From the Editors of VenEconomy
On February 10 of this year, different actors in the national productive sector felt a sigh of relief, including nearly all economic analysts and a good part of the Venezuelan population.
On that day, Venezuela’s economic duo Nelson Merentes (president of the central bank) and Rodolfo Marco Torres (the Finance minister) announced a new Exchange Agreement (No. 33), which would involve two separate foreign exchange markets: one of them 100% controlled by the central bank and the other subject to the "controls" of a free market, or at least, one that is almost free.
The novelty here, naturally, was the "free" market known as the Foreign Exchange Marginal System (Simadi).
As specified in the Exchange Agreement, Simadi consists of three separate markets, each one of them more or less "free" but with limitations: retail market, banking market and securities market.
The retail market – thought up for the provision of banknotes, family remittances and other "retail" operations – proved to be an "indirectly" free market, because the exchange rates here are fixed with reference to the other two markets, which were supposed to be free.
The banking market did not prove to be a free market either, most of all because operations made by the customers of the banks had to be approved by the central bank first. But, (surprise!) the central bank does not approve transactions at Bs.180 per dollar, or higher, despite the fact of being freely concerted prices between both parties.
This way, hopes were focused on a securities market that was supposed to work as a free currency swap market by allowing the sale-purchase of dollar-denominated bonds, as much as the particularity that bonds could be bought with bolivars in the knowledge that these could be sold on the international market against payment in dollars on the same day and at the same time.
In this system, the exchange rate is the one resulting from the purchase of bonds (in bolivars) and their sale on the international market (in dollars.)
Unfortunately, the securities market didn’t become a reality. The first transaction hasn’t been made yet.
That is to say, the experience of the Transaction System for Foreign Currency Denominated Securities (or Sitme) would be repeated once more, in which there was talk of a free market, but transactions above the price limit set by the own central bank were not allowed.
This way, Simadi began operating with a rate of Bs.170 per dollar. And it was welcomed with some optimism, among other reasons because: 1) Supposedly the Venezuelan government had obtained foreign currency resources after the payment in advance of Dominican Republic’s debt, along with the issuance of CITGO bonds, in order to provide liquidity to the market and promote the participation of bidders in it.
2) Because the stock market has several advantages that the parallel cannot offer: a) a transaction proof that would allow companies to use the Simadi rate for tax purposes, and as a basis for the calculation of the "fair prices" of their products; (b) companies were supposedly allowed to use Simadi currency to pay for raw materials, semi-manufactured goods and finished products without having to go through the Cencoex red tape, with which they could continue operating despite the fact that the finished products would be much more expensive than if imported at Bs.6.30 or Bs.12 per dollar. Yet, "expensive" is better than nothing. Consequently, it was expected that the stock market lured in companies and people who have lost the hopes of obtaining dollars at official rates to pay their debts, dividends and imports of goods and services that are not eligible for official rates or SICAD currency auctions.
However, Simadi hasn’t started after having been announced more than three weeks ago, which evidences it is no free currency system at all because the Government is the one that unilaterally fixes the ceilings, thus making the same mistakes as with Sitme.
Sitme hasn’t started for two basic reasons: Neither the public sector or state-run oil company PDVSA have provided the necessary foreign currency to jump start the market by not allowing sales above Bs.180 per dollar, while private bidders haven’t sold foreign currency in the system yet.
Meanwhile, the dollar of the parallel market – a truly free market – skyrocketed trading at Bs.226 per dollar on Monday.
And the criteria for the allocation of foreign currency and the three types of exchange rates remain as fuel for corruption.
The bottom line: once more the Government threw away another golden opportunity to make things right and with this, both the supply crisis and inflationary spiral are likely to get worse.VenEconomy has been a leading provider of consultancy on financial, political and economic data in Venezuela since 1982.
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