Venezuelan Government to issue decree apparently creating new third controlled foreign exchange rate

May 10, 2010

(I swear from this basket to always keep alive the flame of XXIst. Century Socialism)

Not content with having two controlled exchange rates, the Venezuelan Government is getting ready to issue a decree or change the laws in such a way that it apparently creates…

a third controlled exchange rate…

Way to go Hugo, call me when there are 14, that is the world record. (Alan Garcia in Peru)

But seriously, the Government will apaprently issue  a decree which says that banks and brokers will no longer be able to “intermediate” dollars (??) or dollar-denominated bonds* and those demanding dollars will have to go to a “closed-market” at the Venezuelan Central Bank, where one interprets or assumes the Government will sell foreign currency by an unknown mechanism or process which will be announced in the next few (days, weeks, months?).

Of course, since the Government wants this new rate to replace the swap rate and keep it down, it is certainly not going to be enough to satisfy everyone’s needs and you can guess what will happen…

A fourth rate, a true black rate will show up and it will be higher than the eightish rate at which the swap market closed today.

This is all guessing from an eight line decree which will be published today or tomorrow, but there are no more details.

To me the implications in this instant analysis are :

-A fourth black exchange rate

-Another mismanaged exchange rate that will not be enough and a new mechanism will be invented a couple of months later.

-Further shortages down the line as the swap rate provided an efficient mechanism to purchase foreign currency.

-Difficulties for the Government to offer bonds in local currency in the if investors have no “parallel” market to work with.

-A rise in the country’s bonds given that it shuts down the doors to any possible issuance in the near future to use as means of lowering the swap rate.

-More inflation.

These are my initials conclusions with little knowledge of what is behind the decree. Stay tuned.

*The change in the law as introduced this morning simply bans swaps with securities, thus shutting the “permuta” market.

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37 Responses to “Venezuelan Government to issue decree apparently creating new third controlled foreign exchange rate”


  1. […] Devil's Excrement Three Strikes: Famous quotes from the revolution’s leaderVenezuelan Government to issue decree apparently creating new third controlled foreign exchange rateVenezuela: Inflation, speculation and irresponsibilityAs Venezuelan economy unravels due to XXIst. […]

  2. Roger Says:

    LOL Unless they have a malatin, Chavistas have to take a shit too! They should heed the the the great quote of Jose Conseption of the Philippines ” How can one give up on the ONLY country they have?” Even Cuba will cost a lot of money to move to or rather hide in!

  3. Kevin Says:

    Roger,

    Your clogged toilet metaphor is even more horrifying when you are stuck head down and Chavistas are lined up around the stall.

  4. An Interested Observer Says:

    “Generations of Venezuelans who have watched their meager income eaten to inflation and if they have one, their bank account lose value overnite.”

    And yet there are still the idiots who think that when consumption booms in times of economic uncertainty – because people want to spend their money while it’s still worth something, instead of holding it and watching it lose value – it’s proof of sound economic policy.

  5. Roger Says:

    Kevin: Rather than “down the tubes” , I think of it more as a clogged toilet! In Venezuela it is not uncommon to find a toilet that has been clogged for some time and is still in use! Sez something about how much crap Venezuelans will take? I can’t blame them, this has been going on long before Chavez. Since the 80’s oil bust as far as inflation goes. Generations of Venezuelans who have watched their meager income eaten to inflation and if they have one, their bank account lose value overnite.

  6. Kepler Says:

    Arturo, por qué ladillas tanto en esta bitácora? Lárgate. Bastante hace el chavismo con terminar destrozando el país en medio del mayor boom petrolero de su historia.
    70 asesianatos por 100 mil? No has visto la miseria que hay
    en los barrios? (no, pendejo, no en los centros comerciales donde gastas el
    dinero que recibes de los petrodólares)

  7. m_astera Says:

    Interesting way of trying to deal with a problem: Decree the problem illegal. That only serves to make it more expensive and guarantees a higher profit for those in the business. Instead of an open and legal exchange rate of 9:1, we will end up with what? 12:1? 20:1?

  8. island canuck Says:

    This morning it was announced that a gas drilling platform belonging to PDVSA sank.

    There is a good story in English at Caracas Gringo – http://caracasgringo.wordpress.com/2010/05/13/aban-pearl-rig-goes-down/

  9. moctavio Says:

    Kepler, this is nothin but signing some of the deals they announced in February and March, Spain is Repsol, etc..

    http://www.eluniversal.com/2010/05/13/eco_art_conforman-empresas-m_1897759.shtml

  10. Kevin Says:

    Many years ago when I was just stating my professional life I was in Jamaica during the reign of the great socialist — Michael Manley (I could carve a better man out of a banana). They had many of the same policies as Venezuela, including foreign exchange rationing, although they didn’t have oil. Instead they had bauxite, tourism, and the most valuable – ganja. The bauxite industry survived because it was run as a separate country by the aluminum companies and they even had their own (incompatible) electrical system. The tourism was going downhill because they couldn’t import the necessaries like liquor and carpeting. Ganja though was completely unregulated and thriving and supplied adequate amounts of foreign exchange to the black market. But factories were collapsing for lack of spare parts. You had to buy the black market dollars and then send your secretary to Cleveland to buy the spare parts and bring them back in a suitcase to keep your factory going.

