Venezuela’s central bank is considering ways to expand the supply of bolivars at the weaker of two official exchange rates in a bid to attract more dollars into the economy and avoid a full-blown devaluation that economists say is needed to narrow its budget deficit, said a government official with direct knowledge of matter.
The central bank may expand the purchase of dollars at a rate of 5.3 bolivars to persuade foreign companies to bring more greenbacks into the country, said a government official with direct knowledge of the matter. Today, most companies have to sell dollars at the 4.3 rate because there isn’t enough supply at the weaker rate.
The government isn’t considering a devaluation at the moment given its strong balance of payments, the official said. The goal is to improve the supply of dollars while keeping in place existing currency controls, said the official, who spoke on condition of anonymity because no final decision has been made.
Last week the government took its first step to increase the supply of dollars in the economy by channeling more of its oil exports revenue to the central bank. South America’s biggest oil producer is facing shortages of goods ranging from diapers to cars as the lack of dollars crimps imports. In the black market, the bolivar has weakened 53 percent to 18.39 per U.S. dollar in the past year, according to Lechuga Verde, a website that tracks the rate.
The changes that will allow the central bank to supply more bolivars through its Sitme exchange will need to be approved by Congress, the official said, adding that notes and bonds from other countries could be traded on the system. Rules today allow the central bank exchange to trade only with dollar-denominated bonds.
Exchange Rate Horizion
Analysts surveyed by Bloomberg expect Venezuela to devalue its 4.3 per dollar rate in the second quarter by a median 33 percent to 6.4 per dollar.
The move, initially expected to happen in the first three months of the year, will be pushed back as President Hugo Chavez’s battle with cancer delays economic decision-making, according to a survey of 12 analysts.
A devaluation of 50 percent would narrow the country’s budget deficit by 4 percentage points of gross domestic product, Ben Ramsey, an analyst at JPMorgan Chase & Co. in New York, wrote in a Feb. 1 research note. The measure would help trim the gap by increasing the amount of bolivars the government gets for taxes on oil revenue, he said.
“The scope and timing of economic measures will be dictated by political calculations,” Ramsey said in the research note. “We do not sense the fiscal situation has reached a critical juncture, as the government still has the flexibility to muddle through.”
Venezuelans use the black market when they can’t get access to the central bank’s Sitme exchange, which sells dollars to businesses for 5.3 bolivars, or the so-called Cadivi system that sells dollars at 4.3 bolivars for priority imports.
The government has no plans to change the Cadivi system, said the official.
About 70 percent of products consumed in Venezuela are imported or assembled from raw material that is imported, Emilia Peraza, an adviser at the Consecomercio trade chamber in Caracas, said yesterday in a telephone interview.
“The lack of U.S. dollar flows to the private sector has increased shortages and exploded the black market FX rate,” Ramsey wrote. “The paradox is we do not sense there is a critical lack of U.S. dollars available in the public sector.”
Venezuela will continue to issue local debt and foreign debt when the time is right, said the official. Selling dollar debt with coupons of 10 percent or more did not make economic sense, he said.
Venezuela’s dollar bonds yielded an average 9.12 percent on Feb. 1 after falling from as high as 16.5 percent in 2011, according to JPMorgan’s EMBIG index.
State oil company Petroleos de Venezuela SA has no plans to issue dollar bonds this year, Oil Minister Rafael Ramirez told reporters Jan. 28, adding that the company had previously issued dollar bonds to supply the Sitme market.
“We’re not selling any bonds,” said Ramirez. “It doesn’t make economic sense for us to continue issuing debt in dollars to obtain bolivars. It’s a mechanism to supply the Sitme, and we’re not going to keep doing it. Sitme forces us to issue at a rate that makes international loans more expensive.”
Venezuela will maintain its preference for issuing local over foreign debt in 2013, Finance Minister Jorge Giordani said in December. The country hasn’t offered bonds denominated in dollars since 2011, when it issued a total of $7.2 billion, according to data compiled by Bloomberg. PDVSA, South America’s largest oil producer, last sold dollar-denominated debt in May 2012.