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Venezuela Undertakes Controversial Overhaul of Currency Exchange Regime


The Venezuelan government has tightened access to its preferential currency exchange rate, and says it’s considering changes to laws prohibiting the parallel currency market.

Venezuelans travelling abroad, online shoppers, some importers and airlines are among those no longer eligible to purchase foreign currency at the government’s fixed rate of Bs6.30 = US$1. Instead, they will now be required to purchase foreign currency at a rate determined by the Complimentary System of Foreign Currency Acquirement (Sicad).

Established last year, Sicad holds foreign currency auctions for individuals and businesses, selling dollars at a variable, higher rate than the fixed exchange value – currently at around Bs11.30 to the dollar, though the exact figure will soon be updated daily. The government will more than double the amount of foreign currency available to buyers in its weekly Sicad auctions, from around US$100 million to US$220 million. The auctions will continue to be held weekly.

Political analyst and Venezuelanalysis co-founder Greg Wilpert described the overhaul as “a sign that the exchange rate is being liberalised”.

“The impact of this depends on how easy it will be to access this new rate,” Wilpert stated.

Yesterday’s announcements came just a week after President Nicolas Maduro declared the current fixed exchange rate will be kept in place for a “long time forward”.

However, Asdrubal Oliveros from Venezuelan economics think tank Econalitica accused the government of a “slow-motion devaluation”.

To Devalue or Not to Devalue?

Miranda governor and former opposition presidential candidate Henrique Capriles took the opportunity to hit out at the government, claiming that Venezuela faces a “terrible economic crisis, devaluation, scarcity [and] inflation”.

“Yesterday, of course, was a devaluation,” he told Venezuelan media earlier today.

However, vice-president for the economic area and oil minister Rafael Ramirez denied the changes constitute a devaluation when he announced the measures yesterday.

“Realistically, we cannot talk of a devaluation, that is the enemy’s web of lies,” he stated.

Calling the arrangement a “band system”, Ramirez stated that the changes will only affect around 20% of the country’s foreign exchange needs.

The majority of goods and service providers currently able to access the fixed exchange rate won’t be affected by the changes, including those making transactions related to food, agriculture, domestic industrial needs, health and medicine, education and science according to Ramirez.

“We have to go to a new exchange rate system, where we will have the dollar at a preferential rate for 80% of the inport needs of our national economy,” Ramirez stated.

Similar statements were echoed by the vice president of the National Assembly’s Committee on Finance and Economic Development Jesus Farias during an interview today with state news agency AVN.

“A devaluation means a change of the official…price of the national currency. That never occurred,” Farias stated, describing the new arrangement as “a dual exchange rate system”.

According to the recently appointed economy minister Rodolfo Marco, the new system will benefit legitimate Venezuelan businesses and consumers, while striking against raspacupos (scrapers) – Venezuelans who engage in a currency scam colloquially referred to as “the scrape”. The scheme involves travelling abroad primarily to obtain a credit card loaded with dollars at the official rate. Instead of spending the money abroad, so-called raspacupos return to Venezuela to sell their dollars on the black market.

“What’s better, the use of foreign currency at preferential rates for health [and] food, or raspacupo travellers? They are not all [legitimate] travellers… there are those who had 8, 10, 15 or 20 [credit] cards to use abroad,” Marco told state broadcaster VTV.

Under the old system, Venezuelans heading abroad could apply for hard cash or a credit card loaded with official rate currency. Today Ramirez confirmed that under the new system, Venezuelan travellers will still have both options, and won’t need to attend the Sicad auctions. However, they will pay at the higher Sicad rate, instead of the official fixed rate.

“The only difference is that currencies are settled at another rate, the Sicad rate,” Ramirez stated today during an interview with private broadcaster Venevision.

“What is important is the economic equilibrium. No one is preventing travel, [but] fighting the raspacupo,” Marco said.

“The big debate here is whether we give dollars to travellers or we import food,” Ramirez told the press in Caracas yesterday.

Ramirez also stated that under the new measures, non-residents will be unable to purchase airfares in Venezuela with bolivars. The minister noted that last year international travellers increasingly booked flights from within Venezuela to take advantage of the favourable black market exchange rate.

“We’re not going to allow people to come from other countries to buy cheap plane tickets in bolivars. They can pay for them with dollars,” Ramirez said.

Ramirez also reiterated the government’s aim to stamp out the currency black market, stating it will be attacked “with the full weight of the law”.

“We cannot remain under constant blackmail, our economy was hit by an economic war which led to exchange crime. That will be eradicated with the new system,” Ramirez said on VTV’s Contragolpe program last night.

This week a government panel launched a discussion of reforms to the Exchange Crimes Act – the law which bans parallel currency trading. Panel members included Attorney General Luisa Ortega Díaz, minister of the president’s office Hugo Cabezas, and head of the Strategic Operational Command Vladimir Padrino Lopez. The group met for the first time yesterday at Miraflores Palace.

Ramirez stated that the president is preparing to make a decree that could loosen restrictions on parallel trading.

Since yesterday’s announcements the value of the bolivar on the black market dropped from around 65 to the dollar to the high 70s. This time last year the black market rate was hovering around Bs20=US$1.

Venezuela’s current controlled currency regime dates back to 2003, when Maduro’s predecessor Hugo Chavez instituted exchange controls in the wake of the 2002-03 oil strike. The controls were intended to stem capital flight, and were followed up by a fixed exchange rate.

However, writing for Prodavinci, Ecoanalitica’s Oliveros warned that the “currency shortages will continue until the government recognises that a fixed exchange rate is not the solution”.

Shortages

Yesterday, Venezuela’s largest food supplier, Polar issued a statement warning that it may soon begin idling factory assembly lines. The company blamed delays on not receiving US$463 million it had requested to pay international suppliers through the government’s currency exchange apparatus. Polar warned that suppliers are now threatening to halt deliveries of food and packaging products.

Shortages of Polar products have persisted for months nationwide. The company’s flagship pre-baked cornflour, Harina Pan, has been a rare sight on supermarket shelves since late last year.

Relations between the company and the government have long been sour.

Venezuela has faced shortages of products ranging from cooking oil to pre-baked cornflour since last year. The latter is a staple in Venezuela. In recent weeks the availability of more consumer products has become infrequent, including types of pasta and rice subject to price regulations, sugar, wheat flour, margarine, mayonnaise, and  soap. Many of these products are made in Venezuela, not imported.

Maduro has blamed the shortages on an “economic war” being led by businesses aligned with the opposition.

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