Venezuela’s Bolivar Has Biggest Black-Market Fall in Year

Venezuela’s bolivar slid the most on the black market in a year, as the government’s new currency market failed to meet pent-up demand for dollars.

The bolivar fell 19 percent yesterday to 72.82 per dollar, according to dolartoday.com, a website that tracks the rate on the Colombian border. The decline continued today, with the greenback fetching 75.9 bolivars on the western border at 10:50 a.m. local time.

“The only way to make the black market disappear is to allow free legal trading in dollars,” Henkel Garcia, director of Caracas-based consultancy Econometrica, said by telephone. “It appears the government is placing some restrictions on the operation of the new platform, which is fueling demand for the ‘black’ dollar again.”

Venezuela’s credit rating was cut by a third ratings company in three months yesterday, as Fitch Ratings said foreign exchange distortions, soaring consumer prices and weakening growth had fueled social unrest. Eleven years of currency controls have made dollars in Venezuela increasingly scarce, causing shortages of imported goods ranging from diabetes drugs to laundry detergent.

Venezuela’s benchmark dollar bonds due 2027 fell 0.36 cent to 76.95 cents on the dollar at 11:59 a.m in New York.

The shortages are fueling the world’s fastest inflation and have triggered a month and a half of protests nationwide. At least 35 people have died in the unrest, according to President Nicolas Maduro.

“We have to solve inflation and other economic problems, but you don’t have to burn down the country to do that,” Maduro said yesterday on state television.

System ‘Equilibrium’

The rating was reduced one level to B, five steps below investment grade, Fitch said in a statement. Venezuela is now rated in line with Lebanon, Ecuador and Rwanda.

Venezuela allowed the bolivar to weaken 88 percent on a new currency market March 24 after loosening controls.

The bolivar was sold for an average 51.58 bolivars per dollar yesterday in the second day of trading on the new system, known as Sicad II, the central bank said on its website. The official exchange rate used to import medicine and food is 6.3 bolivars per dollar and a secondary dollar auction system for non-essential imports last sold greenbacks at 10.8 bolivars.

‘Maintain the Rate’

“The most important thing is to maintain the rate around 51-52 bolivars” on the new market, Central bank President Nelson Merentes said today on the Globovision television network.

Sicad II sold $5 million on the first day and $38 million on the second day of trading, according to Asdrubal Oliveros, director of Caracas-based consultancy Ecoanalitica. Demand for dollars outstripped supply by five times yesterday, he said by text message.

“The black dollar is rising because the currency drought is so strong that it’s not easy to meet the demand” for legal greenbacks, he said.

Venezuela will maintain the official rate of 6.3 bolivars for essential imports, Maduro said yesterday, adding that the rate would be used for about 85 percent of the country’s foreign exchange needs.

“We’re going to defeat the black market and we will have a system in equilibrium,” he said. “You’ll see.”

‘Little Motivation’

The new currency market is “another false dawn” to improve the supply of dollars, said David Rees, an emerging market analyst at Capital Economics.

“There is very little motivation to sell foreign currency no matter what the price is,” Rees said in an e-mailed report to clients yesterday. “Hard currency is extremely scarce and obtaining it in the future cannot be guaranteed.”

Venezuela’s international reserves have plunged 23 percent in the past year to $21.1 billion. Reserves minus gold were $6 billion in December, down 39 percent from a year earlier, according to International Monetary Fund data.

An additional downgrade by a ratings agency could cause a bond rout because some money managers can’t hold assets rated C by two separate agencies, Barclays Plc economist Alejandro Grisanti said in a Jan. 17 report.

Venezuelan dollar bonds have returned 5.21 percent on average this year, pushing yields down to 13.44 percent, which is still the highest among emerging markets tracked by JPMorgan Chase & Co.

‘Symbolic’ Devaluation

The government needs to sell $20 million to $30 million a day on Sicad II to make it productive, according to Siobhan Morden, the head of Latin American fixed income at Jefferies Inc. “If turnover remains low, then this devaluation is just symbolic and would risk a pullback of all recent gains on Venezuelan bonds,” she said by e-mail.

Former President Hugo Chavez in 2010 closed a currency swap system that permitted Venezuelans to obtain dollars legally, accusing traders of fanning consumer prices and causing the bolivar to lose value. Annual inflation accelerated to 57.3 percent last month from 27.2 percent at the end of 2010.

Having three different legal exchange rates will divert hard currency from useful imports to speculation, Joe Kogan, chief emerging market strategist at Bank of Nova Scotia in New York, said by telephone Mar. 24.

One in three dollars in the country is misused or stolen, Ramirez said in February. Venezuela, which has the world’s biggest oil reserves, earns about $120 billion from oil exports a year, according to PDVSA’s annual report.

“Instead of doing something productive like making goods or importing and selling them, you’re much better off looking for ways to arbitrage those different exchange rates,” Kogan said.

To contact the reporters on this story: Anatoly Kurmanaev in Caracas at akurmanaev1@bloomberg.net; Nathan Crooks in Caracas at ncrooks@bloomberg.net

To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net David Papadopoulos, Robert Jameson

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