Banco Central de Venezuela and the world economic crisis

Banco Central de
Venezuela and the world
economic crisis                           RIF.: G-20000110-0

Banco Central de Venezuela as the State’s entity responsible for the economic and financial
policies addresses itself to the nation in relation to the international economic situation.
World capitalist economy is under crisis. Its magnitude was made evident within the
financial environment in the middle of 2007, and it was underestimated from the beginning.
It started by affecting United States’ financial system, becoming a great problem since it
implicated institutions of various developed countries involved in speculative operations
disconnected from the real economy. Then it went from the financial sector to the real
sector, when generating an economic recession, unemployment, lower people’s income and
general decrease of goods and services production, leading to a global crisis which affects
millions of human beings

World economic authorities have not found the appropriate remedy to stop its terrible
effects with respect to unemployment record rate in developed economies, deflation fear,
deep raw material prices fall and a historical drop in consumption. Alerts about this have
been given in many multilateral forums in order to avoid social and political consequences

as the ones caused during the great depression, between 1929 and 1933. Social costs related
to this crisis are expected to overpass 5 billion dollars.

World Trade Setback

This world problem has paralyzed credit and has caused the first world trade setback in 25
years, as well as the biggest global economy squeeze in the postwar period. Banks
nationalization in developed countries is encouraged and fiscal policies are settled under a
State intervention disposition, previously disdained by neoliberals. Now it arises as a
lifesaver, due to the loss of effectiveness of the public policies implemented in those
countries, revealing, in this way, that it is also a crisis of the economical thought that has
been dominant for the last two decades.

World economy devastation and its development model has got to such an extreme that
even one of the main actors of the international financial system and former president of the
Federal Reserve-the central bank of The United States-, in a meeting at the Senate of that
country in 2008, made an analogy between the crisis and a credit-tsunami that happens only
ones in 100 years, which implies an enormous lives and goods destruction power which can
only be faced appealing to unprecedented measures. Likewise, it highlighted the terrible
consequences and its perplexity regarding this problem which goes beyond imagination.

Public policies coordinated toward development

In the case of Venezuela, the economic authorities, the National Executive and the Central
Bank, are working coordinately to face the possible consequences of this international
crisis. The issuing entity, with objectives designed by the constituent and developed by the
legislator, besides looking for price stability and, in general, contributing with the harmonic
development of the national economy, carries out in an exclusive way the monetary
competences, participates in the design and direction of exchange policies, and coordinates
their performance with that of the Executive Power in the harmonization of the

macroeconomic policies. To fulfill with those objectives, BCV controls currency, credit,
and interest rates and administers international reserves. In this sense, the issuing entity
continues attentive to the evolution of liquidity and credit, and takes action in coordination
with the Ministry of Popular Power for Economy and Finance, to guarantee the appropriate
functioning of the payments system and of the credit flow in the national economy.

The coordination with the rest of the authorities is the mean foreseen by the Constitution to
harmonize actions. Consequently, the Central Bank of Venezuela has adapted its
institutional capacities for the macroeconomic coordination, especially with the National
Executive, regarding the authorities who determine the direction of the policies, and the
technical instances who consolidate figures and implement the agreed strategies. The
information to be given to the community regarding the policy to be implemented is
contained in its Monetary Policy Provisions; where the direction of the Institute’s measures,
which go beyond the financial aspect, is pointed out. Authorities explain that productive
assets investment is fundamental to assure the country’s growth and development.

International reserves represent the main financial asset of the nation and the support of
both, the Bolivar and the financial system. Therefore, the Central Bank carefully
administers them by means of provisions which protect them from adverse contingency.

Such provisions are present in the relationship that BCV keeps with international financial
institutions of the highest soundness and solvency, where it places these resources of the
country, in line with a legal mandate.        According to the effects that the profound
international crisis is having on markets and on all kinds of institutions, BCV has adopted
additional measures tending to give priority to reserves security; positive results have been
observed, since, its value has been preserved at the same time that the obtained returns are
in line with the present circumstances.

In spite of oil prices decrease, the global crisis has impacted our country with lower
intensity, due to the sovereign economic and social policies implemented for several years.
Additionally, the existence of development funds directed to the productive and social
investment gives strength to continue executing policies that assure a comprenhensive
human development, as a mean to satisfy the collective necessities and to carry out high-
priority actions in the economy, in order to give more dynamism, support and fairness to
the economic development. In this sense, the contributions to Fonden and to the National
Tax authorities by means of transfers and profits respectively, are made under strict
observance according to legal dispositions.

In defense of common interests

To have statistical resources is especially fundamental in economic tight periods. That is
why BCV as statistics generator of the country, works in four big systems of information:
the Systems of National Accounts, Balance of Payments, Monetary and Financial Statistics,
and Price Statistics and of Labor Market. These systems are described, from the conceptual
and methodological point of view, in manuals of acceptance and international usage that are
periodically upgraded by international experts; BCV rigorously applies them allowing the
comparison of Venezuela’s figures with those of the rest of the world. In view of the fact
that these statistical systems are interrelated, the calculations and final estimates arise from
a group of equilibriums which contribute to the reliability of the results, given the inter-
sources harmonization, which also guarantees objectivity.

On the other hand, BCV’s figures are characterized by their probability, even at a scale
above international standards in most of the cases. Besides, confidentiality and objectivity
principles are always applied and are indispensable in the investigation and transparency
process. A prove of this is the publication of the methodologies and results of the statistical
programs permanently carried out by the Bank to all audiences of the country, being the last
one the National Consumer Price Index.

The professional and technical capacity of the Central Bank is nationally and
internationally recognized. More than six decades of existence have allowed the issuing
Institute, directed by its authorities, to develop a tradition of excellence in all its workers
who proudly belong to the institution and make it patrimony of the country. Acting in
defense of the national community, this group of women and men will keep up with BCV’s
effort to guarantee the correct functioning of payment systems, stimulate credit to
productive sectors and adopt those measures which are convenient to keep the economic
activity, employment and the stimulus to social inclusion, in coordination with the National
Executive. In this way, the new BCV shows how different it is from the traditional
monetary                                                                             orthodoxy.