The National Law Center is a non-profit 501(c)(3) Research and Educational Corporation. © Copyright, 1996
Baker & McKenzie
Carlos A Plaza and Rossana D'Onza (Caracas)
(58-2)953-0833
By Decree No. 899 of 25 October 1995 (Official Gazette No. 35,824 of 26 October 1995), the National Executive authorized the Finance Minister to enter into a new Exchange Agreement ("No. 2 Agreement") with the Central Bank of Venezuela ("BCV") for purposes of setting one exchange rate for selling foreign currency for tourism travel and another for business travel, tickets for travel abroad and charges made with credit cards while abroad. Likewise, the Decree authorized the Minister of Finance to set an exchange rate for the purchase of foreign currency by non-residents who are obliged to sell currency when they enter the country with tourist, business or other kinds of visas.
Agreement No. 2 entered into by the Minister of Finance and the BCV was published in the same Official Gazette. According to Agreement No. 2, the BCV will daily determine the applicable rate of exchange for the items and operations set forth in Decree No. 899. The rate of exchange applicable to selling foreign exchange is that which results from the weighted average price of "Brady Bonds" that are negotiated in the Caracas Stock Exchange and the Venezuelan Electronic Exchange on the day the determination is to be made. The rate of exchange applicable to the purchase of foreign currency by non-residents is the same as that for selling, less seventy-five cents. The daily rate of exchange determination governs transactions made by foreign exchange operators on the following working day. The BCV must inform the foreign exchange operators of the rate of exchange by means of the electronic data transmission system it normally uses or through other means. The sale of foreign exchange for the purposes listed in Decree No. 899 is subject to availability and limited to the amount determined by the BCV as set forth in Article 12 of Decree No. 714 of 14 June 1995.
Decree No. 899 and Agreement No. 2 eliminate the single exchange rate by establishing a second rate of exchange. The purchase of foreign exchange from non-residents at the new rate of exchange has been criticized as discriminatory and even unconstitutional.
Decree No. 895 of 18 October 1995 (Official Gazette No. 35,821 of 20 October 1995) introduced certain amendments to the system for delivering foreign currency to pay for the importation of goods and services. Since the publication of that Decree, all requests for authorization to purchase foreign exchange to pay for imports have been reviewed and processed under criteria established by a committee of representatives from the Ministries of Finance, Development and Agriculture, and the Foreign Trade Institute. The criteria are transmitted to the Currency Board ("JAC"), which oversees the Technical Office of Currency Administration ("OTAC") to process the foreign exchange requests, according to the priorities resulting from applying the evaluative criteria.
Foreign currency for the payment of imports entering Venezuela after the effective date of the Decree and which have not been paid as of that date, shall be made available in three parts: 30 percent once the shipment enters Venezuela, 35 percent to be paid after ninety calendar days, and another 35 percent to be paid 120 calendar days after importation.
With the establishment of a new exchange system for importation, the Decree seems to have repealed Article 34 of Decree No. 714 (Official Gazette No. 4,921, Extraordinary of 16 June 1995), which states that if importation takes place by means of "payment on sight," the sale of the foreign currency could be made before the merchandise enters Venezuela, as long as the importation was authorized by the JAC and the importer had established sufficient guarantee to the National Treasury.
The JAC may authorize delivery of foreign currency on terms different from those established by the Decree essential for the import of goods and services. Finally, the Decree has not modified the special systems applicable to importations for amounts of less than US$5,000 and for importations made through the Payments and Reciprocal Credits under ALADI.
Pursuant to Decree No. 1,018 published in Official Gazette No. 35,876 of 10 January 1996, companies registered in Venezuela to perform projects of national interest or to benefit the general public may retain foreign currency generated from activities in Venezuela. The foreign currency may be used to pay debts incurred in currency other than Bolivars (including shareholder loans), to pay dividends to foreign shareholders and to repatriate capital.
Pursuant to Article 2 of the Decree, any amounts of foreign currency not used for the enumerated purposes must be sold to the Central Bank of Venezuela at the official exchange rate. Consequently, these companies may not enter into Brady Bond transactions to convert their foreign currency into Bolivars.
For a company to qualify for the "public interest" exception, it must have authorization from the Ministry of Finance and meet the following requirements:
(i) The company must make an investment of at least US$50 million in Venezuela.
(ii) The company must have at least 40 percent foreign participation.
(iii) At least 35 percent of the raw materials used must be from local sources.
(iv) At least 40 percent of the production must be exported.
The Ministry of Finance will respond to companies requesting this status within thirty days from the date the application is filed. Once a company is approved for exceptional status, it may not apply for a separate Authorization to Purchase Foreign Exchange.
Unfortunately, the wording of the Decree is unclear and creates uncertainty, e.g., as to the amount of foreign currency which may be retained. Without clarification of these issues, it will continue to be difficult to obtain financing for major projects. The solution to the problem is to amend the Decree.
The information contained in this article should not form the basis of any decision as to a particular course of action; nor should it be relied on as legal advice or regarded as a substitute for detailed advice in individual cases.
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