A law limiting costs, prices and profit margins across the Venezuelan economy came into effect yesterday.

The law is designed to prevent over-pricing, speculation and other abuses against consumer rights which have been occurring in the South American country.

It was drawn up by President Nicolas Maduro after problems with Venezuela’s currency control system and what officials argue is an “economic war” being waged by anti-government business sectors have created economic imbalances for consumers such as high inflation and shortages in some basic products.

Political opponents and economists critical of the government blame currency controls and “excessive” state regulation for the economic problems.

In a national broadcast yesterday Maduro said that the Law for the Control of Fair Costs, Prices and Profits establishes guarantees for the “harmonious and balanced” development of the national economy.

“We want to establish a necessary balance between the cost of production, of importation, of profit margins that are limited to a maximum of 30%, and the fair price of all products,” he explained.

The state agency enforcing the new regulations is the National Superintendency for the Defence of Socioeconomic Rights (Sundde), which replaces previous consumer protection bodies Sundecop and Indepabis.

Sundde is headed by Adreína Tarazón, who is also the Minister for Women and Gender Equality. The organisation will monitor importers, producers, suppliers and retailers to ensure they observe the limits set for “fair prices”.

The agency will also set the limit for commercial leases that shopping centres can charge retailers.

The new law establishes that profit limits will be set by product, economic sector, geographical area, sales chain and economic activity. It also allows for heavy penalties against practices deemed as constituting economic sabotage, with speculation and product hoarding punishable by up to ten years in prison.

Dollar allocations for travel reduced

The law regulating profits and prices is one of a number of government efforts to stabilise existing imbalances in the Venezuelan economy, where the gap between the official exchange rate and the black market dollar is more than tenfold, encouraging numerous types of price speculation and currency fraud.

On Wednesday ministers announced major changes to the country’s system of currency exchange controls, which were implemented in 2003 to prevent capital flight, among other motives.

Under the controls businesses and citizens are given an annual limit of dollars they can purchase at the official exchange rate for imports, travel and other purposes. Almost all of the state’s dollar reserves come from oil sales.

Yesterday it was announced that the official-rate dollar allowances for foreign travel and internet purchases abroad will be reduced in some cases.

The government aims to reduce the amount of state dollars lost to travel currency fraud. Under this scam some citizens travel abroad with official-rate dollars, now priced for travellers at 11.30 Bsf = 1 USD. They then receive the dollars in cash by swiping their card, and instead of spending the money on holiday, return to Venezuela to sell the dollars on the black market for over ten times what they originally paid for them.

As such, the official-rate travel dollar allowance for closer travel destinations has been reduced. For a holiday longer than eight days the allowance for travel to Florida (Miami) is now US $700, compared with US $2,500 for those travelling to other parts of the United States.

The annual allowance for online purchases abroad has also been reduced, from US $400 to US $300 per credit-card holding citizen.

It is hoped that by reducing the amount of dollars the state hands out to “fraudulent” businesses and travellers, along with the other currency control reforms recently announced, the value of the black market dollar can be reduced and the state’s foreign currency reserves can be allocated to the economy in a more “rational” way.

In related news, as a result of the announcement of the new official exchange rate for travellers, several foreign airlines operating in Venezuela have temporarily stopped selling airline tickets in the country. The airlines want the government to clarify at what exchange rate the state will pay the claimed US $3.3 billion dollars owed to airlines for tickets sold in bolivars.

The government is meeting with airlines separately to discuss timelines under which the debts will be paid.

---