A look at the foreign currency that the Venezuelan Government may have in 2010t

June 20, 2010

One of the mysteries this year is why the Government has been so stingy with the exchange control office CADIVI as well as its decision not to supply more foreign currency to any alternative market, despite higher oil prices.

That is why I was mesmerized by the following Barclays graph which was published this week. In this graph Barclays plots for each of the last six years, how much CADIVI gave out to importers, how much the parallel market traded and how much the Government issued in bonds.

The first surprise, because I had not looked at the totals for a while, was that the swap market was larger than CADIVI last year. What this means is simply that PDVSA preferred to change at the highers swap market rate than at the Bs. 2.15 per $ rate which prevailed last year. This is because in the end the Government via the Treasury, Fonden or whatever  other mechanism was the main provider of foreign currency to the swap market. Thus, in the end it is the Government that provides both markets.

Thus, in some sense, it is better to look at the total CADIVI+SWAP market+Bonds and subtract the bonds to get an idea of what the last few years were like. I plot that in the next graph together with the price of Venezuela’s oil basket (sort of assuming production is constant, which it is not)

In the above graph, the green line is the average price for the Venezuelan oil basket for the year in US dollars, while the blue line is the total amount of US$ dollars (in billions) given to importers by CADIVI and/or purchased in the swap market plus bonds issued, which in the end measures the number of dollars to which the Government had access on any given year. The red line simply subtracts the issuance of bonds from that total, it is a measure of the deficit of foreign currency the Government had, which forced it to resort to issue bonds.

Let’s look at this graph historically. In 2004, the oil basket was US$ 31.85 and the Government “had” some US$ 25 billion of which it had to issue US$ 5 billion in bonds. The total amount for 2004,2005 and 2006, scaled reasonably with the oil price, in all three years the Government issued US$ 5 billion in bonds to complement its needs, “using” US$ 25 billion, 37 (up 50% from 2004) billion and US$ 40 billion (up 8% from 2005), as oil went from US$ 31.85, to US$ 48.36 (up 51.8% from 2004)  and US$ 52.31 (up 8% from 2005) per barrel in the same years.Basically the increases were almost identical from year to year.

Then, in 2007, oil prices jumped by 64%, but the Government needed US$ 83 billion, a 107.5% increase in foreign currency in 2007 over the previous year, including US$ 19 billion in financing.

And here is where things get murky. In 2008, with oil dropping 62.5%, the Government used up US$ 75 billion, barely 9.6% below 2007, despite the dramatic drop in oil prices. How could this be?

Well, the only possibility is that the Government used funds from the development funds Fonden, taken from international reserves, and other savings in foreign currency to fund part of the needs for 2008.

And it did the same thing in 2009!

Thus, from 2007-2009, the Government “used” 75% more foreign currency than in 2006, but the average oil price in those three years was only up 29%.

And then we come to 2010, this year the average price of the oil basket is running roughly at the level of last year, in 2009 it was 67.7 dollars on average, so far this year it has been US$ 70.26, less than a 3% increase. Except that it is going to be quite difficult to issue new bonds, subtract US$ 11 billion from last year and there will not be as much in Fonden as there was in 2009.  In fact, Fonden began 2009 with US$ 19 billion and this year at no point has it had more than US$ 9 or 10 billion. Thus, the “Total” in the graph for 2010 will have to be around US$ 50 billion, once you subtract no new issues, half the money (likely more) in Fonden.

Finally, PDVSA has higher cash flow needs, thus the number may be even smaller, as international reserves have been dropping, even with lower CADIVI outflows, which implies PDVSA is handing out less money to the Central Bank.

What this all means is that there will much less money for imports, which will only be complicated by the banning of the swap market, which used to provide an alternative to the official market for importers needing items to complete their manufacturing and/or buying spare parts.This will translate into shortages which I am surprised has not intensified as of yet. Most manufacturers/importers say that they typically have about six weeks of inventory. which means we should start seeing the impact of these foreign currency problems in less than a month.

(Note: Some of the money from the bond offerings flowed back into the swap market, thus I may be double counting somewhat, but this changes little the conclusions)

37 Responses to “A look at the foreign currency that the Venezuelan Government may have in 2010t”

  1. Matthew Powers Says:

    I was wondering where you were able to find information about how much money Fonden had available. At one point you say that “In fact, Fonden began 2009 with US$ 19 billion and this year at no point has it had more than US$ 9 or 10 billion.” I would love to know how you were able to figure this out. Thanks.