    Eventually I demanded of an older, wiser person: “Why won’t this country go down the tubes? Everything that I learned in grad school tells me that it must go down the tubes. But I am willing to listen. If you know why this country won’t go down the tubes, then please tell me.”

    He calmly replied: “Kev, Countries just don’t go down the tubes. It never happens because countries are too big to fit. The tubes just aren’t big enough. In the end, everybody just has to reach in and pull them out.” I guess he was right. Because when I left, Jamaica was stuck head down in the tubes and the rest of the world, led by the IMF was struggling to pull them out.”

  11. Julio Says:

    Arturo: I never comment. Do you realiza how stuoid you look every time you say something here?

    The law of ilicitos cambiarios was changed in order to eliminate the exception for securities trading from it. From now on you can only buy securities for bolivars at the Central bank. Thus permutas are simply ilegal whenever your idol signs it into law.

    But, now you will exchange bolivars for dolar bonds (no swap or permuta involved) only with the Central Bank. this is not. market, you will not be able to Trade freely, thus it will not even be a market.

    Thus you look more stupid than ever coming here to make senseless and ignorant statements, which much like we heard yesterday, blaming the high value of the permuta on speculators, only prove what a mindless true Chavista you are.

    Please dont even answer, it is not necessary.

  12. KillChavez Says:

    How to wreck a country in 11 years?

    1)Throwing a couple of atomic bombs, or maybe three.

    2)A deadly disease spread all over in a massive mortal infection; not talking about chipos or mosquitoes; talking about; black pox warfare and the like.

    3)Chavez!

  13. KillChavez Says:

    What is this all about? Oil prices, PDVSA, or the outbreak of evil of an unbelievable incompetence that this Chavez birdbrain, has brought to this country…

    It might take 30 years from now, to this country to get back on its feet again… assuming that birdbrain leaves office in 2012.

    Just imagine in 50 years what will be in our history books; a tragedy of trillions of dollars thrown away, thousands of murders, foreclosures etc, very much comparable to Cambodia, or China after the cultural revolution, or to the neglected story of Jim Jones and the massive suicide in Guyana, just imagine a subject in politics:
    “Venezuela from 1998 to 2012; a country that carries within itself the seed of its own destruction.”

  14. Antonio Says:

    Only a no-brain head, filled with chavizta shit, can not see that Venezuelan economy is already collapsed.

    Only to Chavez and to their followers that are filling their wallets with dollars, make sense assume that fact in question form.

  15. Miguel Octavio Says:

    No Arturo the Troll it was ELIMINATED, you will now buy BCV bonds for Bolivars, permuta market does not exist as f tomorrow night are you that stupid, or dense?

  16. HalfEmpty Says:

    when is the economy in Venezuela going to collapse

    LOL, um… buddy, we learned compare and contrast in the 3rd year now. It has collapsed.

    You’ve lowered the bar perhaps? Maybe looking for the first signs of canibalism?

  17. Kepler Says:

    Thanks for the details, Miguel. Where did you find them? Was looking for something, was fearing something like the “Chinese deal”.

  18. Arturo Says:

    The Permuta is not being closed or restricted. Wrong again. So, bright spark, when is the economy in Venezuela going to collapse? That’s what you want, is it not?

  19. Grace Says:

    Hi

    I asked a trader and an analyst in NY if a more controlled currency exchange market is going to affect future bond issues in local currency. They said that Venezuelan still would need USD, so they will continue buying the bonds and selling them at a discount to foreign investors in order to have USD reserves. Also, this would be the easiest way to get USD.

    What do you think of this?

  20. Kepler Says:

    Miguel, did you see about the oil deals?

    Chavez has enough dosh to keep himself in power for quite some time
    given this and the oppo’s position (not pro-active, not challenging
    where the regime will fail).

    We still don’t know the details, but I am sure Hugo has sold out another chunk of Venezuela with these latest deals. 10 years from now? Chávez does not care. He will have had transformed the country beyond recognisition, what with the councils (consejos or soviet) and more.

  21. Img Says:

    There are three kinds of operations for the new US market that can be envisaged so far: 1) Prepare your BCV folder: ID, Passport, birth certificate, home address, sex, kids, smoking preference, Size, Etc. Then line up and wait for the approval. If denied; 2) Call any trustworthy person you know; friend, relatives or partners and assemble your own “circle of trust” (recalling meet my parents movie), and exchange the currency under a proper “owner’s attention”; free quotations, no flat charge. If still not getting any… 3) Pack your bags, because this situation is not getting any better.
    +1

  22. Government Says:

    What would be better? shortage or inflation? mmmm tin marin de do pingue….

