“Everything is ready; there are some details pending about the mechanisms. We look forward to making the announcement, very soon, bringing the system in line, and including all economic and non-economic sectors,” Maduro stated.

The president in charge explained that the new system “will not harm the country at all, and any citizen, entrepreneur or not, will have access.”

Although the system has not been given a name, Maduro assured it has “structure, form, and mechanisms.”

He asserted that the system would be implemented along with comprehensive controls to avoid US dollar flight.

Prior to Maduro’s announcement, Minister of Petroleum and Mining Rafael Ramírez remarked that all the economic actions being implemented were designed by late Venezuelan President Hugo Chávez during a meeting held in Havana. Ramírez said that a set of actions would be implemented progressively.

The company has spent USD 50 million to almost treble its refining capacity of Canadian heavy oil in Houston, from 60,000 barrels per day (bpd) to 175,000 bpd.

The revamp of a crude oil distiller and a coking unit to refine crude oil from the tar fields of Alberta, Canada, “is being completed,” Lyondell CEO Jim Gallogly said.

Works began in the middle of February and they are expected to finish in the middle of April, Reuters said.

Lyondell has been changing its oil supply as it gets far away from its 13-year partnership with state-run oil holding Petróleos de Venezuela (Pdvsa), ended in 2006.

Under the agreement, the Venezuelan oil should be the main supply to the plant.

The use of the Venezuelan oil plummeted in 2009-2012 at the Houston refinery, said Lyondell. About 50% of the crude oil used in 2012 was from Venezuela, compared to 86% in 2009.

As a matter of fact, the new owner is an in-house employee, who has been benefited with the annual quota, under the collective bargaining agreement. The employee receives the car keys without much surprise.

It is some sort of a ritual that takes place once or twice in a year. The employee drives his brand-new luxurious acquisition out to the gates of the assembly plant based in the industrial area of Valencia.

Nevertheless, it is a few-meter drive; another person awaits on the next corner. The employee gets out of the car and hands in the longed possession to someone else. A happy buyer, without examining much the new acquisition, leaves the place positive that he has made a good deal.

The car recipient has just paid around VEB 550,000 in one single payment (USD 87,321.70) for the van to the assembly plant. In turn, he has received a sum of money amounting to between VEB 1,000,000  and VEB 1,200,000 (USD 158,767 and USD 190,520, respectively) from the new buyer. However, it is worth noting that this same vehicle will appear very soon on some selling website with the following price: VEB 1,400,000 (USD 222,273). The employee has earned around VEB 500,000 (USD 79,383.40) which will not be recorded in his annual tax return, except for his modest income totalling three basic wages.

The aforementioned business is perfectly legal and it is among the many ways in which a vehicle price can tremendously rise in a few minutes in a thriving black market. But such market has only one origin: scarcity. And scarcity stems from some other evils born to the governmental policies of controls, resulting in production drop. Additionally, the government control policies have complicated production to such an extent that the long way, from manufacturing a vehicle to its delivery to the end user, makes virtually impossible the purchase of such an indispensable good in modern society. What happens in the automotive industry depicts the plight undergone by some other Venezuelan industries. Because of excessive government controls, they have made products vanish.

In response, the Venezuelan Government warns of speculators, saboteurs, attacks against the Venezuelan currency and finally an “economic war,” concealing in the ideological confrontation the very actions of the Government, which are precisely the ones that trigger its self-created crises.

Production rates

Even up to 2008, any Venezuelan citizen could enter one of the 323 car licensed dealers based in the country and choose a vehicle according to its price, model or color. We could say that the socialism of the XXI century had not been “deepened,” as promised by government authorities every year.

A review of the numbers recorded since 2005 shows that the vehicle demand in the domestic market was around 300,000 units approximately. The needs in the domestic market were perfectly met by the combination of the production rate for that year (154,961 units) and the import of 73,417 units. (Numbers recorded by the Venezuelan Automotive Chamber, Cavenez).

Likewise, such trend continued rising in the following years by reaching a record number in 2007, when 172,418 units were produced and 319,000 units were imported. What happened then? Well, it was the year when Venezuelans could afford vehicles at a low price and of any brand or color. At that time, Venezuela occupied the fourth place as the most important automotive market in the continent. Today, the country ranks ninth.

By the end of 2008, a “protection policy” was enacted. This one controlled the car import licenses. Both elements: production and import controls halved the supply.

In 2009, the production rate fell to 111,554 units, whereas import decreased to 24, 963 units. The consequence of such decreases is that vehicles became a good not only of use but also an investment to get protected against the losing value of the local currency.

