Venezuela Sells $200 Mln in Auction Without Revealing FX Rate

Venezuela’s Finance Ministry sold $200 million on a new secondary exchange system without disclosing the exchange rate for winning bids.

The auction awarded dollars to 383 companies, the ministry said in a statement posted on its website. Only companies registered with the Cadivi currency board could participate in today’s auction.

Acting President Nicolas Maduro’s government introduced the new foreign exchange mechanism ahead of an April 14 presidential election in a bid to halt the bolivar’s decline on the black market and reduce shortages of goods in local stores. The bolivar has depreciated 19 percent to about 23 bolivars per dollar on the black market since Feb. 8, when the currency was devalued 32 percent on the Cadivi system.

“The only reason not to disclose the FX rate is because they don’t want to concede a de facto second devaluation in the middle of an election campaign,” Benjamin Ramsey, an analyst at JPMorgan Chase & Co. in New York, said in an e-mailed statement. “I think it’s safe to assume it was above the official 6.3, otherwise they would have disclosed.”

The Finance Ministry hasn’t said how often the dollar auctions will be held or given the date of the next sale. The new system will prioritize the supply of dollars for importing medicine, health-care equipment, food and industrial equipment, Finance Minister Jorge Giordani said March 19.

The government may adjust the system to allow individuals to take part, Maduro said yesterday.

Dollar Shortage, Distortions

The shortage of dollars since the late President Hugo Chavez won re-election in October has stoked inflation and exacerbated shortages of staple goods as imports fell.

Annual inflation accelerated to 22.8 percent in February, the fastest pace in 10 months. The central bank’s scarcity index, which measures the amount of goods that are out of stock in the market, rose to a record high of 20.4 percent in January.

The yield on Venezuela’s benchmark 9.25 percent dollar bonds due in 2027 rose 14 basis points, or 0.14 percentage point, to 9.57 percent at 2:22 p.m. in Caracas. The price fell 1.07 cent to 97.49 cents on the dollar.

The opacity surrounding the auction will exacerbate distortions already existing surrounding Venezuela’s currency control system, said Asdrubal Oliveros, director of Caracas-based financial consultancy Ecoanalitica.

The cutoff point was at an exchange rate of 10.5 bolivars per dollar with an average bid of 13.1 bolivars per dollar, according to information obtained by Ecoanalitica’s Oliveros.

“In the end, it’s a knife in the throat for the government because it ends up creating distortions for fixing of prices for companies and the calculation of costs,” Oliveros said in a phone interview from Caracas. “At the end of the day, the remedy is worse than the illness.”

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