Venezuela launches fifth foreign exchange plan in four years

Venezuela launches fifth foreign exchange plan in four years
May 24, 2017 | 12:52 PM
by Reuters

Caracas: Venezuela on Tuesday announced a new foreign exchange auction
mechanism to complement its currency control system, the fifth such plan
in four years by a socialist government that has repeatedly balked at
reforming its state-led economic system.

The mechanism, known as New Dicom, will offer dollars within a band
determined by the central bank, Economy Vice President Ramon Lobo told a
press conference, without specifying what that band would be.

Economists say Venezuela needs to abandon its 14-year-old exchange
controls rather than create auction systems to complement it, adding
that previous auction platforms have failed to provide a steady supply
of dollars to the economy.

"With this system we hope to normalize the functioning of the currency
system. We are going to optimize it," Lobo said.

Venezuela, which suffers triple-digit inflation and major product
shortages, sells greenbacks for 10 bolivars for food and medicine
through the government currency agency.

It also sells greenbacks at 726 bolivars for less important items
through an auction system known as Simadi.

Most Venezuelans say they cannot gain access to either of those rates,
and instead rely on the black market where a dollar currently fetches
more than 5,800 bolivars.

Oil reliance

"The government appears resistant to recognizing the parallel exchange
rate," said Asdrubal Oliveros of local consultancy Ecoanalitica. "This
means there will be no incentive for dollars to be sold (on the New
Dicom market)."

The 2014 crash in oil prices left the government without enough hard
currency to supply the exchange controls, spurring an economic crisis
that has left many Venezuelans skipping meals. The Opec nation relies on
oil for around 94 per cent of its foreign income.

Lobo said the central bank would receive bids from companies and
individuals seeking to buy hard currency, and would sell dollars to
those whose bids fall within the established band.

President Nicolas Maduro's government in 2013 created an auction system
known as Sicad that was abandoned the following year for another system
called Sicad II — which was in turn shuttered in 2015 with the
inauguration of the Simadi system.

In 2016, Maduro's government announced the creation of the Dicom
platform, but it never began operations, with Simadi remaining in place.

Businesses generally said those systems did not provide a steady supply
of hard currency.

Maduro says the country's economic problems are the result of an
"economic war" led by political adversaries."

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