervention
Guerra insists that the measure will facilitate the level of foreign currency exchange and improve the intervention of the BCV in the exchange market by providing dollars to the economy in a more agile and effective way “with the aim of stabilizing the exchange rate and closing the exchange gap.”
But, he notes, this alone is not enough, so “the ball is now in the hands of the BCV, which must optimize the dollar allocation system.”
He also maintains that the auction system failed because without correspondent banks acting as counterparties and a Central Bank wanting to have control of everything, that was not possible. “Now commercial banks will have greater availability to carry out their exchange operations,” which provides fluidity to purchases and sales.
In his opinion, it is imperative to have a different monetary policy, because basically we can advance with the dollar allocation system and achieve stabilization of the exchange rate, which is the pending task, but it must be sustainable over time.
“There is a need for an economic program directed by a new board of directors of the Central Bank and a team in the Ministry of Finance that finalizes the agreements with the International Monetary Fund (IMF) for the financing of Venezuela, which, supported by the flow of oil revenues constantly, as is expected to happen, can stabilize the exchange rate, a requirement to decelerate inflation levels,” says economist Guerra.
He considers that these licenses paved the way for the country to once again follow the path of the IMF and the World Bank, which with a portfolio of projects can finance social plans.
He is in favor of reforming the Central Bank Law in two fundamental articles: One to appoint the board of directors and remove the power to assign it from the President of the Republic and return it to being, as established by the Constitution, a Central Bank with qualified personnel, with 10 years of experience in financial matters and macroeconomic matters.
And secondly, prevent the BCV from financing fiscal deficits. “And that way we could enter a path of stability with a more coherent economic program.”
He indicated that the level of international reserves is very low, which is why the support of the International Monetary Fund was required.
The BCV registers that there are about 13,000 million dollars, but 4,800 million Special Drawing Rights (SDR) must be subtracted, which cannot be quantified as such until the IMF decides so.
The SDRs are assets created by the IMF to complement the reserves of the member countries that are “made effective” by decision of the multilateral entity and transformed into liquid reserves, said the economist from the Central University of Venezuela.
License 56 and contingent contracts
Ronald Balza agrees that opportunities are opening up even though there have been limitations for the contingent contracts (License 56) with the government.
That is, in this case, companies are invited to evaluate commercial agreements, which until now they could not do, but their execution depends on the approval of the Treasury Department.
“The progressive lifting of sanctions facilitates bilateral negotiations between the United States government and the government in charge of Venezuela. But in this case, transactions through the financial system with the rest of the world were privileged,” said Balza.
For now, for the UCAB economist, payments for oil should be easier when the United States makes them and those resources reach the BCV directly and pass through public banks.
This will allow the linking of the issuing entity, public banking and private banking with other financial institutions in other parts of the world.
Balza considers that the first thing to have good monetary, exchange and fiscal policies is to offer timely, public and transparent information that allows the evaluation of the result of the figures that are declared.
“We don’t have that yet. The publications that the Central Bank has started are very incomplete, both in the degree of detail and in the time elapsed,” added Balza.
He considers it significant that the IMF resumes Article Four, which was interrupted in 2004, which allows a mission to periodically analyze the country’s economy, as it does with other nations.
In this way you can evaluate the statistics published by the issuer and other public bodies. “And that is very important because any loan to the country would have that guarantee, an approval that of course requires the greatest breadth of information and not like now when the complete series of a certain variable are not shown,” Balza stated.
He insists that the IMF’s participation can generate confidence in private investors and improve the prospects for pending debt renegotiations.
It is assumed, according to their criteria, that the current central bank board will begin publishing figures to take advantage of the momentum of these licenses.
The performance of the BCV board and presidency, Balza reiterates, has been very poor in all these years “and if the current team is not capable of undertaking these changes it should not continue.”
Human capitalamong the challenges of the BCV
For academic Ana Isabel Belmonte, the BCV faces challenges. Seven years of disconnection from the global financial system have made both technology and even human capital obsolete or lacking the necessary capabilities.
“It requires a technical, technological update, certifications and human capital that the global financial system demands today. In addition to internal reforms, perhaps the main challenge.”
Belmonte is optimistic and hopes that this will contribute, together with what is happening in the oil sector, to boost the economy and that these benefits will also translate into the possibility of better income and a better quality of life for Venezuelans.
For the country, this reconnection with the global market is very favorable. First, it will facilitate the attraction of direct foreign investment in the financial system and the opening of credits in foreign currency, for example, Belmonte said.
The three analysts agree on the need for structural reforms of the economy that are fundamental and necessary so that the country can move towards sustainable development. The reduction or definitive elimination of monetary emission to finance the fiscal deficit is a priority. A practice of two decades, which caused high inflation.
