On Tuesday, the Venezuelan Central Bank and Finance Ministry announced an overhaul and de facto devaluation within the country’s 12-year-old foreign-exchange control system.
Finance Minister Rodolfo Marco Torres said the lowest rate of 6.3 Bs. per US dollar will remain in place for imports on essential goods, such as food and medicine. However, a single second tier will replace the existing Sicad I and Sicad II rates of 12 and 50 Bs., respectively.
The new rate will start at the price set during Sicad I’s last auction (12 Bs. in November 2014). With both sources of demand merged, though, the price is set to rise soon.
Jesús “Chuo” Torrealba, general secretary of the opposition Democratic Unity Roundtable (MUD), has affirmed this prediction.
“Second announcement: ‘the auctions will start at Bs. 12 per US dollar for the rest of imports; that rate will adjust [itself].’ Science fiction.”
The new unified Sicad is now the rate for the US$3,000 annual allowance per credit-card user for travel and online purchases.
Simadi’s Pivotal Floating Rate
Perhaps most important in the announcement, a third exchange tier was born. Within the Marginal Currency System (Simadi), certain private financial institutions now sell the US dollar “freely” — at the floating or market rate.
While Venezuelan officials have yet to issue the official regulation, this piece of the puzzle has been widely interpreted as an acknowledgment that the black market reflects the real value of the bolívar.
The Maduro administration has explained that the Simadi will not have a fixed rate, and that individuals and firms with dollar-denominated bank accounts will be able to purchase the bolívar at 3,972 authorized stores: exchanges, stock operators, and banks.
Torres explained that the less centralized system will allow Venezuelans living abroad to send money to their relatives, and will encourage trade between sectors that currently can’t get hold of dollars at the official rates.
“The third tier allows the inflow of currency into the country, through operations besides those related to oil, such as remittances and tourism,” added Nelson Merentes, chief of the nation’s central bank.
Simadi will lead to the currency market’s “stabilization,” suiting the needs of the economy, Torres claimed. However, he said the rate will fluctuate within a “margin according to demand” — hinting that it will be a dirty floating exchange, with some intervention from the Central Bank of Venezuela.
The Venezuelan Association of Stock Traders and Association of Venezuela’s Exchanges have both confirmed that the system is ready, but they await the government’s go-ahead.
The Black-Market Rate Now Official?
Venezuelan newspaper Tal Cual reported an anonymous source present at high-level meetings who assured of willingness to let this new tier begin with an exchange rate similar to the underground market. That proved correct, as it opened on Thursday at 170 Bs. per US dollar, more than triple even the highest official rate that has been available (the 50 Bs. of Sicad II).
An estimated daily offer of between $30 and $45 million of dollars will satisfy the demand of individuals and firms, who will only need accounts in Venezuelan financial institutions to participate, claims Tal Cual. However, the same analysts consulted by the outlet warn that the only way to contain a strong demand for Simadi dollars will be with the high rate from the get-go.
Economist Asdrúbal Oliveros told Venezuelan daily El Nacional on Tuesday that the announcements are clearly a devaluation. His reasoning is that the Simadi makes official a much weaker rate, near to the black market’s.
No Rest from Shortages, Inflation
With the merging of Sicad I and II, the migration of private businesses to higher rates is set to hike the prices of products not under regulation or exchange-rate privileges.
Since 2014, the Maduro administration has cut preferential dollars for non-essential imports in half, reports Tal Cual, so firms will have to acquire products from abroad at higher prices.
Economist Miguel Ángel Santos, a researcher at Harvard University’s Kennedy School of Government, holds that the continuation of preferential rates for businesses that import between a third and a quarter of goods into Venezuela will widen the gap in the market’s relative prices. That equates to enormous profits for the privileged, he explains.
“The real winners are those who will be able to get dollars at [Bs.] 6.3 and 12: by selling them they will earn returns of 1,400 and 2,600 percent.”
″Devaluation does not create more dollars: the drop in imports, the shortages, slump in consumption are not fixed with the free dollar.”
Asdrubal Oliveros adds that keeping the 6.3 Bs. rate for food and medicine is a grave error. In his view, this means other raw materials will remain disproportionately expensive, so industries will continue to face losses due to the low income available for their products.
The business sector, for their part, have requested the abolition of all controls on the national currency’s value. In an interview with national TV station Globovisión, the vice president of the Venezuelan Federation of Chambers of Commerce, Francisco Martínez, said on Tuesday that the currency controls should be eliminated “gradually, and before monetary and fiscal-adjustment measures need to be taken.”
On February 5, Venezuela’s currency control system turned 12 years old, during which seven devaluations took place. According to Santos’s calculations, the government has depreciated the bolívar 32,900 percent, at an annual average rate of 46 percent.
