Venezuela to Sell $200 Million in First Dollar Auction

Venezuela’s government will sell $200 million in its first dollar auction on a secondary foreign exchange system created this month to halt the bolivar’s decline on the black market.

Importers registered with the South American country’s currency board need to submit bids by 2 p.m. Caracas time on March 26, and results will be published the following day, the Finance Ministry said today in a statement. Bids must start at $30,000 and not exceed $2 million, it said.

The greenbacks will be auctioned with prices starting at the official rate of 6.3 bolivars per dollar, and any additional bolivar revenue the government receives from a higher price will be channeled to a fund to increase economic activity, the ministry said. The bolivar has depreciated 19 percent on the black market since the government devalued the official rate and shut down the central bank’s secondary currency exchange known as Sitme on Feb. 8, according to Dolar Today, a website that tracks the exchange rate on the Venezuelan border with Colombia.

Today’s auction is offering “a large amount,” Alejandro Arreaza, an analyst with Barclays Plc in New York, said today in an e-mailed response to questions. “It’s five times what the Sitme had sold on a daily basis. If they hold an auction like this once a week, it will be equivalent to the Sitme.”

‘Significant Additional Flexibility’

The Finance Ministry didn’t say today how often the dollar auctions would be held or give the date of the next sale and has the discretion to decide which companies can participate in the auction, according to the statement. The new market will prioritize the supply of dollars for the purchase of medicine, health-care equipment, food and industrial equipment, Finance Minister Jorge Giordani said on March 19.

The new foreign exchange system represents a “new devaluation of the currency to improve the government balance and reduce its need to issue debt,” Arreaza and fellow Barclays Plc analyst Alejandro Grisanti wrote in a note sent today by e-mail.

“The initial conditions give significant additional flexibility to the exchange system, which is likely to lead to a large devaluation of the currency,” the analysts said. “We would expect that to have a positive effect in fiscal terms, increasing the government’s revenues (in bolivar terms) from the oil exports.”

Black Market

Importers turn to the black, or parallel, market when they can’t get access to foreign currency at the official rate. The rate reached 23.40 bolivars per dollar today, according to Dolar Today.

Acting President Nicolas Maduro said on March 21 that the South American country is investigating cases of foreign exchange corruption and threatened “speculators” with jail terms.

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 in 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 fell five basis points, or 0.05 percentage point, to 9.40 percent at 4:35 p.m. in New York. The price rose 0.39 cent to 98.84 cents on the dollar.

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