By Katie Llanos-Small
Ruth Krivoy: Love thy neighbor
Venezuela must not squander the opportunities to increase competitiveness as it integrates into Mercosur, the country’s former central bank president warns
Venezuela's integration into South American free-trade area
Mercosur presents a "big threat" to Venezuelan companies,
without significant reforms to make the economy more
So says Ruth Krivoy, the country's former central bank
president, who insists in an interview with LatinFinance that
having joined the trade bloc, Venezuela now has a window of
opportunity to implement sound policies - and adapt.
"There is a drive now in Venezuela to really turn Mercosur
into an opportunity for local business, instead of a threat,"
says Krivoy, who ran the central bank between 1992 and 1994.
"If we don't do anything it's a big threat. If we learn that
now that we're there we need to change, it will be an
Venezuela's acceptance as the fifth member of the South
America trade bloc - which includes Argentina, Brazil, Uruguay
and Paraguay - was agreed in principle in 2006, although the
country wasn't formally admitted until six years later. Bolivia
is slated to become the sixth member and the door also remains
open to Ecuador.
Since the death in early 2013 of former president Hugo
Chávez, the trajectory of policy in Venezuela's heavily
state-run economy has been unclear under his successor,
Nicolás Maduro. But Krivoy says that reforms to place
the economy on a sounder footing are unlikely, given a
challenging political climate.
"President Maduro's government has realized the need for
more pragmatism in managing the [currency] controls and trying
to correct some distortions especially with the exchange rate,"
says Krivoy in reference to a new mechanism to control foreign
exchange flows, SICAD, which was introduced in early 2013.
"But it's hard to envisage significant changes because I
don't think they're ready to really deregulate or turn around
the course of events. They're constrained by the need to
portray the image of the continuing Bolivarian revolution. They
can't afford to lose support of the people ahead of the
December [municipal] elections."
Krivoy, now at Síntesis Financiera, a consultant firm
for GlobalSource Partners, says inflation is likely to hit 45%
by the end of this year, and to stay at a similar level next
year. The firm calculated year on year inflation to be 39.6% in
July 2013, the highest level since Chávez took office in
The country's most profound challenge is the lack of private
investment, says Krivoy. That stems from "overregulation, weak
rule of law, challenges to property rights, a very intrusive
price control system that tries to micromanage profits, margins
between producers, wholesalers, retailers and so forth," says
Krivoy. "That explains why the economy has really not made much
As for other trade relationships, Krivoy expects agreements
with China to continue. Venezuela sends around 500,000 barrels
of oil daily to China, which has offered loans in an increasing
number of sectors, including for industry and ports.
How much oil Venezuela will continue shipping to its
neighbors though is less clear. Under Chávez's
PetroCaribe plan, the country has offered large quantities of
oil at knock-down prices to Caribbean countries.
"We're probably nearing the time at which this program will
start pulling back slowly," says Krivoy. A need for cash at the
state oil producer PDVSA will ultimately determine the extent
of exports. But the political costs could be high.
"Maduro's leadership in the Caribbean may suffer if he
starts cutting back on the supplies of oil," she says. "So you
have contradicting forces working there. It'll probably be
slow. It won't be announced - it may take place by just cutting
back volume here and there." LF