ESSA

ESSA

Avada CADIVI


Hanbo Li

By

June 3rd, 2012


Sometimes internet purchases are not as simple as *click*click*click*


In many countries internet shopping is a growing business. Sites such as Ebay and Amazon are thriving as people are becoming more aware of the benefits of buying online: you don’t have to physically go to a shop where a salesperson will watch over you like a vulture, waiting for you to rest your gaze on something for more than 10 seconds; there are no lines; you are not paying in cash (which is psychologically significant); and importantly, there are no taxes, such as GST, for most purchases. It is convenient and usually cheaper. These benefits weigh heavily on the retail sector in Australia as businesses are finding the new competition difficult to deal with. Borders couldn’t hack it.

In Venezuela, this isn’t as much of a problem. If one wanted to buy a new laptop for $800 from the internet, one could not. If one wanted to buy a new netbook for $401, one could not. In Venezuela, a body of government called CADIVI (Comisión de Administración de Divisas – Commission for the Administration of Currency Exchange) imposes a quota of $400 per person per year for internet spending. The main intention of the quota was not to protect domestic businesses, however.

To understand why such a body was set up, one needs a feel for the Venezuelan economy. Venezuela relies heavily on its petroleum and manufacturing sectors. As the fifth largest member of OPEC (Organization of Petroleum Exporting Countries), petroleum accounts for roughly 95% of the country’s exports. The economy is thus highly sensitive to oil prices and OPEC regulations. It has very high inflation, as measured by CPI, averaging 29.1% in 2010 and reaching a historical high of 99.9% in 1996 – meaning price levels doubled within one year. Imports are significant: Venezuela imports nearly all of its cars, clothing and electronics, as well as 2/3 of its food.

The economy has also suffered heavily from political instability, most notably a coup d’état attempt in 2002 which ousted the President Hugo Chavez for 47 hours, and general business strike aimed to oust the government in 2003 which saw oil production fall by 67%. In the aftermath of this oil lockout, money and assets fled from the country like rats from a sinking ship; GDP fell 27% in four months.

To support the bolivar (the domestic currency), boost the government’s declining level of international reserves and mitigate the spillover effects and capital flight of the oil lockout to the financial system, CADIVI was born. It oversees all currency exchange. The Bank of International Settlements states that, “The Central Bank of Venezuela (BCV) fixes a monthly allocation of foreign currency to be administered by CADIVI, purchases foreign currency from residents, and sells foreign currency to the public and private sectors subject to approval from CADIVI.” As well as a quota for internet spending, there are restrictions to international travel in that the amount of foreign currency one can buy is limited.

While currency control may be justified for short periods of time and in the right circumstances, for longer periods, it is not. Freedoms are impinged by the consumption limits and exchange controls. Inefficiencies are created at many levels, in many sectors. Previously, the technology gap between Venezuela and the US used to be one week. The difficulties in obtaining overseas products have stretched this gap to several months. The consequences of the introduction of such a government body are mostly oppressive.

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

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