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Venezuela’s Cancels Dollar Auction, Threatens Companies

Venezuela’s central bank suspended a dollar auction, the first called since the South American country announced a partial devaluation Jan. 22, as President Nicolas Maduro promised “radical” economic measures.

The auction on its complementary foreign exchange system was to have sold $220 million in cash to companies in sectors including paper, medicine and clothing. Results were scheduled to be announced yesterday.

“The decision shows dollar supply to companies is going to get worse this year,” Ronald Balza, economics professor at the Andres Bello Catholic University, said by telephone from Caracas yesterday. “It’s evident the government is completely improvising the currency measures as it goes along.”

Economy Vice President Rafael Ramirez said Jan. 22 that the system, known as Sicad, would auction $220 million a week for a total of $11.4 billion out of the $42.5 billion in foreign currency to be sold this year. Venezuelans traveling abroad, airlines and foreigners sending remittances home must use the exchange rate determined at weekly auctions.

“This determination is due to a series of anomalies and noncompliance with required procedures, which were detected after an exhaustive review of the orders,” the central bank said in a statement posted on its website yesterday, without providing additional information.

Promises, Questions

The rate set at the latest auction was 11.36 bolivars per dollar, compared with the official rate of 6.3. On the black market, the bolivar is trading at about 81 per dollar, according to, a website that tracks the value on the Colombian border.

If the dollars sold at auctions don’t damp the black market rate, the government may amend laws and enable people to bring more money through “swaps,” Ramirez said on Jan. 23, without providing additional information.

“The government has only had one Sicad auction so far this year and this one was supposed to be the first of the new $220 million dollar size issues that Ramirez promised,” Russell Dallen, the Miami-based head trader at Caracas Capital Markets, said in an e-mailed response to questions. “The terse notice on the central bank website did not answer any questions but certainly created many.”

Price Controls

Maduro is facing a shortage of foreign currency that’s caused annual inflation to reach 56 percent and foreign reserves to plunge to a decade-low of $21 billion. Venezuelan companies have until Feb. 10 to adjust prices to “fair” levels and comply with a law that limits profit margins at 30 percent, he said yesterday, adding that he was ready to expropriate companies.

“Don’t underestimate me,” Maduro said. “I’m going to take the most radical measures that need to be taken. If we have to expropriate, we’re going to expropriate.”

Former President Hugo Chavez, who died of cancer in March, nationalized more than 1,000 companies or their assets during his 14 years in power. Maduro, 51, used troops to enforce price cuts in electronic stores in November, saying companies are overcharging consumers.

Venezuela’s benchmark dollar bond due in 2027 fell 1.15 cent to 65.60 cents on the dollar at 9:03 a.m. in New York. The yield on the bond rose 28 basis points to 15.34 percent. Venezuela’s dollar debt has lost 8.16 percent so far this year, compared to an average decline of 0.15 percent in emerging markets, according to JPMorgan Chase & Co.’s EMBIG index.

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