Venezuela's bolivar slid the most on the black market in a year, as the government’s new currency market failed to meet pent-up demand for dollars.
The bolivar fell 19 percent today to 72.82 bolivars per dollar from 58.63 yesterday, according to dolartoday.com, a website that tracks the rate on the Colombian border. The bolivar had strengthened on the black market in the past month on anticipation of the new, legal way to buy greenbacks.
“The only way to make the black market disappear is to allow free legal trading in dollars,” Henkel Garcia, director of Caracas-based consultancy Econometrica, said by telephone. “It appears the government is placing some restrictions on the operation of the new platform, which is fuelling demand for the ‘black’ dollar again.”
Venezuela’s credit rating was cut by the third ratings company in three months today, as Fitch Ratings said foreign exchange distortions, soaring consumer prices and weakening growth had fueled social unrest. Eleven years of currency controls have made dollars in Venezuela increasingly scarce, causing shortages of imported goods ranging from diabetes drugs to laundry detergent.
The rating was reduced one level to B, five steps below investment grade, Fitch said in a statement. Venezuela is now rated in line with Lebanon, Ecuador and Rwanda.
“Macroeconomic instability has increased in Venezuela, as highlighted by spiraling inflation and recessionary conditions in the economy,” Fitch analyst Erich Arispe wrote in the e-mailed statement.
Venezuela allowed the bolivar to weaken 88 percent on a new currency market yesterday after loosening controls.
The Sicad II market will permit the government to “crush” the black market for dollars, stabilizing the economy, Economy Vice President Rafael Ramirez said this month.
The bolivar was sold for an average 51.58 bolivars per dollar today in the second day of trading on the new system, known as Sicad II, the central bank said on its website. The official exchange rate used to import medicine and food is 6.3 bolivars per dollar and a secondary dollar auction system for non-essential imports last sold greenbacks at 10.8 bolivars.
“There is very little motivation to sell foreign currency no matter what the price is,” Rees said in an e-mailed report to clients today. “Hard currency is extremely scarce and obtaining it in the future cannot be guaranteed.”
Venezuela’s international reserves have plunged 23 percent in the past year to $21.1 billion. Reserves minus gold were $6 billion in December, down 39 percent from a year earlier, according to International Monetary Fund data.
Fitch’s rating remains higher than competitors’. Since December, Standard & Poor’s rates Venezuelan debt one level lower at B-, while Moody’s Investors Service has a Caa1 rating. All three agencies maintain a negative outlook.
An additional downgrade by S&P would cause a bond rout because some money managers can’t hold assets rated C by two separate agencies, Barclays Plc economist Alejandro Grisanti said in a Jan. 17 report.
Venezuelan dollar bonds have returned 4.4 percent on average this year, pushing yields down to 13.6 percent, which is still the highest among emerging markets tracked by JPMorgan Chase & Co.
Benchmark dollar bonds due 2027 gained 0.82 cent today to 77.30 cents on the dollar. Dollar bonds due in 2017 issued by state-owned Petroleos de Venezuela SA erased earlier gains, falling 0.19 cent on the dollar to 84.67 cents.
The government needs to sell $20 million to $30 million a day on Sicad II to make it productive, according to Siobhan Morden, the head of Latin American fixed income at Jefferies Inc. “If turnover remains low, then this devaluation is just symbolic and would risk a pullback of all recent gains on Venezuelan bonds,” she said by e-mail.
Allowing market forces to determine the price of dollars in Sicad II would enable the government to improve its budget balance significantly, Grisanti said in a report published today.
Having three different legal exchange rates will divert hard currency from useful imports to speculation, Joe Kogan, chief emerging market strategist at Bank of Nova Scotia in New York, said by telephone yesterday.
One in three dollars in the country is misused or stolen, Ramirez said in February. Venezuela, which has the world’s biggest oil reserves, earns about $120 billion from oil exports a year, according to PDVSA’s annual report.
“Instead of doing something productive like making goods or importing and selling them, you’re much better off looking for ways to arbitrage those different exchange rates,” Kogan said.
Source: Bloomberg
This system of having several exchange rates for the dollar was also a fact during the 1st Government of Alan Garcia in Perú, during the period 1985-1990.
The result was widely distortions in the relative prices of the goods in the economy,inmense corruption,speculation(arbitrage is to elegant) and properly named lots of looting,by officials.
I am afraid this is the same experience in Venezuela today.
Socialism of The XXI'st Century, what a farce!