  2. moctavio Says:

    I see what you mean, but the effect is not linear, the Government collects a royalty no matter what the cost of production is, then PDVSA gets taxed and pays dividends on earnings. But in the end, it is dollars that matter and most of the cost is in local currency, so even a barrel sold at a loss generates foreign currency, so I am not sure it matters if the barrel is sold abroad. Let me think about it, it’s late.

  3. Herzog Says:

    “Thus, from 2007-2009, the Government “used” 75% more foreign currency than in 2006, but the average oil price in those three years was only up 29%.”

    This would appear to be the central “paradox” discussed in this article. But if the cost of extraction were somewhere in or just below that 29 percent range, then the increase in net revenue could be much higher than the increase in the price. And it may be (I really don’t know) that a lot of extraction technology is imported, so those costs could be paid outside of Venezuela, affecting the net foreign exchange.

  4. moctavio Says:

    My graph is simply oil price per barrel

  5. Herzog Says:

    I don’t claim to understand this but I’m wondering whether the article is confusing the price of oil with oil revenue. It costs a lot of money to produce Venezuela’s oil; the extraction technology is elaborate for the kind of oil they have.

  6. Kevin Says:


    Your concerns are well-founded. Without some means of buying critical spare parts, whole factories will go down for lack of a cotter pin. You can reduce your output by 2% if you have a 2% disruption of your overall foreign exchange allocation al long as you can decide what to buy. But if 2% of the parts are randomly refused foreign exchange allocations, you can’t sell a machine with 2% of the parts missing. You are entirely closed down.

    So people will spend whatever they have to to get that last 2% of their dollar requirements and send their secretary to Cleveland to bring back the spare parts in her suitcase.

    This may be why the various black market dollar blogs are quoting prices 11 Bs and up.

  7. Me Says:

    Highest Default Probabilities

    The CMA Sovereign Risk Monitor identifies and ranks the world’s most volatile sovereign debt issuers according to percentage changes in their 5 year CDS. CDS values are calculated by CMA’s market leading CDS price verification service, DataVision.


    Highest Default Probabilities

    Entity Name Mid Spread CPD (%)

    Venezuela 1233.71 56.28

    Greece 929.56 55.33

    Argentina 970.16 48.22

    Pakistan 763.10 40.85

    Ukraine 619.33 35.59

    Dubai/Emirate of 469.25 28.27

    Iraq 459.10 28.26

    Portugal 318.06 24.20

  8. m_astera Says:

    My reading indicates that both the dollar and the euro may be tanking this summer.

    China’s announcement that the yuan will now be valued against a basket of currencies is a strong indicator.


    Check back in mid-August and see if I had it right.

  9. A_Antonio Says:

    With the approved of the Law of “Comunas”, Venezuela welcome to the Stone Age. With the barter (trueque) foreign exchange, dollars, Bs, do not matter anymore. 🙂

    I change two bottles of whisky by two kilos of onion.

  10. loroferoz Says:

    “Site had gone quiet for awhile until someone mentions whisky……… maybe Chavez stays until there is a whisky shortage.”

    Most probably.

    Kepler and Franklin:

    Exchanging YOUR property into whatever means pleases you (and your seller, whoever that might be) has everything to do with freedom. It is an indissoluble part of freedom. It is more of a freedom than using the public infrastructure, which is more of a privilege.

    The innocent and the poor will pay for their lack of such freedoms, from not being able to jump the barriers that the rich and connected jump everyday, to escape the State’s monopolic mishandling of their money.

    Some States monopolize the money supply, being the main providers of liquidity, and force their money on segments of the population, because they hold the payroll. Such monopolies they use for funding in ways that no private party could contemplate without landing in jail and being labeled a big time crook. Invariably, they allow the State to sink future generations into deeper debt. Such is politics. Make somebody else pay tomorrow for your binges today and now.

    Exchange controls and forbidding the possession of certain certificates (like foreign currency) is all-out tyranny, however. It’s way beyond being a monopolist and insisting that all business with you is to be done with your arcade tokens, which you issue as you please. It’s being a gangster, it’s forcing everyone to exchange their property to your tokens at gunpoint; or alternatively to resort to the black market operated by your underlings as a side business.

