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 opportunity."
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
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
"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 progress."
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
"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
"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