  23. KillChavez Says:

    The US currency black market will appear soon, as aggressive as the risk involved in the trade, hence; prices will go up to touch St Peter´s feet.

    There are three kinds of operations for the new US market that can be envisaged so far:
    1) Prepare your BCV folder: ID, Passport, birth certificate, home address, sex, kids, smoking preference, Size, Etc. Then line up and wait for the approval. If denied;
    2) Call any trustworthy person you know; friend, relatives or partners and assemble your own “circle of trust” (recalling meet my parents movie), and exchange the currency under a proper “owner’s attention”; free quotations, no flat charge. If still not getting any…
    3) Pack your bags, because this situation is not getting any better.

  24. Miguel Octavio Says:

    Thank you, the whole thing is as fuzzy as it was last night: How will this “corro cerrado” work? Who will be allowed/invited/able to participate in it? How would individuals and companies have access to it? If the law is approved when will the BCV be ready for it? What happens in the meantime? Typical Chavez Government stuff, no clue, just improvisation at each stage.

  25. GeorgeS Says:

    Miguel: Very impressive work. I read the post last night and could not find anything similar anywhere. Read the papers in the morning and only El Mundo had something similar but very brief, then in the afternoon, the National Assembly decides to do exactly what you said. Kudos!

  26. Antonio Says:

    Someone remember RECADI?

    That was a grain of sand in from of the vast continent of corruption ahead formed between CAVIDI y BCV.

  27. Alex Dalmady Says:

    BCV Operating reserves as of March 31, 2010 (Reserves-Gold) stood at $11.3 billion.

    We don’t have the April 30 balance sheet yet, but total reserves have dropped almost $2 billion since March 31 and the price of Gold is up (BCV marks its gold holdings to market daily). Operating reserves at the BCV, by its accounting are no more than $9 billion at this point and dropping. Subtract the bonos cambiarios outstanding ($500 m?) and it gets worse.
    This is, of course, assuming that the BCV is actually reporting its reserves correctly (which I seriously doubt).

    There is no money.

    (They could sell gold of course, if they were smart..yeah, IF).

  28. CARLOS Says:

    CUANTO ES QUE ES 7×8? SE ACUERDAN?

    POR ESO NADIE VA A BAJAR EL DOLAR PERMUTA

  29. Carlos Says:

    Miguel, you are wrong.. you missed one step… THIS IS THE FOURTH CONTROLLED rate.. Just a new layer, certainly more expensive.

    1. 2.60 basic for main imports, students, and so on
    2. 4.30 dolar petrolero, travelers, import for ordinary products
    3. 4.90-5.00 Dolar/bono cambiario
    4. Unknown…TBD.. New Official swap rate (this is the 4th, not 3rd official rate)
    5. Over 8 .. well, that’s what someone will pay to someone else for greenback. It is illegal but this will certainly go up and up and up as far as #4 will be short in supply.

    BTW.. there are billions of bolivares (fuertes) in Venezuelan banks that belong to international corporation….

  30. loroferoz Says:

    I cannot begin to wrap my mind around this. So, their answer is to produce another layer? And so on, ad infinitum?

    These guys look more and more like the Sorcerer’s Apprentice (Mickey Mouse) in Fantasia. He, a beginner in magic, set the broom in motion, and the broom faithfully hauled water. He tried to stop the broom by brutal means (hacking it to pieces) not knowing any better and the pieces become brooms that go on hauling water. Mickey ends up flooded and almost drowning. I wonder if a Sorcerer will appear this time to get all the water out.

  31. Roberto N Says:

    Completely OT, someone asked a couple of posts ago about Diego Arria as a possible candidate in 2012.

    http://www.noticias24.com/actualidad/noticia/154598/patricia-janiot-entrevisto-a-diego-arria-en-cnn/

    Listen to the answer of the last question. If that doesn’t sound like a hat tossed in a ring, then I’ve gone deaf.

  32. Juan Cristobal Says:

    BCV will decide who gets dollars behind closed doors? Sounds like a great gig to me!

  33. Deanna Says:

    According to Globovision and Universal, the Ley on Ilicitos Cambiarios is up for discussion with the AN. Of course, if passed, this takes away the dolar permuta and opens up an active blackmarket.

  34. Miguel Octavio Says:

    Nothing on it in today’s press, it was in Twitter and I was shown a copy, but weird…Two reporeters called me last night about it and I saw a version on email…

  35. ECG Says:

    MO,

    Is there a link to the decree?. I don’t seem to find much information about it this morning.

    Thx.

  36. captainccs Says:

    Miguel, it’s to choke the country to death, the dead are less rebellious than the quick.


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