In the last couple of weeks, both Venezuela and Argentina have implemented new programs that will function essentially as de facto mechanisms for loosening currency controls in each country to fight depreciation pressures.
In Venezuela, it takes the form of a program called SICAD (Sistema Complementario de Administración de Divisas), which will allow Venezuelans to buy an unlimited amount of foreign currency through all types of financial intermediaries provided it be for travel, health or education. While still a severe impediment to convertibility, it still represents a step forward from the current CADIVI system—which is now likely in its death throes—which made legal dollars almost impossible to obtain for many citizens and spurred a massive arbitrage scheme.
The Argentine novelty is CEDIN (certificado de depósito para inversión), which is attempting to simultaneously achieve three goals: encouraging people to declare heretofore illegal dollars to bring them into the official system, channeling investment into the moribund property market and closing the gap between the black market dollar (el dólar blue) and the official rate. Essentially, Argentines will be able to declare dollars without facing any penalty in exchange for CEDIN certificates which, depending on the type, can be used to purchase property or inputs for construction and some other goods. The CEDIN can then be exchanged back for dollars.
Neither SICAD nor CEDIN appears likely to do much to ease the currency pressures in either country and a formal devaluation is a near certitude in both countries within the next two years. Instead, these programs are emblematic of a commonality between both kirchnerismo and chavismo in economic matters; an overweening focus on the short-term that breeds a proclivity toward accumulating quick fixes rather than addressing underlying problems. The reasons for this are twofold: both governments have staked their economic legitimacy on a heterodox model and reform is painful, even in economies less distorted than those in Venezuela and Argentina.
I’ve written before about how Cristina Fernández de Kirchner’s devotion to el modelo has left her hamstrung in dealing with its failings, and, quite obviously, the chavista model of 21st Century Socialism is tightly wedded to a similar opposition to orthodox economic policy. This leaves little politically acceptable wiggle room for either government when the models lead to distortions in the economy, which incentivizes the governments toward adopting piecemeal solutions. These solutions can temporarily ameliorate whichever symptom they have been devised to combat, but often create further distortions or avenues for corruption necessitating further measures creating a vicious cycle of bad macroeconomic governance.
Reform is never an easy task; when times are good, politicians often lack the incentive and when they go bad, they’re often faced with a cure is worse than the disease scenario. SICAD and CEDIN won’t do anything to address the reasons why Argentines and Venezuelans are so desperate to have dollars instead of pesos and bolivares and in the meantime add one more layer of complexity to each economy. Looking forward, the question is, how much longer can these governments tinker while ignoring the real problems?