Two mysteries about foreign currency in Venezuela

April 8, 2010

Mystery Number One:

-Oil is up

-Cadivi gives less than it did last year

-Government seems to be intervening less in swap market

But international reserves fall US$ 7 billion in three months, US$ 5 billion transferred to Fonden, but US$ 2 billion is very real. International Reserves are at a 52 week low today.

Mystery Number Two:

-The Government said in January when the swap rate was near Bs. 6 per $ that it wanted to lower the swap rate to Bs. 4.3 per US$

-The Central Bank began selling US$ zero coupon bonds to “aid in lowering this swap rate. First sale was at a fixed price equivalent to Bs. 5.2 per dollar. Second to fifth sales at Bs. 4.8 per dollar. Sizes are small, few people get the bonds, swap prices soars hitting an all time high last week above Bs. 7 per US$.

-Today the Central Bank calls for an auction in which people can bid between 110 (Bs. 4.7) and 112 (Bs. 4.8)

What’s the idea? Essentially the Central Bank is giving away dollars, very cheap ones, for an unknown purpose, since these sales do not lower the swap rate.

Your guess is as good as mine…

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13 Responses to “Two mysteries about foreign currency in Venezuela”

  1. Robert Says:

    Mystery number one is no mystery at all. It’s an election year! Buying elections are very expensive you know, to hell with inflation.

    Mystery number two is a real mystery other than the fact that the gov lied about lowering the swap rate. They use the swap rate and make loads of BFs same as any other speculator. It’s a matter of record. About the dollar giveaway, that’s probably corruption at work but who knows?

    From business week:

    “The biggest fear we have is that the government demands another transfer of reserves larger than the $7 billion,” Grisanti said. “Governments become addicted to reserve transfers and the people pay for it with inflation.”

    http://www.businessweek.com/news/2010-04-08/venezuela-reserves-fall-to-one-year-low-on-transfers-update1-.html

  2. danielS Says:

    Bidding between 110 (Bs. 4.7) and 112 (Bs. 4.8) is simply laughable.
    Well, the whole concept of these auctions in these terms seems laughable, unless am missing something?

  3. Andres F Says:

    Zero coupons, other bonds, cheap dollar actions, or any other supply of “cheap” dollars should help the bolivar from its almost inevitable fate (fall), not?

  4. Texas Says:

    Like Gringo, I too worked a considerable time in Venezuela and there is a larger issue of production that needs to be addressed. Since the begining of the nationalization of the oil industry and conversion of all joint ventures into PDVSA majority controlled, maintenance of the wells and producing properties has taken a backseat to other “social issues”. As a result, production at the wellhead has suffered which in turn effects quantity of product produced at the refineries which means less international sales et cetera. Besides all of the other serious social issues Venezuela faces at the moment, failure to act on this will result in a catastrophic failure on the part of PSVSA. As the cash cow goes………

  5. CanadianYeke Says:

    B”H
    Want to know what I think? As I see it is very simple, let me give you an example, lets say you have a business and you sell plastic cups, but also you make them, you generate the material to make them, and you are the distributor as well, so what do you do? Increase the price of the raw material just a little (4.3 plus 10% = 4.73), then the distributor has to make a living (4.73 plus around 15%= 5.45), FINALLY the shop makes around 30% just do the number.

    They are just getting richer by doing this things.
    Bye
    CY

  6. captainccs Says:

    With the continuous power failures, the lack of maintenance and the reduced foreign investment it is not strange that our refineries are reducing output. Government lies are par for the course as is diverting funds to buy elections.

    But the crippling of PDVSA is a blessing in disguise. We need to free ourselves from the shackles of the Devil’s Excrement. Oil is what keeps Esteban in power but by now even the Spanish have told him where he can shove it.

    To think that exports to the US are dropping as a matter of foreign policy, anti-USA rhetoric, is to miss the point. Chavez never had any anti US dollar bias, he revels in the stuff. The fact is that mismanagement is taking its toll. When was the last time you saw a rich communist country? It’s an oxymoron!

  7. Dagoberto Says:

    Regarding mystery #1, an hypothesis that could PARTIALLY explain it is that someone is over-reporting oil income.

    Recent news about oil exports to USA tell that export volumes have a downward trend. This is not surprising in itself, given the anti-USA rhetoric of Chavez government.

    However, what it is remarkable is that it appears that the volume of exported PROCESSED products (gasoline, fuel oil, etc.) are diminishing way faster than crude oil exports, although processed products yield much higher benefits.

    If the former news are true (and I would love if someone could provide some figures about it, or just disprove it), either Venezuela is exporting a lot of gasoline to Cuba, China and PetroCaribe, our refineries are reducing their output, or internal gasoline and fuel oil consumption is rising alarmingly (or all of the above), diminishing total oil income.

  8. Robert Says:

    Get your money while the getting is good! Yes, Gringo nailed it.

    So what’s esteban doing with the 5B at Fonden? Is that still the election budget or some other stealing going on?

  9. m_astera Says:

    I think Gringo nailed it on the first try.

  10. captainccs Says:

    ¿How to buy friends and influence people by Esteban Carnegie?

  11. Juan Says:

    Estan raspando la olla!!!

  12. Gringo Says:

    Perhaps it is a pseudo auction, where favored Chavistas can pick up dollars at a rate better than the open market. “Purchases” already made before the auction begins.

  13. Roger Says:

    All Venezuelans love USD! USD so far is the benchmark and the best stuff to hedge Bolivar inflation (are we allowed to say inflation?) I wonder what other currencies are popular? Cuban Peso’s perhaps?


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