Translated by Daniel Duarte. Edited by Fergus Hodgson.
http://youtu.be/cV7FMcQb-G0?t=9s Español Micaela Hierro's last name means "iron" in Spanish, and she certainly lives up to it. Born in Argentina, now living in Germany, Hierro is the founder of two human rights organizations in Latin America: the 18-country Latin-American Youth Network for Democracy, and the Latin-American Youth Network for Democracy in Cuba. She has visited Cuba three times (in 2009, 2010, and 2012) and has a deep understanding of life on the Caribbean island, based on her connections with its civil society. As far as Hierro is concerned, the island undoubtedly suffers from a "communications blockade." In an effort to promote democracy, she has launched a campaign to donate prepaid cell phones to Cuban activists who take part in her project's Dialogue Roundtable. What is the project about and how do you fit in? The project was born in 2012 when a group of activists founded the Latin-American Youth Network for Democracy in Cuba. They were concerned with the lack of free speech in Cuba, because they cannot engage in the sort of activism that we can in our home countries. In Cuba, you are prohibited from organizing with civil society if you come in on a tourist visa. We came up with different strategies to strengthen the human rights activism carried out by young Cubans and promote democratic values. We doubled our efforts in 2013 and 2014. On February 22, 2014, after a year working separately with different groups in Cuba, we managed to assemble 47 young activists and 17 organizations in the Dialogue Roundtable, and it continues growing everyday. That makes us very happy, because we started with only 12 groups, and since then, the Dialogue Roundtable has become a place for open debate on democratic values. After that, Cuba saw an increase in initiatives and offshoot projects. What kind of organizations make up the Dialogue Roundtable, and are any of them political? There is everything from cultural and social movements to political parties, and even independent journalists and young Cubans who belong to no party and simply look for a safe place where they can be heard and present proposals and initiatives. Cuba needs more places like this. Why does someone like you, with no political or military influence, face problems organizing in Cuba? I believe the regime is afraid of anyone who promotes democratic values or dares to speak out. The first time I visited Cuba, I attended a seminar on public policy with an official visa. The last time, however, I ran into problems after speaking with several civil-society leaders. This is something you are free to do in any other country. It shouldn't be forbidden. They all seek freedom, because the regime controls every aspect of life. In Cuba, you are prohibited from organizing with civil society if you come in on a tourist visa. We're not talking about opposition political parties that want a regime change, but it's just normal people like Catholic leader Dagoberto Valdés, director of the magazine Convivencia that promotes the coexistence of people with different beliefs. It's not just about political ideology, but also civic values, such as cooperation and solidarity. It's very broad, yet it's illegal. That's why I have had problems. Where in Cuban society have you noticed a greater degree of opposition to the regime? In Cuba, everything is an act [of defiance]. Even the young people with tattoos, who go out to the streets and drink all night — even if they consider themselves apolitical — they're demonstrating in some way. Same thing with the rappers, because they all seek more freedom. Beyond politics, they want to live in a place where they can play their music freely, and they're not under constant surveillance or control. Women, workers ... they all seek freedom, because the regime controls every aspect of life. Would you encourage people to visit Cuba? Yes, but they should get to know the real Cuba. I've come across other Argentineans at the beach, and they don't have any real contact with Cubans; they just see what they want to see. I have visited Cuban hospitals; they're not what the regime promotes as world-class medical care, and far from it. The rooms are falling apart, patients have to take their own sheets with them, rats... Did you document any of that? No, unfortunately not my own, but I have recordings from others. I was able to visit the hospitals thanks to Hilda Molina when she was still in Cuba. I met doctors, medical care centers for the average Cuban, and I witnessed their catastrophic conditions. These aren't the hospitals commonly visited by foreigners. Doctors charge people who want quicker attention illegally, because no economic activity is allowed outside the state system. Physicians cannot offer their services privately. Someone who wants a doctor fast ends up paying under the table. What is your take on the normalization of relations between Cuba and the United States? It's controversial, and I understand the criticism from civil-society leaders, in and out of Cuba, that you cannot negotiate with a regime like that. We have to consider why Cuba chose this moment to negotiate with the United States. I agree with Obama that Cuba already suffers enough from restrictions imposed by its own government. Why now? Cuba is completely bankrupt, and all these years the regime has blamed the embargo for the misery brought on by an obviously failed socialist economic system. I see a dash of hope; change is inevitable, but the regime must allow Cubans to have access to the rest of the world. I agree with Obama that Cuba already suffers enough from restrictions imposed by its own government, and it doesn't need to also suffer from restrictions imposed from abroad. The people on the street received the news with the hope that it would bring the winds of change. Meanwhile, the regime continues to repress Cubans, as usual. Translated by Daniel Duarte. Edited by Guillermo Jimenez.