A new law on sales and buy of vehicles passed last January 2013 contemplates some sort of a “rationing booklet.” The law binds car dealers to publish the lists of applicants in their premises. This law is like taking away consumers’ right to privacy, and also the freedom and right to acquire goods, which is established in the Constitution of Venezuela.

The production line drops

For a third world country like Venezuela, acquiring imported raw material requires of dozens of legal procedures, completion of forms, seals and even the essential application for the dollar quota to be allocated by the Commission for the Administration of Currency Exchange (Cadivi). The first thing to take into account here is that 60% of the parts of vehicles assembled in Venezuela are imported; that is the main checkpoint that curbs production. The closure of the swap market which allowed citizens to acquire bonds for buying US dollars without resorting to Cadivi, and the recent elimination of the Transaction System for Foreign Currency Denominated Securities (Sitme), have been key elements in the production fall. Year 2012 ended with a production rate of 104,083 vehicles and an import rate as low as of 25,000 units: a deadly equation for a market that counts on 300,000 clients per year.

But the drama does not end here; producers go through the calamity experienced at  Venezuelan harbors due to congestion and bribery, from which no one can ever escape.

Additionally, deteriorated public services make an impact on the country, particularly a fitful power supply which causes  significant delays in the production line.

Furthermore, the new labor laws, especially the clauses referred to firing freeze have caused work absenteeism, indiscipline, unjustified stops in the production line by trade unions and all the issues related to the quota traffic which draws workers’ attention and interest to this benefit related to something else than production. President of the Venezuelan Chamber of Food Processing Industry (Cavidea), Pablo Baraybar, informed that labor absenteeism, as a consequence of the firing freeze contemplated in the law, has grown from 3%, before the legal reform, to 46%.

Finally, the repatriation of dividends for assembly plants has been on hold for several years, thus affecting parent houses and creating distrust in the country.

The financial obligation, known as the “mandatory mortgage portfolio”, requires both state-owned and private banks to assign a percentage of their gross annual loans toward housing construction and controlled-interest mortgages to low income Venezuelans.

It is an important means through which Venezuelans are able to get affordably priced mortgages or loans for housing construction.

The government announced on Wednesday that the mandatory mortgage portfolio was to be increased from 15 to 20%.

With the change, the portfolio is expected to raise around 80.4 billion bolivars (US $12.8 billion), of which 65% must fund housing construction, 30% go towards mortgages, and 5% for self-construction, housing improvements and extensions.

The percentage of the fund destined toward mortgages has increased 4% from last year, with the president of Venezuela’s National Housing Bank (Banavih), Mario Isea, explaining that the move is aimed at “increasing the people’s access to mortgages”.

Further, the head of the government’s Housing Commission, Rafael Ramirez, reported that the funds raised will be important for achieving the government’s goal of constructing 380,000 new homes in 2013.

Venezuela has long suffered from a structural shortage in housing, something President Hugo Chavez’s government is attempting to remedy through a mass housing building program, launched in 2011.

Over 300,000 new housing units have been constructed by the program so far, with the aim being to construct as many as 3 million by 2019 to end the country’s housing deficit.

Officials also confirmed that mortgages granted under the mandatory mortgage portfolio will continue to have their interest rates regulated; at 4.33% for those earning between one and four times the monthly minimum wage, currently at 2,047 bolivars ($325), and 10.66% to those earning between eight and fifteen times the minimum wage.

The government also announced that for the first time mortgages granted to wealthier Venezuelans, those earning over fifteen times the minimum wage (30,712 bolivars / $US 4875), would also be legally capped, at 16.4%. Officials claim that banks had been charging speculative interest rates to this sector, at an average of around 24%.

Speaking in an interview with public channel VTV, Isea responded to concerns that forcing banks to put such a high percentage of their credit toward construction and low-interest mortgages would threaten their stability.

Explaining the government’s continued increasing of the mandatory mortgage portfolio, he said, “We went from 10% to 12%, 12% to 15%, and now to 20%, even last year when demands for loans increased and some in the banking sector said we were going to put their liquidity at risk, which didn’t happen”.

“They (the banks) have very high profits and a great deal of liquidity that they must invest, and we knew they could support the increase,” he continued.

Isea further argued that the government had calculated the controlled interest rates for mortgage lending carefully, and that “there’s no reason this year that banks can’t fulfill their obligation”.

He added that if any bank did not fulfill its contribution to the fund, the state would take the corresponding legal actions.

This fact, combined with a new devaluation of the Venezuelan bolivar, will result in problems for multinationals. Colgate-Palmolive said it will record extraordinary losses at USD 120 million in 2013 following confirmation of the devaluation of the bolivar.

