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Venezuela to Devalue Bolivar by Stealth: Analyst Survey

Venezuela will look to weaken the bolivar this year without making an official devaluation of the currency, as it tries to boost revenue and narrow the budget deficit, according to a survey of analysts.

South America’s biggest crude producer will step back from formally devaluing the bolivar for the sixth time in nine years, said eight out of 11 analysts surveyed by Bloomberg.

The government could instead restart an internal swap market for dollar-denominated bonds after October, said Efrain Velazquez, partner in economic consultancy Azpurua Garcia-Palacios & Velazquez. In that market, companies would be allowed to trade bonds for dollars at a weaker rate to finance imports, he said. Caracas-based Ecoanalitica calculates an alternative market could trade at about 15 bolivars per dollar, more than double the official rate of 6.3 per dollar.

“Such a market would be an implicit devaluation, as it would improve the fiscal accounts of the government and state oil company,” said Jose Luis Saboin, an economist at Ecoanalitica.

Late President Hugo Chavez shut down the swap market in 2010, after claiming that allowing bolivar to trade below the official rate was “robbery, fraud and money laundering”. Eleven brokers were arrested and imprisoned without trial. The last of them regained freedom in December.

Import Prices

A devaluation will drive up the price of imports, further fueling the world’s highest inflation ahead of December local elections. Prices climbed 35.2 percent in May from a year earlier.

An official at the Finance Ministry, who can’t be named because of government policy, had no comment on the possibility of a devaluation.

Venezuela will probably devalue in order to boost revenue from oil exports after Chavez went on a spending spree before the 2012 election, according to Juan Pablo Fuentes, an economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. The country needs to boost revenue to narrow the public sector deficit that reached 16.6 percent of gross domestic product last year, according to Barclays Plc.

Venezuela last devalued the bolivar 32 percent in February.

‘Remains Overvalued’

“The devaluation at the beginning of the year was not sufficient because the currency remains overvalued,” Fuentes said. “The exchange rate is so far from reality and inflation is so high that it’s only a matter of time before they devalue again.”

Venezuela will introduce an alternative currency system for cash and bond trading in July, finance minister Nelson Merentes told reporters in Caracas today.

The system, known as Sicad, will be open to individuals, companies and government agencies, including development fund Fonden, Merentes said. State-owned Petroleos de Venezuela will initially be excluded from the system because of legal restrictions, he said.

Venezuelans who can’t get dollars through the official currency system, known as Cadivi, pay about five times as much on the black market. The dollar cost 31.5 bolivars today in the Colombian border town of Cucuta, according to website DolarToday.

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