Venezuela to Auction Dollars to Fight Black Market Rate

Venezuela will start auctioning dollars to importers, especially of medicine, food and industrial equipment, to arrest the bolivar’s decline in the black market and ease inflation.

The greenbacks will be auctioned with prices starting at the official rate of 6.3 bolivars per dollar, central bank President Nelson Merentes said today on state television. The dollars will be cheaper than in the black market, where they sell for as much as 23.5 per bolivar, he said.

“It’s not about a set rate,” Finance Minister Jorge Giordani said today at a news conference in Caracas. “There will be a predetermined supply, and it will be democratic and open.”

A shortage of dollars in Venezuela has deepened since February, when then President Hugo Chavez approved a 32 percent devaluation of the bolivar on the official market, or Cadivi, and shut down a separate central bank-administered currency market before he died on March 5. The shortage has pushed down the bolivar on the black market and fueled inflation as the country heads toward a presidential election scheduled for next month.

‘Wait a Bit’

The auctions will leave out importers not already registered with Cadivi, Merentes and Giordani said, potentially limiting its impact.

“The new system is unlikely to substantially improve scarcity of foreign exchange in the short term but could have a positive fiscal impact and will probably reduce the need for foreign debt issuance,” Eurasia Group analysts Risa Grais-Targow and Daniel Kerner wrote in an e-mailed report today.

Merentes said the auctions would supply enough dollars to the market.

“If you have a need, don’t let speculators take advantage of the situation,” Merentes said. “Wait a bit. If in the first auction you didn’t do well, wait for the second or the third and you’ll do better.”

Merentes and Giordani declined to comment on how many dollars would be auctioned. Oil Minister Rafael Ramirez said only cash would be sold, and not bonds as in previous exchange systems.

The new market, which is scheduled to start operating by March 25, will prioritize the supply of dollars for the purchase of medicine, health-care equipment, food and industrial equipment, Giordani said. A second phase will allow individuals to participate in the auctions at a later date, Merentes said.

Black Market

The government will continue to supply dollars at 6.3 per bolivar for the purchase of essential goods on the Cadivi system, he said.

Giordani was opposed to any new system that resembled the Central bank’s shuttered Sitme exchange, and the new auction system represents a move to greater government control over foreign currency, Grais-Targow and Kerner wrote.

“This decision clearly shows that the more pragmatic branch of the government is not the most powerful, though they remain influential,” they said.

Importers turn to the black, or parallel, market when they can’t get access to foreign currency at the official rate. The black market bolivar has weakened 26 percent this year, according to Dolar Today, a website that tracks the exchange rate on the Venezuelan border with Colombia.

Under the new auctions “you’ll get the dollar much cheaper,” Merentes said. “In the parallel market, you may get sold false dollars. Here you’re legal.”

The new system, known as Sicad, will be administered by the Finance Ministry’s foreign currency board, led by Giordani, acting President Nicolas Maduro said yesterday on state television. Public and private banks will have access to the system, he said.

‘Parasitic Bourgeoisie’

“We have the will to defeat the parallel dollar, but we know that there are economic rules and methods,” said Maduro. “This complementary system will take that into account to bring down that parallel dollar, to defeat it.”

The South American country will also announce new price controls, Maduro said, without providing details. He said yesterday that “speculators” were causing shortages of products across the country.

“There is a corrupt right wing and a parasitic bourgeoisie betting on a destabilization of the economy; they’re behind the parallel dollar,” Maduro said.

‘More Efficient Cadivi’

The annual inflation rate rose to 22.8 percent in February, the highest in 10 months. The scarcity index, which measures the amount of goods that are out of stock on the market, fell to 19.7 percent last month from a record high of 20.4 percent in January, according to the central bank report.

The yield on Venezuela’s benchmark 9.25 percent dollar bond due in 2027 rose 23 basis points, or 0.23 percentage point, to 9.55 percent at 5:07 p.m. in New York. The price fell 1.77 cents to 97.68 cents on the dollar.

“This FX market created a lot of noise but looks to be a marginalized but slightly more efficient Cadivi,” Siobhan Morden, the head of Latin America fixed income strategy at Jefferies Group Inc. in New York, said today in an e-mailed response to questions.

Petroleos de Venezuela SA, the state oil company, expects to transfer about $41.5 billion from oil revenue to the central bank this year, Ramirez said, supplying dollars to the new market.

“Everything won’t be clear today,” Merentes said, adding that invitations and results would be made public. “We’ll explain the system more in the coming days. It’s impossible to know the rate before the auction.”

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