Venezuelan Government Devalues Currency

January 25, 2014

Billetes

After promisiing that it would not devalue, the Venezuelan Government not only implemented a devaluation equivalent to a 22.2% devaluation, but also established a fairly restrictive foreign currency budget, doubling Sicad auctions to US$ 220 million per week and reducing the travel and remittance quotas that individuals had access to. While promising to honor debt obligation in the form of bonds issued by Pdvsa and the Republic, the Government simply said it had no foreign currency to pay the US$ 8.4 billion debt between CADIVI and the private sector from imports made in 2013, which if true will have a drastic impact on local companies.

The announcements were made by the Vice President for Economic Affairs Rafael Ramirez, who said that there will be a budget for foreign currency of US$ 42.7 billion in 2014 (Imports in 2012 were US$ 75 billion and 2013 should be above US$ 65 billion). Of these, US$ 11.4 billion would be for weekly Sicad auctions of foreign currency at Bs. 11.3 per US$ in the amount of US$ 220 million plus US$ 5 billion for travel (Yes, the numbers do not add up!) US$ 30 billion would be left at the Bs. 6.3 per US$ rate for “essentials”, which include food, health, industry, education and pensions. Thus, the weighted average, if the Government sticks to the budget will be Bs. 7.6 per US$, for a 22.2% devaluation, even if Ramirez insisted that this was not a devaluation.

This is a very restrictive foreign currency budget and allocation, which at first sight suggests the Government is keeping some foreign currency for its own purposes and suggests the private sector will have even more difficulties in 2014 and shortages should intensify. The devaluation was much less than expected as most analysts were expecting the reverse weighting, with 70% at the higher Bs. 11.3 per US$ rate. Instead 72.3% will be at the old rate of Bs. 6.3 per US$. Wall St. voted down the adjustment pushing debt prices down sharply on concerns about the country’s ability to pay in the future, despite the promises.

Thus, the Government does very little to remove economic distortions, leaving a huge arbitrage between the official rate and the black market rate, which promotes contraband and finding ways, legal or not, to obtain CADIVI or Sicad foreign currency.

The Government did reduce travel, internet and remittance quotas which were all moved to the rate of the last Sicad auction. For remittances, the Government will require a tax filing, which most workers in the informal sector do not do, but I am sure they will come up to speed fast, filing so they can continue having access to the three US$ 166 monthly remittances for close relatives.

While one Government official said that debt with airlines would be paid (It stands at over US$ 3 billion now), Ramirez’ statement about private sector debt prompted the few airlines that were selling tickets to stop doing so. This confrontation could en up badly if the Government tells them to pack up or shut up, which is their usual style.

Ramirez also mentioned the word “permuta” (swap) which many took to mean a swap market a la 2003-2010 would be revived. I would say forget it, the Government can not allow a free market to function without a strong devaluation, nor does it have the dollars to supply such a market. At best, the Government could open a highly regulated and controlled market at Bs. 17 or so if things got tight. (They will)

All in all, another blow to the private sector, to the Venezuelan economy and to the so called Bolívar fuerte or strong Bolívar which has been battered since its creation barely five years ago in January 2008, when the exchange rate was Bs. 2.7 per US$.

We suspect that the Sicad rate would slide during the year and that slowly during the year more and more items will be moved to the higher Sicad rate. The Government will call it whatever it likes, but it will simply be more stealth devaluations of the currency as the year moves on. And so will move the unmentionable rate to higher levels together with inflation as the destruction of the Venezuelan economy by the revolution marches on.

39 Responses to “Venezuelan Government Devalues Currency”


  1. Reblogged this on danmillerinpanama and commented:
    Did Vice President Ramirez fail to seek necessary guidance from Chavez’ ghost, or did a little bird, chirping on behalf of el Thugo, tell him what to do?

  2. VJ Says:

    Devil……..
    For the Maduro government and other chavistas enchufados who have access to the 6.30 old cadivi rate, maybe the weighted devaluation is, as you said, 22%.
    But for the rest of the mortals in Venezuela, the devaluation is the opposite: 78% .

  3. moctavio Says:

    Well, not quite, you eat goods imported a Bs. 6.3 or made with machines bought at that rate. The value of the Bs. 7.6 per US$ figure is that it is clearly not enough, from the point of view of Govrnment finances 22% is insufficient and the bond market is telling you so. 10% down this year.

  4. HalfEmpty Says:

    the so called Bolívar fuerte or strong Bolívar which has been battered since its creation barely five years ago in January 2008, when the exchange rate was Bs. 2.7 per US$.

    That seems so long ago… already.

    Also an Enforceable market at 17? Is that a hunch? I seem to remember the number 22 as it related to the last swaps market?


