Venezuela's Finance: Nóbrega’s distortions
18.10.04 - Finance Minister Tobías Nóbrega has decided to speak openly about the Central bank’s foreign exchange profits. Up until recently he had acted with moderation and kept out of the political debate unleashed when, almost a year ago, President Hugo Chávez demanded the famous “mere billion” from the international reserves. Now, however, he is making no secret of the fact that he intends to put pressure on the Central Bank for it to hand over the trillions of bolivars needed to cover part of the 2005 fiscal deficit to the Treasury.
In a lengthy communiqué dated October 15, Nóbrega resorted to a number of inaccuracies or misinterpretations to justify this demand on the Central Bank. One of them is the argument that the first foreign currencies acquired are the first to be sold, which is false, as the Central Bank is (or was) free to select the accounting method to be used. However, on one point, the Minister was right, and that is that the new law governing the functioning of the Central Bank, passed during this administration, stripped the BCV of autonomy to the point that it does not even have control over its accounting procedures.
Nóbrega claims that “international accounting standards proscribed the application of selling the last foreign currency acquired first, which would make it legally and technically impossible to apply this convention,” something that is not true. The Bank of Basle and the International Monetary Fund do not back the accounting practice that the Superintendency of Banks is attempting to impose on the Central Bank, on the contrary, they maintain that the fluctuations produced by currency devaluations and/or adjustments for inflation are not considered net distributable earnings but go directly to the capital account with no possibility of being distributed.
Central banks in developed countries are excessively careful of how they make the entries on their accounts, as their assets are exposed to the ups and downs of the exchange rate, which, to some extent, are speculative.
The Central Bank of Venezuela had already lost power with the passing of the new law, but now, and despite the resistance put up by its board of directors over the possibility of handing over fictitious profits to the Treasury because they have no counterpart in the economy, the government is finally doing away with the little autonomy that its directors were defending.
The main function of a central bank is to preserve the value of the currency and maintain prices, hypotheses that have been lost sight of with the Chávez administration’s current monetary and fiscal policy.
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