Monetary and Exchange Rate Policies
The Central Bank of Venezuela (Banco Central de
BCV) performed all typical central bank functions, such as
managing the money supply, issuing bank notes, and
credit. As part of the country's overall financial sector
the BCV embarked in 1989 on numerous revisions of monetary
aimed at improving the bank's control over the money
most important policy change was the government's decision
allow the interest rate to fluctuate with market rates.
its initial inflationary effect, the policy created
for savings and investment, thereby attracting and
capital. Deposits swelled noticeably during 1989. In 1990,
however, the Venezuelan Supreme Court declared that the
legally responsible for setting interest rates. The BCV
rescind the law in the early 1990s.
Venezuela traditionally enjoyed general price
inflation averaged a mere 3 percent from 1930 to 1970.
price increases did not exceed 25 percent until the
During the 1970s, many economists credited the FIV with
successfully managing and investing overseas the country's
windfalls in a way that prevented inordinate price
By the 1980s, however, financial deterioration, weakening
authority, numerous devaluations, and fiscal deficits had
combined to push consumer prices and inflation up
the late 1980s. The average consumer price index rose by
unprecedented 85 percent in 1989 (see
table 8, Appendix).
price increases were associated with the 1989 structural
adjustment program, and thus represented what some
refer to as "correctionary inflation," the trade-off for
eliminating previous distortions in prices. By 1990 only a
handful of price controls remained in effect.
The bolívar was traditionally a very stable currency,
to the United States dollar at a value of B4.29=US$1 from
1983. The bolívar experienced several devaluations from
1988, when monetary authorities implemented a complicated
fourtier exchange-rate system that provided special subsidized
for certain priority activities. The multiple
system, however, proved to be only a stopgap measure,
giving way to a 150 percent devaluation at the market rate
1989. The 1989 devaluation unified all rates from the
B14=US$1 rate to the new B36=US$1 rate, which was a
subject to the supply and demand of the market. By late
value of the bolívar had crept down to B43=US$1.
In a related matter, the Differential Exchange System
(Régimen de Cambio de Dinero--Recadi), the organization
oversaw the various exchange rates, became the focus of
the largest scandals in the decade. Between 1983 and 1988,
businessmen bribed Recadi officials in return for access
to halfpriced United States dollars to funnel an alleged US$8
overseas. When the scandal broke in 1989, law enforcement
investigated as many as 2,800 businesses, and more than
executives from leading multinational enterprises fled the
country in fear of prosecution.
Data as of December 1990