  5. Miguel

    I think the opening rate was 2,15 bolivares fuertes for one dollar. It was exactly half the historical value of the dollar for years under the 4ta republica. propaganda and lies from day one…..

  6. PM Says:

    Wait, didn’t RR explicitly say the swap market would be “Unpenalized”? I was excited to hear this as it seemed a move in the right direction.

    On the $700 to go to Florida: I bet Alabama will become the most common destination for Venezuelans. They’ll just have to “miss” their connection in Miami and pocket in their $2500..

    • Glenn Says:

      Non stop flights to Houston if you have dollars for tickets :)..
      For this reason I’m guessing Santa Barbara will have to add planes but won’t be able to fly for more than 1/2 tank fuel since they won’t have dollars to fuel up.

    • RattInnaCage Says:

      All the talk about flying to the US is nice . . . assuming there will be an international airline to take you.

      • moctavio Says:

        I agree, the Government does not like to be challenged and the airlines are doint it, the outcome could be a disaster for Venezuelans.

      • PM Says:

        So my dad told me something similar was happening in times of RECADI. He said new airlines were made with the sole purpose of taking Venezuelans to other destinations via Miami. It was the perfect deal as everybody were missing their flights they had already paid for. It’s not like they are going to install captahuellas in Miami

    • Alex Says:

      Since likely your cards will be monitored, you will not be able to use them in Florida….but I’m sure users will find a way around this. The more restrictions, the more creative.

  7. xp Says:

    Please God –
    Give me oil @ $ 140.00
    and I promise NOT to print
    another Fuerte B.S.
    Please don’t forsake me.
    At the very least,
    make gold, and rest of
    the crap I’ve got [iron,
    aluminum, platanos,
    apio, and all] flourish.
    Please.Please.Pretty Please?

  8. Dave Hill Says:

    Now they think they are going to tell internet sellers like Amazon what prices they can charge for internet sales in Venezuela. Bet that works out great! There will be a huge black market now in unavailable goods that will make Colombia and crooked chavista politicians rich. The stupidity of Marxists always boils down to one dumb idea: it is morally wrong to make a living on your own.

  9. Alex Says:

    Some comments:

    1. The burden of paying for the $200 billion in debt is being pushed on to the economy and regular citizens’ life styles. Less imports, less economic activity, more inflation. Sooner or later, this was going to happen, as predicted by economists since 2007 when the government was issuing debt like crazy and giving away bucks in the billions to friendly countries. However, Wall Street is not paying attention to this, because it feels that at one point or other default will be less costly than economic tightening.

    2. The cadivi dollars for travellers….people are pissed off, but sit down and think about it. Hit yourself with a rock! The country’s economy is completely screwed up and all the government did was shave 900 bucks off the maximum amount. A couple travelling to Europe will still have access to $6000 at 11.50 which currently is like 1/7th of the black rate. The $700to Florida? You’ll find a way around it, I’m sure.

    3. it’s clear these guys are avoiding the unavoidable: real economic adjustments. From now on, it’s all downhill, with no point of return.

  10. VJ Says:

    Taken from APORREA…
    “Ministro Rafael Rámirez, no intente mojonearme más…” by Neftali Reyes.

    El día de ayer (22ENE2014)el Vicepresidente del área económica del gobierno Rafael Ramírez realizó algunos anuncios muy importantes, relacionados con el manejo del sistema cambiario, mecanismo mediante el cual el estado Venezolano en un inicio había logrado controlar sustancialmente la apropiación de las divisas generadas por la renta petrolera, pero que desafortunadamente al día de hoy, ha degenerado en un corrupto dispositivo que le ha permitido no solo a los sectores tradicionalmente dominantes del país, sino a la nueva, asquerosa, increíblemente hipócrita y descarada BOLIBURGUESÍA acceder a una porción muy importante de dichos recursos y que representan una herida mortal para la Revolución Bolivariana y para la soberanía e independencia de Venezuela, sobre la cual creo que las medidas recientemente anunciadas no solo no corrigen dicha situación, sino que en algunos casos la agravan.

    Al respecto, me gustaría preguntarle lo siguiente al “camarada” Rafael Ramírez, con la convicción de que JAMÁS me va a contestar, pero creo que tal vez pondría pensar a un montón de gente, incluyendo a aquellos que están creyendo que con solo la verborrea revolucionaria en la que ni siquiera son buenos, nos convencen y nos dejan chupándonos el dedo, incluyendo al “Sr. Ministro”:
    Continue reading in the following link:

    http://www.aporrea.org/actualidad/a180597.html

  11. Morpheous Says:

    I think travelers (and “raspacupos”) will still have access to additional dollars via SICAD. This plus the dollars via CADIVI could still be enough to finance the travel ticket and expenses and left with a profit if they manage to arbitrage with the parallel market, or sell merchandise they bring from trips. So, demand for air tickets will probably stay the same or even go higher (we still need to see what salary increases the government will announce). The questions here are: By how much will the air tickets prices increase? How many airlines will continue to operate in Venezuela? How difficult will become to book a flight?