    I foresee dollarization (and euro-ization in a lesser scale) of the Venezuelan economy (at least that which does not pass officially through the State) when and if the BsF. finally collapses. Legal or not, frown or smile, it will happen, just like inmigration and drug consumption happen in other parts of the world. Those who will suffer most are people tied to the sinking ship (the State and it’s progressively more worthless BsF.). Again, the innocent and the poor.

  11. Kepler Says:

    That does not have to do with freedom.
    The people who are going to pay for it are the innocent in Venezuela.
    Basically, by playing along with this system people sink further Venezuela and the opportunities of those in the country, including the children.

  12. A_Antonio Says:

    In the last semester, a Shortage of near 50% in imports in tax free zone in Falcon, How is in Margarita?

  13. JAU Says:


    I understand that the 2012 elections are more important, but at this rate, the 2012 elections will not happen, by then Venezuela will be so Cubanized that it will not matter… I believe that the 2012 elections will be similar to the referendum or consult that Cuba did a few years ago were 100% of the people said that they approved of Fidel. 100%!!!

    I think that our only solution is a well aimed bullet and then chaos for an undetermined amount of time.

  14. David Prospero Says:

    would love to bounce some ideas off of you. can you email me at dvdprospero {at} gmail.com so that we can discuss further.

  15. moses Says:

    In a question of weeks, most car assembly plants will grind to a halt. Not because they lack Cadivi $, but because THEIR SUPPLIERS who did not have access for all their needs to Cadivi $ and used Permuta $, now do not have access to Permuta $.

    This is an industry were a missing part will not allow a complete car to roll from the assembly line to the dealership (For ex wheels…). An incomplete car cannot be sold….

  16. Miguel Octavio Says:

    That’s a good question. The Faja payments are not only small but spread over 18 months, thus they are within the error of the calculation, 800 million this year with luck (The second and third payment are tied to PDVSA doing certain things which will not happen)

    The 20 billion loan is not very transparent, half of it is in Yuan, which means Chinese products imported by the Government, even if inefficiently, it means something. The other ten billion the question I always ask, is where is it? PDVSA? No. Fonden? No. BCV? No. Chinese Fund? Who knows. If it is in the Chinese fund, last year that fund had like 8 billion in any case, which I have not taken into account, so up my calculation to a 10 billion deficit or so, should be felt, no?

  17. Kepler Says:


    Heinrich is right. Remember the 20 billions from China. Even if a huge amount of this is just yuan-bound, Chinese-sales-directed, there will be some extra dosh there. And Chávez will do anything: sell exploitation rights for a million years to the Russians in Guayana’s gold mines, expropriate more and more
    and so on and there absolutely no end to this unless we are able to position ourselves not as “the ones defending OUR rights” but the ones defending the rights of all Venezuelans, as fastidious as this will sound.
    We are in year 11 of Chavismo. Most Chavista voters did not know much of what was before even if they were already born. Remember Cuba.

  18. Heinrich Says:

    good idea to look into the money supply, as the budget does not offer transparency. You say they will come up short compared to 2009, because they cannot access capital markets and FONDEN has less resources. But what about the dollars the oil companies had to pay when signing the Faja deals, and what about the China loan (the Chinese may control that money, but dollars are fungible – with imports from China taken care of, they can spent their oil dollars on something else)?

  19. Miguel Octavio Says:

    Well, yes, everything favors the opposition. However, there are a few questions to ask:

    1) if we get 65% of the vote, will we get 65% of the seats?

    I doubt it. besides gerrymandering, there is the problem of the 5% error, what I think the government can fix in any given election.

    2) If we don’t get more than 2/3, does it matter?

    3) If we accept that Chavez has 30% popularity and he will have that even with shortages, with 5% cheating gerrimandering, massive amounts of money to spend and drive the vote out, will the oppossition get more than 66%?

    I doubt it.

    And in the end only having 2/3 does anything. If we have 62%, Chavez will ignore the Assembly and rule with what he has. Even if we got 66%, the TSJ could decided all new laws are unconstitutional.

    Bottom line” The important election is in 2012.

    I will post on all this, closer to the election. Yes, I think there will be shortages, but the Government is too powerful. I think the banks and Alimentos Polar will be taken before then too.