“Colgate expects its earnings per share to drop USD 5-7 cents on a quarterly basis in 2013 over the conversion of the financial statements to the new Venezuelan exchange rate,” Reuters reported.

For the US giant, the Venezuelan market is “hyperinflationary” since 2010. Recently, the company also reported that labor unrest hit their operations in Venezuela.

Devaluation in Venezuela is to adversely affect other multinationals as well. Two Spanish transnationals, namely Telefónica and BBVA, will be hit hard by the economic measures taken by the Venezuelan Government.

“In our assessment of BBVA, Venezuela represents 5.7% of the total value, so the impact of 30% devaluation would be 1.7%,” said Banesto Bolsa, as quoted by Reuters.

For Telefónica, the parent company of Venezuela-based telephone carrier Movistar, there will be repercussions.

“Besides the impact on income (USD 3.09 billion in the first nine months, that is, 4.95 percent of total income), the telephone carrier holds USD 2.6 billion in cash and dividends that are waiting for repatriation,” Banesto Bolsa explained, as quoted by Reuters.

Indeed, last week the president of the Telefónica subsidiary in Venezuela, Pedro Cortez, acknowledged the concern of the company about their inability to repatriate dividends generated since 2009.

“The issue of dividends is an important topic for us; we do not deny it. We have fulfilled all legal procedures and regulations that any multinational company needs to meet and we are waiting,” Cortez said in a press conference.

Further, US automaker Ford also acknowledged it is facing difficulties in the Venezuelan market. During the presentation of the overall results of 2012 and the outlook for 2013, the company highlighted the domestic market restrictions as a hurdle for their growth targets.

“The competitive environment, currency risks throughout the region, especially in Venezuela, will have an adverse impact on our profitability,” read the report submitted by the automaker in late January.

Economic research Ecoanalítica forecasts for 2012 suggested that multinationals had at least USD 9 billion held up in Venezuela.

Devaluation immediately translates into foreign exchange losses that undermine the finances of the companies as they will have to report fewer dollars for operations in previous years.

Masisa fell 3.3 percent to 54.5 pesos at 1:33 p.m. in Santiago trading after earlier falling as much as 4.2 percent in the biggest intraday loss since Oct. 19. It was the biggest decliner today on the Chile 65 stock-market index, which tracks the country’s largest companies based on an adjusted measure of market value.

Venezuela’s finance minister said Feb. 8 the government would weaken the official exchange rate by 32 percent to 6.3 bolivars per dollar. The country accounted for 25 percent of Santiago-based Masisa’s revenue during the first nine months of 2012, according to regulatory filings.

“They will have a lot of revenue in bolivars and to bring that back in dollars will cost more,” Jose Manuel Edwards, an analyst at Santiago-based broker IM Trust SA, said in a telephone interview.

Masisa operates 38 Placacentro construction-material stores in Venezuela, according to the company’s website. Masisa also has an industrial facility and owns 84,800 hectares of forests in the country.

The earthquake has its epicenter in the fact that in 2012, Hugo Chávez’ administration increased spending to exorbitant levels to grease the machinery that would guarantee that he would stay in Miraflores presidential palace and an overwhelming victory in gubernatorial election.

In an analysis, Miguel Ángel Santos, economist and professor at the IESA (Higher Business Studies Institute), points out that public spending in 2012 reached record historic levels in real terms per inhabitant. The Venezuelan State disbursed an amount equivalent to 51% of GDP, vs. an average of 30% in the rest of Latin America.

Oil revenues and tax collection were not enough to increase spending up to those proportions; therefore, the administration resorted to the central nank, which turned on its money-printing machine to finance state-run oil giant Pdvsa and indebtedness. The upshot: the amount of bolivars in the economy grew 61%.

This colossal injection of spending, which is reflected in wage increases, a higher number of pensioned workers, ministries’ payrolls, grants and subsidies, took consumption up to levels far above the production capacity of companies that, amidst multiple controls, have invested very little in new machinery and equipment.

To prevent that imbalance between supply and demand from translating into a quick acceleration of inflation, the administration did not authorize adjustments in controlled prices and increased imports up to USD 56.36 billion, the highest amount over the past 16 years, which accounts for 59% of the amount of dollars that entered the country from exports.

The stability of oil price, from where 96% of the country’s dollar requirements come, implies that foreign currency supply this year will not grow, whereas the rise in imports and foreign debt payments, up 48% from 2012, result in a higher demand for dollars, with this import boom being difficult to sustain.

Amidst this environment, the administration has considered devaluation to cool down imports, borrowing to obtain more foreign currency or restricting dollar allocation by Cadivi.

The latter option has prevailed so far and according to Datanálisis, scarcity index of price-controlled food products was 30% over the first 15 days of the year, a figure that had not been registered since January 2008.

