Venezuela needs to converge its three official foreign exchange rates “shortly” to beat the distorting black market for dollars and return to growth, Economy Vice President Rafael Ramirez told investors in London.
To boost investor confidence also needed for growth Venezuela plans to raise its international reserves from near a 10-year low. The country will move some money from off-budget funds to the central bank, according to an e-mailed statement sent over the weekend by state-run Petroleos de Venezuela, where Ramirez is president.
A decade of currency controls has made dollars scarce in Venezuela, causing shortages of everything from pregnancy tests to car parts in a country that imports more than 70 percent of the goods it consumes. On the black market, a dollar sells for about 72 bolivars, compared to the primary official rate of 6.3, according to rate-tracking website dolartoday.com.
Ramirez’s London presentation was the first of a series of meetings to “re-establish relations with the financial markets,” according to the statement. Under President Hugo Chavez, who died from cancer in March 2013 after 14 years in power, Venezuela had sought financing from countries such as China and Russia, often at the expense of European and U.S. investment banks.
Chavez’s successor, Nicolas Maduro, vowed to deepen the ’21st Century Socialism’ of his mentor, and under his administration the bolivar has lost about 70 percent of its value on the black market and annual inflation more than doubled to 61 percent.
Venezuela’s economy will contract 1.1 percent this year, compared with growth of 1.4 percent in 2013, according to the median estimate of 16 economists surveyed by Bloomberg.
To save dollars, since 2010 the government has experimented with foreign-exchange rate tiers that prioritize imports deemed essential. Under the current tiers, food and medicine receive dollars for 6.3 bolivars. Manufacturers apply for foreign exchange at 10 bolivars per dollar in weekly auctions, while importers of non-essential products, and individuals, can buy currency in restricted amounts for 50 bolivars per dollar in the daily government-run currency market.
“I think the 6.3 exchange rate is going to disappear,” Asdrubal Oliveros, director of Caracas-based consultant Ecoanalitica said by telephone today. “Ramirez is sending a message here. He’s looking for allies to defeat opponents of reform inside the government.”
Maduro told lawmakers in January that 6.3 bolivars per dollar will remain the base rate for the rest of the year.
Some foreign companies in Venezuela, including Kimberly-Clark Corp. and Revlon Inc., continue to book bolivar assets at the 6.3 rate, which since early 2014 is only available to importers of basic foods and medicine. The shares of major household and beauty product companies, which get up to 5 percent of their global sales from Venezuela, fell the last time Venezuela devalued its primary exchange rate, in February 2013.
Investors demand 9.7 percentage points of extra yield to own Venezuelan government bonds instead of U.S. Treasuries, the biggest premium in emerging markets tracked by JPMorgan Chase & Co.’s EMBIG index.
PDVSA, as the state oil company is known, has issued $5 billion of bonds this year to help ease shortages and maintain public spending.
The company, which provides 97 percent of Venezuela’s export earnings, won’t issue more debt in 2014, Ramirez said in a statement. Instead, the oil producer is considering refinancing bonds nearing maturity, he said.
PDVSA is trying to refinance almost $15 billion in debt due through 2017, including a $3 billion loan to pay off the bonds maturing this year, a company official familiar with the matter, who asked not to be identified because he isn’t authorized to speak publicly, told Bloomberg earlier this month.