Bloomberg News

Venezuela Plans New Foreign-Exchange System as Bolivar Falls (2)

September 17, 2013

Venezuela will unveil a new foreign-exchange system as it tries to arrest the decline of the bolivar, which is at a record low in the black-market, Finance Minister Nelson Merentes said.

The black-market dollar is weak because the currency is scarce as a result of hoarding and speculation, Merentes said in an interview yesterday on the Globovision network. A new devaluation of the bolivar’s official rate “is not being considered,” he said.

“We want to use this market to encourage the private sector to sell their dollars in a transparent, logical and rational way in a market as they did before,” the finance minister said, referring to the new system. A supplementary foreign-exchange auction platform introduced in March, known as Sicad, “needs to be evaluated,” he said.

The yield on the Venezuelan government’s benchmark 9.25 percent dollar bonds due in 2027 fell 18 basis points, or 0.18 percentage point, to 11.23 percent at 3:05 p.m. New York time, according to data compiled by Bloomberg. The price rose 1.10 cents to 86.17 cents. Venezuela’s dollar debt has returned 4.9 percent so far this month compared to an average return of 1.4 percent for speculative-grade emerging market debt tracked by JPMorgan Chase & Co.

Transparency

“The new market could trade all possible financial instruments, as long as it’s done transparently,” Jesus Faria, vice president of the National Assembly’s finance committee, said in an interview in Caracas today. “If the new platform is rolled out on a large scale, Sicad would certainly lose purpose. Trying to manage three separate systems would lead to total disorder.”

The National Assembly is waiting for a proposal from Venezuela President Nicolas Maduro, and the central bank-administered Cadivi exchange that trades bolivars at the official rate will remain the country’s main source of foreign exchange, he said.

National Assembly finance committee President Ricardo Sanguino told reporters today that the new system would be distinct from a currency swap market that was closed in 2010.

Shortages of goods in Venezuela ranging from sugar to beef are stoking one of the world’s highest inflation rates as importers struggle to obtain foreign currency. The annual inflation rate accelerated to 45.4 percent last month from 42.6 percent in July, while the scarcity index measuring the amount of goods out of stock on store shelves reached 20 percent, the central bank said Sept. 10.

Devaluation

Venezuela devalued the official exchange rate to 6.3 bolivars per dollar from 4.3 bolivars in February. On the black market, one dollar currently buys around 44.58 bolivars, according to rate-tracking website dolartoday.com, which tracks the exchange rate on the border with Colombia.

Month-on-month price gains reached 6.1 percent in May, and remained high even as the pace moderated, Merentes said.

“We have to attack the shortages, inflation, strengthen reserves, foreign exchange issues, fiscal issues, monetary mass,” he said.

The economy isn’t in its “best stage” and has had “a little more trouble” since former President Hugo Chavez died in March, Merentes said. The central bank and state companies including oil producer Petroleos de Venezuela SA will be able to sell dollars in the new foreign-exchange system, he said.

Dollar Soars

“If the dollar soars, you inject more liquidity into the market,” Merentes said. “We’re heading toward another model with a secondary market where the private sector can act.”

The government is not holding talks with the International Monetary Fund, Merentes said, after Miami-based El Nuevo Herald newspaper reported Sept. 14 that the government and the lender were discussing financing. Venezuela will seek funding from countries including Russia, China and Latin American partners, he said.

Maduro will visit China Sept. 21-24 at the invitation of Chinese President Xi Jinping, Chinese Foreign Ministry spokesman Hong Lei said at a briefing today.

“Government mismanagement of the exchange policy in recent months has seriously dented the authorities’ credibility, making it more difficult for them to stabilize the currency,” Barclays Plc said in a note to clients on Sept. 13.

The National Assembly reconvened today with plans to make changes to the country’s foreign exchange law. Merentes said the country would make a payment on its foreign debt this month as scheduled.

To contact the reporters on this story: Jose Orozco in Caracas at jorozco8@bloomberg.net; Anatoly Kurmanaev in Caracas at akurmanaev1@bloomberg.net

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net


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