Bloomberg News

Chavez Mulls Revamping Currency Controls as Bolivar Plunges

November 14, 2012

Venezuela is weighing changes to a central bank system used to control the foreign-exchange rate after the bolivar fell to a record in black-market trading, fueling speculation the currency will be devalued.

The central bank is selling fewer dollars on the Sitme system at a rate of 5.3 bolivars per U.S. dollar to limit its losses as the Venezuelan currency is trading above 13 in the unregulated market, said a government official with direct knowledge of the matter who spoke on condition of anonymity because no final decision has been made. The person declined to provide additional details other than saying scrapping the Sitme was a possibility.

Declining trading volumes in the Sitme are fueling speculation that President Hugo Chavez will devalue the bolivar after winning re-election, said Asdrubal Oliveros, director of Caracas-based financial consultancy Ecoanalitica. Chavez, who won last month’s election by more than 10 percentage points after increasing spending by 20.5 percent in real terms in the first nine months of the year, will need to devalue the currency in the first quarter of 2013 to boost oil revenue and help close a fiscal deficit, according to Bank of America Corp.

“The decision to reduce the supply of dollars on the Sitme is deliberate and is part of a transition,” Luis Vicente Leon, president of Caracas-based polling company Datanalisis, said today in a telephone interview.

The more ideological wing of Chavez’s government, which includes Finance Minister Jorge Giordani, wants to deepen socialism in the South American country and reduce the amount of nonessential goods that are imported using a black market that officials don’t control, he said.

Cutting Supply

Only $18.8 million was sold on the Sitme on Nov. 12, the lowest amount since December 31, 2010, according to data compiled by Bloomberg. Sitme volumes have declined during the past weeks, with the seven-day moving average at $31.3 million, Francisco Rodriguez, an analyst at Bank of America, wrote in a Nov. 8 note to clients.

Cutting supply in the Sitme market indicates the government may devalue the currency by reintroducing a multi-tier exchange rate system similar to what was in place in 2010, Rodriguez said today in a telephone interview from Bogota.

“It seems that what the government is working toward is how it can present a new exchange-rate system that allows it at the same time to devalue the currency without it explicitly looking like a devaluation,” Rodriguez said.

Press officials at the central bank and the Finance Ministry in Caracas declined to comment on the country’s currency policies yesterday.

Bolivar Plunges

The currency has weakened 36 percent this year to 13.65 bolivars per dollar in the unregulated market after trading at about 8 bolivars per dollar over the past two years, according to the blog Lechuga Verde, or Green Lettuce, which cites traders. Venezuelans turn to the black market when they can’t get access to the Sitme or the so-called Cadivi system that sells dollars at 4.3 bolivars for priority imports.

“We have information that the central bank is worried about the future of the Sitme and the rise of the dollar on the black market,” Ecoanalitica’s Oliveros said yesterday in a telephone interview. “For now, the finance ministry and central bank have not been able to agree on a solution.’

Venezuela has sold no dollar bonds this year after issuing a record $7.2 billion of the securities last year to meet foreign-currency demand and finance government spending. State oil company Petroleos de Venezuela SA issued $3 billion of dollar bonds in a private placement with the central bank and other state-owned lenders in May.

PDVSA Bond

‘‘Everyone expects PDVSA to be the issuer of a private bond to the Venezuelan central bank over the next week,’’ Russell Dallen, a bond trader at BBO Financial Services Inc. in Miami, wrote in a note to clients yesterday.

The Venezuelan government and PDVSA, as the Caracas-based company is called, have no plans to issue new dollar debt at the moment, said the official.

The central bank has a sufficient supply of bonds to sell into the Sitme market at reduced levels through December and can ‘‘reactivate’’ the market after a devaluation, Oliveros said.

‘‘The stock of bonds the central bank has is not sufficient to directly supply the Sitme market in the way they had been doing so,’’ he said.

Until the government agrees on a strategy, there will be shortages of non-essential goods and a smaller black market that operates at a higher price, Datanalisis’s Leon said.

‘Total Control’

‘‘The government wants total control over who gets foreign currency in the Venezuelan economy,’’ he said, adding that the government will need to set a policy before the end of December because of the supply of bonds available to fund the Sitme. ‘‘When they reach a decision, Sitme will return to assigning larger amounts of dollars.’’

Chavez said on Sept. 11 that his government had no plans to devalue the bolivar. The country will likely weaken the official Cadivi rate 31 percent to 6.2 per dollar, according to the median estimate of 14 analysts in a Bloomberg survey published in August.

For Related News and Information:

To contact the reporters on this story: Corina Pons in Caracas at crpons@bloomberg.net; Nathan Crooks in Caracas at ncrooks@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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