March 11, 2014
LATIN AMERICASaturday, January 4, 2014
Venezuela moves to alter currency lock
State oil company given power to sell dollars at SICAD rate, tourist currency exchange to be expanded
CARACAS — Venezuela’s state-run Petróleos de Venezuela S.A (PDVSA) oil and gas company and other companies in the oil and gold sectors have received government approval to sell foreign currency, including US dollars, at the preferential exchange rate known as the SICAD.
The SICAD exchange rate, set by the sale of foreign currency at weekly auctions, is currently close to 11.30 bolívars to the US dollar, which is significantly higher than the fixed official rate of 6.30 bolívars. The changes came into effect on December 30, 2013.
PDVSA and other companies in Venezuela’s oil sector will be allowed to exchange the dollars that they acquire from “activities distinct from the export and/or sale of hydrocarbons” said the Central Bank.
The administration of President Nicolás Maduro has not yet given an estimate for the volume of currency exchanges that PDVSA and the other companies could negotiate but Rafael Ramírez, minister of oil and PDVSA President, recently advised that for 2014 an investment of US$6 billion is anticipated. The exchange rate given by the SICAD system will also be permitted for use by the gold sector and for accounting purposes.
The SICAD system allots foreign exchange to companies that need to import items into Venezuela and was inaugurated in March, 2013, as a way for the government to bypass and weaken the black market. The exchange rate within the SICAD system is set using a modified Vickrey auction method and was matched with regulations that limited the importers’ access to cash.
The Central Bank paid the suppliers of the importers directly so that importers could not convert cash in US dollars on the black market.
CURRENCY FOR TOURISTS
Minister of Tourism Andrés Izarra also announced yesterday that the government is to expand the system by which tourists can buy and sell foreign currecy in the country, by admitting hotels, private and public banks and currency traders to the system.
The Venezuelan Central Bank brought in the scheme for tourists last month, allowing transactions only at official state offices at the Simón Bolívar international airport serving Caracas and a second airport in Valencia. The rate for tourists was also set using on the SICAD system.
Izarra denied that permitting the expanded use of the SICAD rate represents a de facto devaluation and said that for all other foreign exchange transactions the official rate is still in effect.
However, Ronald Balza, economics professor and researcher at the Andrés Bello Catholic Universtiy in Caracas said the “multiple exchange rate” system implies a “devaluation by sectors.” Balza considers this change a “fiscal measure” as it will grant the government a needed infusion of bolívars and it will also release some of the pressure on PDVSA, which has had to request large loans from the Central Bank in the last two years in order to meet the executive branch’s thirst for cash.
Balza continued by adding that the additional bolívares will increase pressure on the parallel foreign exchange market and on prices, thus having an impact on inflation.
Angel García Banchs, Director of the Econométrica consulting firm, advised that the exchange rate modification is a “very small devaluation” and indicated that it is very possible that further changes will be enacted in the next few months.
Venezuela has an influential black market where the US dollar changes hands at an exchange rate ten times greater than the official exchange rate. The black market has become a reference for price-setting and thus exerts great pressure on the inflation rate, which reached an annual rate of 56.2 percent at the end of 2013. Strict currency controls have been in place in Venezuela since 2003.
Herald with AP, Washington Post