Reuters: US Dollar Report: UPDATE 2-Venezuela launches first auction in new currency system

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UPDATE 2-Venezuela launches first auction in new currency system Mar 25th 2013, 14:27 Mon Mar 25, 2013 10:27am EDT By Eyanir Chinea and Andrew Cawthorne CARACAS, March 25 (Reuters) - Venezuela launched a new foreign currency auction on Monday with a first offer of $200 million to businesses, widely expected to represent another partial devaluation of the bolivar. The South American OPEC member's socialist government devalued the fixed rate of the country's currency, the bolivar, from 4.3 to 6.3 against the dollar last month. Monday's formal launch of the previously announced Complementary System for Administration of Foreign Currency (SICAD) sets up a parallel mechanism for businesses unable to access dollars at the fixed official rate via state currency board Cadivi. Companies have to bid for dollars at that minimum price of 6.3, and private economists estimate the greenback will go for nearer 10 bolivars under the new system run by the Central Bank. Results will be announced on Wednesday. The government's intention is to both improve the supply of dollars, mainly to importers, and combat an illegal black market when the greenback goes for four times the official rate. The dollars are provided by state oil company PDVSA. Analysts say the new system should help Venezuelan bond prices by easing the need for new issuance - a common practice in the past few years when the government fed a previous exchange system via new debt. "The news should be good for bonds, as the new mechanism implies the supply of dollars will come from oil export revenues and not from external bond issuance by the republic or PDVSA. Bond issuance going forward should be determined by financing needs and not used as a mechanism to provide dollars," RBS said. "On the other hand, the decision implies additional currency depreciation and is likely to have an impact on inflation." The minimum amount that could be offered in this week's auction is $30,000, the Finance Ministry said, announcing the rules. Money will not go into local businesses' hands but be adjudicated to suppliers abroad once goods arrive. The measure may help the government of acting President Nicolas Maduro to ease import bottlenecks caused by a lack of dollars as he heads into an April 14 election triggered by the death of Hugo Chavez earlier in March. Maduro's administration hopes the new mechanism will improve supplies of products such as medicine in the import-dependent OPEC nation that operates a tightly controlled currency control system created by the late socialist leader. Critics say the decade-long currency controls create ample opportunities for corruption by allowing well-connected Venezuelans to buy at the official rate and resell dollars on the black market for quick profit. Businesses have complained for years about restrictions on access to foreign currency. The government argues that it is obliged to maintain controls to counter speculative trading. The opposition's candidate in the April 14 election, Henrique Capriles, has been railing against Maduro for hitting Venezuelans' pockets with precisely the sort of economic "package" normally derided by leftists. "This new exchange system is another devaluation. That's the hidden reality. Who will suffer most? The poor, because of price rises," Capriles told Reuters in an interview last week. Link this Share this Digg this Email Reprints

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