Massive Devaluation in Venezuela

HAVANA TIMES — According to the Central Bank of Venezuela, Venezuela’s new exchange market, to be governed by unregulated supply-and-demand mechanisms, began operations Thursday with a rate below that of the black market, DPA reported.

The market opened with an exchange rate of 170.03 Bolivars to the dollar, a rate below that of the black market dollar, valued at 190 Bolivars.

Analysts said that these new operations signify a massive devaluation in relation to the other regulated exchange rates.

According to the government, the new mechanism will afford individuals and companies partial access to the exchange market, which continues to be subject to the exchange mechanisms in place since 2003.

The government created this open exchange market while maintaining two regulated exchange rates: a 6.30 Bolivars to 1 dollar rate for prioritized food and medical imports and a 12 Bolivars to 1 dollar rate for all other operations, travel and Internet purchases.

Those wishing to obtain hard currency outside these mechanisms will now be able to buy and sell their dollars on the “free” market.

Analysts said that the exchange rate will depend on the hard-currency inflows from the Central Bank that the government is able to maintain.

Companies, people who receive remittances from abroad and tourism agencies are expected to sell their dollars in the new market in response to the current high demand.

According to the new norm, banks and exchange locales will begin operations on February 19 and be authorized to carry out transactions to buy and sell up to 300 dollars in cash.

The government announced the creation of the new market (called the Sistema Marginal de Divisas, or SIMADI) this week, as a measure aimed at complementing other exchange control mechanisms.

The measure seeks to alleviate the local exchange market, which for months has suffered hard currency shortages and the strict exchange controls established in March of 2003.

The lack of hard currency in the oil-producing country has resulted in growing shortages in consumer products and has forced Venezuelans to stand in long lines at supermarkets in search of the scarce basic food and hygiene products.

It is estimated that 70 percent of exchange operations in the country are conducted at the 6.30-1 rate and 25 percent at the 12-1 rate, leaving the remaining 5 percent “free” – hence the name of this new mechanism.