  12. bobthebuilder Says:

    If you increase restrictions to something that is considered freely available elsewhere, you make ‘criminals’ out of normal people. The longer this goes on the closer to anarchy the country goes.

  13. gonzalog86 Says:

    Good article! I did an illustration of the latest non-devaluation-devaluation in my blog (www.elarepon.com). Would love to get your comments.

    http://elarepon.com/2014/01/26/pa-que-tazo/

  14. Controller Says:

    there are three ‘air agreements’ between Venezuela and the U.S. dating back to 1958 and ammended twicde. Condititions already met for USGOV to invoke provisions of the agreement but probably will not. The U.S. Administration does not seem interested in assisting American private enterprises doing business with Venezuela. Invoking the agreement would just kick things to an international court something the BRoV does not honor. Reciprocity is the basis of the air agreements and you cannot have one without the other. American Airlines is owed over US$600 million. It seems AA is skirting fidicuary responsibilities to its shareholders by keeping their Venezuela cloaked.

    • CARLOS Says:

      How can Anerican explain to CADIVI (and passengers) the fairness to collect 3000 US$ for a roundtrip economy ticket CCS-MIA-CCS..?? A Bogota-Miami-Bogota ticket, same airline, same distance, costs near 600 US$.

      Looks like they charged in bolivares a price in bolivares hedged with the black market rate, 5 o 6 times the official rate. So now,.. How can they expect from CADIVI officers to approve this scam? Would they approve a Notebook computer charged 4000 US$ instead of the market price.

      American played for 10 years this game overcharging tickets (looking at the black rate, usually 100% more) and then collecting at CADIVI rate. Good deal.. the most profitable routes for them.. Game over

      My full support to all the other US industries

      • moctavio Says:

        Its called markets, American can not add flights, flights are full, they can charge and they have no clue when and if ever they will collect. Plus, most buyers of this “scam” are also selling dollars in the black market to buy the tickets in Bs. It is the distortions of controls and crazy policies, American is just heging, as I said, how do they know they will collect? Ever?

        Only from Ft. lauderdale to Bogota there are more flights than American has to Caracas, that is why it is cheaper.

        • moctavio Says:

          I also dont believe for a minute American uses the black market. First it has no depth, second the Government monitors Bolivar flow.

        • carlos Says:

          strongly disagree your point Miguel. Monopoly manipulation, many antitrust law violations and arbitrary price fixing sound better than market issues in the specific case of American tickets in Venezuela. Also a net violation of currency control laws in Venezuela.
          A ticket to Miami sold at 3000 dollars must be watched in Cadivi like a 500-700 dollars computer imported at 3000 dollars.
          The Cadivi subsidy is intended to benefit passengers, allowing low priced tickets in bolivares, not to reward outrageous prices in dollars to support prices manipulation for a financially broken airline.
          European airlines like Iberia, Alitalia, Lufthansa did not charge 12000 dollars for a economy ticket to Europe, tipically 10 hours trips. And you may bet there was a seats scarcity also to Europe.
          Finally, as you say maybe some passenger sold dollars in the black market, Would this fact enable a corporation to violate any laws?
          American expected not to get cadivi cheap dollars, they overcharged tickets to passengers..so…why cadivi should now pay for an overcharged product using a subsidized currency?

          • moctavio Says:

            And I strongly disagree with you, there was NOTHING in the Cadivi rules that said that because they were getting official dollars prices were regulated for airlines. That is the same argument that Ramirez is using, he will not pay companies if they sold goods at high prices, but there was nothing in the rule, laws and regulations of CADIVI that said that.
            Cadivi is not intended to benefit anyone, it is a control and distribution system, no more than that. The Government had regulated prices of many things, but not airline tickets.
            I have seen outreageous ticket prices in the US and people either buy it or dont. Santa Barabara had as high tickets as Americans, for example.
            I still think think that it is playing with virtual money, they have not gotten paid in a long time. They sold tickets at Bs. 4.3 that may not even be paid at Bs. 6.3, but you think it is peachy. Well, I think American was defending its interest in a screwed up environment.

