Venezuela will make the biggest devaluation of its currency since 2010 by the end of March in an effort to boost revenue and narrow the budget gap, all analysts surveyed by Bloomberg forecast.
South America’s largest crude producer will weaken the official bolivar rate 39 percent to 10.3 per dollar, boosting local currency revenue from each dollar of oil exports, according to the median estimate of 14 analysts surveyed Dec. 11-13. A record gap between the official and black market rate has fueled the world’s fastest inflation.
Venezuela devalued the bolivar 32 percent in February and yesterday weakened the currency on an alternative auction system, as a June survey predicted. Oil investments and tourist dollars will enter the country at the auction rate, which the government has not made public, instead of the official rate of 6.3 bolivars per dollar, Oil Minister and Economy Vice President Rafael Ramirez said yesterday.
“Importing everything apart from food and medicine at the lower rate basically amounts to a stealth devaluation,” Alberto Ramos, Goldman Sachs Group Inc. chief Latin American economist, said by phone from New York yesterday. “This is a necessary adjustment they had to make given the unsustainable demand for dollars at the official rate.”
A decade of currency controls has made dollars increasingly scarce in Venezuela, with foreign reserves falling to a nine-year low this month. The restricted supply of dollars to companies has led to shortages of imported goods ranging from tires to beef and pushed the annual inflation rate to 54 percent in October.
Late President Hugo Chavez weakened the currency seven times in the past 10 years before his death from cancer in March, according to Caracas-based consultancy Ecoanalitica.
The world’s two largest ratings agencies, Moody’s Investors Service and Standard & Poor’s, both downgraded Venezuela’s debt rating in the past week and maintained a negative outlook. Moody’s cut the rating yesterday to Caa1, four notches above default, because of “increasingly unsustainable macroeconomic imbalances and materially higher risk of an economic and financial collapse.”
The yield on the Venezuelan government’s benchmark 9.25 percent dollar bonds due in 2027 rose 34 basis points, or 0.34 percentage point, to 12.58 percent at 2:05 p.m. in New York today, according to data compiled by Bloomberg.
“People are beginning to be a bit more concerned, having a C in your rating is not a good thing,” Russ Dallen, head bond trader at Caracas Capital Markets in Miami, said in an e-mailed response to questions today.
The government will auction more than $5 billion through the secondary auction system known as Sicad in 2014, compared with about $1.3 billion sold since its start in March, Ramirez told reporters. The main Cadivi currency system, which allocates dollars at the official rate, distributed $33 billion in the first nine months of this year.
“Sicad will evolve into a definitive mechanism for the control and management of our foreign currency,” Ramirez said, adding that auction prices will be published by sector.
The central bank has been selling dollars for an estimated 11 to 12 bolivars in the weekly Sicad auctions, or nearly double the official rate, Tamara Herrera, chief economist at Caracas-based financial research firm Sintesis Financiera, said by phone.
The bolivar has fallen 73 percent this year in black market trading to about 64 per dollar, according to dolartoday.com, a website that tracks the rate on the Colombian border.
Allowing energy companies to book expenses at the lower auction rate will reduce the cost of investing in Venezuela, which gets 96 percent of its dollars from oil sales, Francisco Rodriguez, chief Andean economist at Bank of America Corp., said by phone.
“Anything that reduces the cost of operation should increase the incentives for investment,” he said from New York yesterday.
Chavez’s United Socialist Party won the majority of votes and cities in local elections on Dec. 8, giving his successors political confidence to implement unpopular measures such as devaluation, Daniel Kerner, an analyst at Eurasia Group political consultancy in Buenos Aires, wrote in an e-mailed note to clients yesterday.
Devaluation would help narrow the budget gap by giving government more bolivars for oil exports. Venezuela’s expanded public sector deficit will narrow 3 percentage points to 11.5 percent of GDP in 2013, according to Rodriguez.
“The government is betting that a devaluation that still gives it control over the allocation of dollars, but provides a bit more flexibility and some adjustment on the fiscal fronts would help stabilize the economy,” Kerner said.