  20. JAU Says:

    Miguel, if bigger shortages happen, compounded with all the troubles we already have.

    Could you please explain me how can the opposition NOT win the September elections in a landslide?

  21. Kolya Says:

    OT: with apologies to my Venezuelan friends, but my favorite rums are Zacapa Centenario (23 years old) from Guatemala and Barbancourt Estate Reserve (15 years) from Haiti. They are rums to savor neat.

  22. Miguel Octavio Says:

    It’s no joke this is a Dictatorship

  23. Sorry, I am so used to freedom 🙂

  24. Miguel Octavio Says:

    The only valid currency in Venezuela is the Bs.

    The only valid exchange is via the Government, everything else is indeed illegal

  25. I see what you mean. It is illegal if there is no legal exchange of the dollar for bolivares first before investing in any tangible asset? That is, I would have to use the government system to do the exchange first and then buy whatever I want to bring to the USA or to provide liquidity to firms?

  26. Roger Says:

    Exporting Rum great idea except that most of the sugar cane plantations have been expropriated and now produce not even enough sugar and it has to be imported too! The only thing that Venezuela still exports is oil and all (sic) all of the revenue from it is expected provide all of the international funds needed to cover all of the imports that Venezuela needs to survive and prosper. Considering that much of these international funds for one reason or another never makes it back to La Venezuela only makes things worse. A bushel of corn (arepa makings) sells for the most part in USD just like oil. Even corn grown in Venezuela could be owned by an Interational futures trader and you want it you pay USD for it! Inflation in a country that produces its basic needs is one thing and a lot less painful than a country like Venezuela that has to import almost everything it needs to survive.. The Golden Goose is on the Parilla folks!

  27. Wait, it is illegal to buy tangible assets using my dollars and bringing these assets to the USA?

  28. Robert Says:

    I swear I was not trying to bait anyone! And it took until now to know why I wasn’t getting bites as I’ve been asking for a little while “what really happened to the black market?” I apologize for being so naive. After all of these years and in these times, I should have realized that not even the internet has free speech in Venezuela anymore.

    Gosh I’m astounded! After years of preaching “if you want to know what Chavez will do, just listen what he says,” I should have known when he declared the internet to be the enemy and opened a twitter account, he was making an announcement. For sure one of his hundreds of paid internet surfers will read this.

  29. Miguel Octavio Says:

    Sorry, it’s illegal. Not even discuss it here.

  30. OK, it is capitalist time.

    1. Can someone tell me a way to make use of the one
    commodity Venezuelans will need the most: the mighty dollar? I have plenty of
    it, and from what I see, there has to be a way to profit. All I need is a
    LEGAL method of exchanging the dollar for something LEGAL of value and bringing it
    to the USA (gold, gems, cattle, whatever).

    2. I want no tangible property in Venezuela. Nothing. I want my profits to materialize in dollars in my bank account in the USA.

    3. OR, I may accept providing liquidity to a firm in exchange for equity (after
    due diligence, of course).

    4. There is gotta be something for an “speculator” to take advantage of in my former
    country (se habla, escribe, y grita Español).

    5. MO: How do I contact people here who possibly want to do business?

  31. HalfEmpty Says:

    Damn, Nija Robert

  32. HalfEmpty Says:

    Ima start to see a problem pattttttturn hier

  33. Robert Says:

    Site had gone quiet for awhile until someone mentions whisky……… maybe Chavez stays until there is a whisky shortage.

    Honestly, is there still an exchange rate different from the governments? Was there dollar hoarding and speculation going on or not?

    Don’t get me wrong. Chavezonomics still sucks.

  34. Eric Lavoie Says:

    “Ron Añejo Pampero Aniversary Edition is better than any whisky”
    Blasphemer 😉 nothing tops a Lagavulin or Bowmore 🙂

  35. A_Antonio Says:

    Ron Añejo Pampero Aniversary Edition is better than any whisky.

    Also like Cacique’s Ron.

    These will be excelent, with proper advertising, to export in millions of tons. I see these in Europe, but it can be lot more.

  36. Gringo Says:

    whisky, somehow (I dont like it) is a Venezuelan’s favorite.

    When I was in Venezuela, I was partial to the local Ponche Andino.

  37. Andres F Says:

    Despite the economic trouble, Venezuela imported more than 40 million bottles of whisky last year.


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