To alleviate the lack of foreign currency, Pdvsa announced last week a cut in contributions to the National Development Fund (Fonden) so as to increase by USD 2.4 billion the amount of dollars to pay for imports. But this amount does not appear to be enough, and it is uncertain whether it will be available immediately or through little quarterly disbursements.

The freeze of controlled prices is also becoming unsustainable because businesses are curtailing production even as shortages are growing. The problem is that allowing cost adjustments would result in higher inflation.

The gap between income and expenses, when the entire public sector is included, amounts to 18% of GDP, the highest in Venezuelan history, according to sources from the central bank and estimates by financial entities like Barclays and Bank of America.

The possibility of cutting spending in a year when Hugo Chávez’ illness could force new presidential election looks unlikely. Therefore, analysts believe that the government has the option to massively borrow, devalue to get more bolivars for oil dollars, print money at the central bank or increase taxes.

These are measures that take their toll in terms of inflation and economic growth.

The devaluation, which lowered the currency’s value against the dollar by nearly a third, was aimed at solidifying government finances and easing a tight market for dollars that has choked back imports and led to shortages of basic goods.

The move had been widely anticipated, but it had been unclear whether officials would make what could be a politically risky decision with President Hugo Chávez still out of the country after undergoing cancer surgery in Cuba on Dec. 11.

If Mr. Chávez were to die or were too ill to continue as president, a special election would have to be called, and many analysts thought that the government might try to postpone a devaluation until after that occurred.

“It is a sign of pragmatism that they carry out a devaluation even though we’re all aware there is some likelihood of a presidential election being held soon,” said Francisco Rodríguez, an economist with Bank of America Merrill Lynch. “This shows that they’re willing to correct basic economic distortions.”

The currency, the bolívar, will be set at 6.3 to the dollar. It had been set at 4.3.

Venezuela’s finance minister, Jorge Giordani, said that Mr. Chávez, who has not been seen or heard in public for more than eight weeks, had approved the measures.

“Here is the president’s signature if you want to recognize it or if you still have doubts,” Mr. Giordani said, holding up a document during a televised news conference.

The devaluation will help the government balance its books by giving it more bolívars for the dollars it earns selling oil on the world market. Venezuela’s economy is highly dependent on oil, with petroleum sales making up about 95 percent of total exports. The country is the fourth-largest foreign oil supplier to the United States.

Government spending soared last year during the campaign to re-elect Mr. Chávez, leading to a large deficit, even though, at more than $100 a barrel, the price of oil is very high.

Pressure to devalue had been building for months, as the black market exchange rate rose to more than four times the official rate. The imbalance was evident in the prices of many goods. A Big Mac at McDonald’s costs 70 bolívars, or $16.27, at the official pre-devaluation rate.

But the devaluation will also make imported goods more expensive, which will probably make inflation worse. Inflation for the 12 months ended on Jan. 31 was 22.2 percent, one of the highest rates in Latin America.

Surging inflation could cause political problems for the government.

According to forecasts from the state Petroleos de Venezuela (PDVSA), in 2013, six new development projects in the area should bring together about 400,000 barrels of crude.

The mixed companies PetroCarabob, Petromacareo, Petroindependencia, Petrourica, Petrojunín and Petromiranda, entities in which PDVSA is partner are responsible for the development.

Production forecasts in 2012 faced logistical difficulties, with work toward a final solution being done in an accelerated manner.

To that end, Petroleum and Mining Minister Rafael Ramirez said approximately 500 kilometers of pipelines are being installed to transfer the oil to refineries.

The abovementioned plants process the heavy crude oil until it becomes light oil that can be further refined in the existing refinery center in the country.

Data released by the Panorama newspaper shows that the first objective is to add at least 150,000 barrels of oil in the first half of the year, while the rest would come in the second half.

For its part, PDVSA expects to activate a total of 200 wells in the area, which will require exploration of some 1,500 possible well sites.

The eighth edition of the Citgo-Venezuela Heating Oil Program began on Thursday. Under the program, free heating oil will be provided to some 100,000 low-income households in the US that cannot afford heating oil during winter.

The eighth program was launched at the Night of Peace Family Shelter in Baltimore attended by Citgo Petroleum Corporation President and CEO Alejandro Granado, Citizens Energy Corporation Chairman Joseph P. Kennedy II, and Venezuelan Deputy Minister for North America Claudia Salerno Caldera.

The program, which began in 2005 in response to the high prices of heating oil resulting from hurricanes Katrina and Rita, has helped so far some 1.7 million people by supplying them over 200 million gallons of heating oil.