“The Constitutional Chamber of the Supreme Court had it in their hands the possibility to save the Venezuelan economy but, as always, chose to agree with the Chávez administration. As a result: the Bolivarian Republic suffered the worst inflation in the continent, with a devalued currency and high shortage of basic goods.
A group of renowned economists appeared before the TSJ on March 8, 2006, to request the annulment of three articles of the amended Law of the Central Bank of Venezuela (BCV), on the grounds that they infringed the Constitution and acted against “the management of monetary and exchange rate policy” of the nation.
Experts warned the judges that these provisions, promoted by the late President Hugo Chávez, made it “impossible” for “the Central Bank to achieve price stability and preserve the internal and external value of the currency.” In other words, back in 2006, experts were already warning that Chávez’s attempts to eliminate the autonomy of the BCV, to manipulate what he called “surplus” reserves and fund deficit fiscal policies were threatening to trigger an inflationary spiral and the collapse of the bolivar.
However, the Constitutional Chamber of the Supreme Court, in a presentation by Justice Luisa Estella Morales, dismissed the warning made by economists and endorsed Chávez’s decision. In a judgment published on November 16, 2010, the Court determined that the Constitution “establishes a macroeconomic coordination between the Central Bank of Venezuela and the Executive Branch, which enables them to promote and defend economic stability, prevent vulnerability of the economy and ensure monetary and price stability, to ensure social welfare.”
The ruling allowed Chávez to directly administer an amount originally estimated at $6 billion, which were deposited in the newly created National Development Fund (Fonden). “the Court does not believe that the mechanism used by the law to allocate the funds contributed to the National Development Fund, S.A. (FONDEN) by Petróleos de Venezuela, S.A. (PDVSA) constitutes an instrument that effectively counters constitutional provisions or principles relating to price stability and preserve the internal and external value of the currency or non-recognition of the powers of the Central Bank of Venezuela on the design and implementation of monetary and foreign exchange reserves management policies.”
Reality proved to the TSJ – and all Venezuelans – that this policy that bypassed the BCV autonomy and gave the government to ability to handle billions of dollars with no control, would throw Venezuela into the jaws an – ongoing – economic crisis.”
Extract of the judgment
Accordingly, the Court does not believe that the mechanism used by the law to allocate the funds transferred to the National Development Fund, S.A. (FONDEN) by Petróleos de Venezuela, S.A. (PDVSA) constitutes an instrument that effectively counters constitutional provisions or principles (…) the law of the Central Bank of Venezuela enabled, without violating the constitutional prohibition of non-retroactivity of provisions, the immediate transfer to the National Development Fund, S.A. (FONDEN) of millions of U.S. dollars, needed to “finance real productive investment, education and health” (…). Therefore, this Court believes that the provisions under claim are in line with constitutional provisions about the monetary system, and thus, decides to dismiss the complaint. So it is declared”.