MercoPress. South Atlantic News Agency

Venezuela prepares for a package to “reactivate” the economy

The US dollar sells at between 6 and 7 Bolivares, while the official rate is 2.15 Bolivares.

Venezuelans are expecting this week further details of President Hugo Chávez anticipated package of new economic measures intended to increase the supply of US dollars and reactivate the local economy.

Chavez last week said that the government would be issuing 10 billion Bolivares of new debt and had “given the green light” for the release of hard currency for imports to be speeded up at the official exchange rate of BsF2.15 to the US dollar.

The business community has consistently argued that the controls overseen by the Foreign Exchange Administration Commission (Cadivi) are an obstacle to production and economic growth.

Chávez said that the economy was strong and his hint at easing currency controls was seen as a sign of renewed government confidence in the economy. This would be in strong contrast with signs of nervousness during the first half of this year.

During that period, Cadivi slashed hard currency authorizations to 9.3 billion USD, marking a drop of 49% compared with 18.3 billion in the same period a year before further igniting inflation, the highest in Latinamerica.

Over the past weeks, Venezuelan investment bankers say that the government has been buying Venezuelan and PDVSA dollar debt and then re-selling it to local banks and brokerages in Bolivares to soak up the currency and provide access to dollars. The market participants then sell the bonds abroad for dollars, taking pressure off the parallel rate which has come down from a high of 7 Bolivares to the dollar last month to close at 5.65 Friday.

The economic package has been imminent for some time now. The delay in announcing measures in response to the economic slowdown – a consequence of the decline in oil export revenues amid global recession – had prompted speculation that Chavez, his Finance Minister Alí Rodríguez Araque and his advisors were either not exactly sure what to do or were reluctant to take difficult measures.

Venezuela’s economy shrank 2.4% in the second quarter, the first contraction in five years. Chavez said the new package was intended to ensure “the last quarter is one of reactivation”.