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Editorial Commentary
VenEconomy: Double message
No matter how much the Government wants to deny it, a dual foreign exchange system is closer to being a reality than they thought it would be.
On March 31st, the London Financial Times reported that an advisor to the Ministry of Finance had confirmed that the Government is considering applying a dual foreign exchange system. The source stated that the current official foreign exchange rate of Bs.F.2.15:$ would remain for the import of essential goods, especially foods and medicines, and luxury goods and tourists will have to buy their US-dollars at a higher exchange rate which the Government expects to be able to maintain at between Bs.F3.00:$ and Bs.F3.5:$”.
It seems that the mechanism that the Government has in mind is to offer importers US-dollar denomination bonds payable in bolivars, and not by selling US-dollars directly on the stock market, as has been the custom up until now. This system would allow buyers to freely convert their bonds into foreign currency in New York on the parallel market.
However, on April 2nd, the Minister of Finance, Rafael Isea, categorically denied that the Administration is evaluating introducing a dual exchange mechanism and insisted that the official exchange will remain just as it has been since 2005.
Despite this emphatic denial, the Minister contradicted himself by confirming what his advisor had said when he added on to the statement released in London by announcing a new issue of debt, denominated in US-dollars payable in bolivars, aimed at importers. The Minister explained that this issue “attempts to allow businesses to acquire resources for financing in foreign currency so that they can streamline the import process.” Put this way, the dual exchange system would be a reality much sooner than expected.
The biggest problem, in VenEconomy’s opinion, is that the international market will not be able to accept such a significant volume of Venezuelan papers. Also, Venezuelan foreign credit has seen better days. A good example of this is that according to Merinvest the “risk-country prime” is over 638 base points compared to Brazil’s prime, for example, which is at 282 points, Colombia 255 points, and México at 168 points.
Furthermore, all indicators point to specialized investment funds not having enough space for Venezuelan bonds, even if they are high yield. If this is the case, where will the buyers come from? From FONDEN? Or, from the BCV, making purchase through intermediaries?
So, the dual exchange system that the Government is considering will not be enough to satisfy the foreign currency demand which leads one to expect that the dual mechanism will be short lived and that the price of foreign currency will dramatically increase soon. So, the Government won’t find the stability that they were looking for.
VenEconomy is a Venezuela's leading specialized publisher in the economic and financial area. VenEconomy's Points of View on the issues of the day, as seen by VenEconomy during the last week. Petroleumworld does not necessarily share these views.
Editor's Note: This commentary was originally published by VenEconomy, on 04/03/2007. Petroleumworld reprint this article in the interest of our readers.
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Petroleumworld News 04/04/08
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