Monday, April 1st 2013 - 09:55 UTC

Venezuela auctions dollars; value is estimated at double the official rate

Venezuelan government foreign currency auction for local importers has triggered de-facto currency devaluation, the second in less than 50 days, analysts said. Venezuela has had strict currency exchange controls since 2003 in an attempt to halt capital flight, under which the government sold limited amounts of foreign currency at an official rate.

Finance minister Giordani said the new system offers ‘transparency’ (Photo: Reuters)

But the hunger for dollars and Euros persisted, fuelling a black market with a much higher exchange rate that by law cannot be published.

The government scrapped a program that exchanged currency at a rate of 5.3 Bolivar per dollar because officials said it allowed for “speculation,” and dollars wound up on the black market.

Instead, it launched a new plan known as SICAD through which it auctioned 200 million dollars last week to a group of chosen companies. The government said that 383 companies participated, but did not name them or reveal the sale price of the dollar.

Critics say the auction was an attempt by the government of acting President Nicolas Maduro to ease a demand for basic goods everything from food to office and hospital supplies, in this import-dependent country ahead of the April 14 presidential election.

“The government did not announce the results of the foreign currency auction because clearly we are facing a new currency devaluation,” claimed economist Jose Guerra. He estimated that the dollars went for around 12 Bolivar per dollar, much higher than the official rate of 6.3 Bolivar per dollar.

“This is another devaluation” Caracas Chamber of Commerce chief Victor Maldonado told the privately-owned Globovision TV. “This also will mean that the costs and prices of the companies will have to be adjusted.”

Finance Minister Jorge Giordani promised to find a way for individuals to also obtain foreign currency through the SICAD program, which he said offers “transparency” in the exchange rate system.

In February, Venezuela devalued the Bolivar by 32% against the US dollar, its fifth currency devaluation in a decade.

Econometrica head Angel Garcia Banchs said the SICAD program will be used “to carry out more devaluations throughout the course of the year,” which will to finance government expenses and help with US dollar debts run up by the state-run oil giant Petroleos de Venezuela.

But Guerra, a former top official at the Central Bank, said SICAD will be insufficient to satisfy the demand of foreign currency in Venezuela.

One effect of the devaluation is to make a country's exports cheaper and thus more enticing to buyers, while another is to cut the deficit, which in Venezuela last year was estimated to be nearly 16% of GDP.

The economy grew 5.5% in 2012 and inflation was 20%, down seven points from 2011 but still the highest official inflation rate in Latin America behind Argentina.

13 comments Feed

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1 golfcronie (#) Apr 01st, 2013 - 10:06 am Report abuse
Can someone tell me why Latam countries have two exchange rates ( U$S ) and why the governments are not closing the loophole
2 ManRod (#) Apr 01st, 2013 - 10:37 am Report abuse
what exactly do you mean with ”why Latam countries have two exchange rates ( U$S )”
Might it be you mean Venezuela and Argentina only ?
Do you realize that these are only 2 nations out of 21 and you cannot generalize, same as I cannot generalize Europeans being disguised dictatorships because of 2 nations like Belarus and Russia?
3 yankeeboy (#) Apr 01st, 2013 - 10:48 am Report abuse
Do the citizens of the Venezuela and Argentina know that they are going into hyperinflation and there is no way to avoid it?
4 Conqueror (#) Apr 01st, 2013 - 11:09 am Report abuse
@2 Does “golfcronie” mean why do Latam countries have an “official” and an unofficial exchange rate?
5 ChrisR (#) Apr 01st, 2013 - 01:44 pm Report abuse
I see the bus driver is doing everything he can to bamboozle the peons into thinking he is Chubby MkII, including accusing the opposition parties of being Nazis.

But he is right, they will elect him: that will start the inevitable demise of Chavezism and allow Capriles to take charge, if he has not been murdered by the CIA, aka The Bus Driver Squad.

Cannot the people of Argentina see that where Venezuela goes today, they go tomorrow?
6 Condorito (#) Apr 01st, 2013 - 01:44 pm Report abuse
We don't have official and unofficial exchange rates. As ManRod correctly states @2 just because a couple of countries do, doesn't mean all do.
7 Conqueror (#) Apr 01st, 2013 - 02:33 pm Report abuse
@6 I understand what you're saying BUT, if it's not front-page news, how many ordinary citizens actually know what goes on? For instance, this paper suggest that there may be more dual or parallel exchange rate regimes than currently thought. Read the section A Panoramic View - The 2000s.
8 Stevie (#) Apr 01st, 2013 - 02:44 pm Report abuse
One exchange rate is for rich gringos, the other one is for normal people.
9 ChrisR (#) Apr 01st, 2013 - 04:20 pm Report abuse
8 Stevie

You are back, been on holiday?

Glad I am a rich gringo!
10 Stevie (#) Apr 01st, 2013 - 04:24 pm Report abuse
You are indeed a poor rich gringo.
11 Shed-time (#) Apr 01st, 2013 - 04:56 pm Report abuse
If I recall the European state of Transnistria is also a dictatorship, but I could be wrong.
12 bushpilot (#) Apr 01st, 2013 - 07:10 pm Report abuse
The article mentions that over-valuing a currency, compared to market demand for it, makes a country's exports more expensive.

Another consequence is that this practice holds a country's deficit at higher levels.

This currency topic is all confusing to me.

What are the economic forces that ultimately force a government to de-value it's currency.

How come Maduro has done this, but CFK has not?
13 ManRod (#) Apr 01st, 2013 - 09:44 pm Report abuse
Shed-time, you have to consider that Transnistria is not an internationally recognized state, but a rebellious separatist region. So I guess they cannot count as an official dictatorship (yet)

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