            • Carlos Says:

              No Miguel… Do not mix cost of good with sales price.. Ramirez is wrongly trying to punish companies that bought at CADIVI rate and sold with high margin. These companies are , maybe, collecting a huge profit IN BOLIVARES but they are receiving CADIVI dollars for the authorized and reasonable cost of good imported (maybe not so reasonable) . In any case they are cheating on teh consumer not on CADIVI.
              American case is different.. they pretend to convert at CADIVI rate the full price of a clear overpriced ticket. They are cheating first the passenger by charging a huge overprice and then CADIVI by asking this overcharge converted to a subsidized currency rate.
              I am not questioning the FORD or GM right to receive full CADIVI for their imported ckds..CADIVI must honor it, even if car were sold very expensive.
              To recognize to American a 3000 $ ticket at CADIVI rate would be like to allow CHRYSLER or FORD to receive 200.000$ for a Cheroke or Explorer sold at 1.000.000 BSF to a consumer
              End of discussion on this topic….. I appreciate your blog, your effort to show critical Venezuelan issues to the world and I especially follow and like your charts.., and….Cadivi is owing my small company 6 months of imports..:(


      • Although I agree with Carlos about how American can go to Cadivi and ask for full price for their fares, considering the prices between bogota and miami vs caracas to miami, but I would gather to say that American has hedged themselves for an expected devaluation, remember not all devaluations are guaranteed that Venezuela would pay old debts at old rate.. so American would need to raise the price to hedge… and be able to pay the higher rate on older debts, (cause my understanding is Venzuela Gov, doesnt necessarily pay at old rate when they devalued to new rate.. I’d gather to say as we go further along the years american is using the higher prices because thats how they would get their USD back, via the black market if they really needed to get out of venezuela, cadivi Sicad are just icing on the cake for them, if given to them.

        • moctavio Says:

          Early last year, I bought a ticket from American and paid Bs. 4,000 to Miami, American has not gotten paid for that.

      • Alex Says:

        Ramirez and co are in total shock with the $3 billion debt to airlines and have absolutely no idea on how to manage the situation. Of course, they conclude that speculators are to blame.

        In this case, the classic, chavista threat tactics won’t change the challenging attitude of creditor airlines. It seems they are resolute on getting their money and If the government dares threat of confiscating or whatever else, they will just halt operations to Venezuela.

      • Sad Truth Says:

        Because it’s not really $3000. The 6.3bs exchange rate is a clever method created by the government to give handouts to people. The real exchange rate is not 6.3 or 11.5, it’s the parallel rate of 70+ of whatever it is now-a-days.

        Remember that the next time you are in Miami buying everything in sight with your free Venezuelan dollars.

      • Daniel Says:

        Carlos

        What you forget is that everyone wants to go to Miami and not to Des Moines. If you go American to San Francisco you pay less than American to Miami. What you call overpriced is actually what American or Santa Barbara charge for a premium destination. It is called good old capitalism and cadivizmo has nothing to do with it. Not to mention that what the fuck would American want to play arbitrage with the bolivar? What would American use its bolivares for? Arbitrage only makes sense if you need bolivares and last time I checked American was not looking to set a hub in
        Venezuela.

  15. Controller Says:

    …by keeping their Venezuela business cloaked (under the carpet). AA is not being clear with its shareholders about the magnitude and severity of its Venezuela problem. Same with Ford Motor Co.

  16. Ccs coup Says:

    I’ll let Queen cheer you folks up with “Venezuela Rhapsody.” I clearly remember when Queen went to Caracas. I remember watching TV news showing Freddy Mercury deplaning via jetway to a waiting beer and cameras…those where the days.

  17. Alex Dalmady Says:

    Then you’ll remember that Queen had to cancel several of its performances due to government mandated “mourning” of former pres. Romulo Betancourt. Foolishness and government meddling in peoples’ affairs goes back as far as I can remember in Venezuela. Those weren’t the days, either.

  18. moctavio Says:

    Carlos:

    Again, THEY HAVE NOT RECEIVED DOLLARS in quite a while. They were paid tickets sold “expensively” at bs. 4.3 at bs. 6.3, there goes 40% of the moeny right there. Which part of not getting paid is so hard to understand? They are not getting paid, they are protecting themselves. First rule of economics. You talk as if that ticket for US$ 3,000 has been paid. IT HAS NOT. In fact, I know for a fact thata ticket last spring that I paid bs. 4,000 for has not been reimbursed to American Airlines yet. So at what price are they getting paid? I dont know, neither does American. Thus their behavior.

  19. firepigette Says:

    I ma so glad you will not give up.Good for you and for us.Thanks!


  20. […] controlled, yet planning is a big mystery to Government officials. The Bolivar has been devalued officially, again, as through inflation at about fifty percent annually were not enough to screw the […]


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