Venezuela: Exchange rates broadly stable following introduction of Sicad II
May 12, 2014
The introduction of the Second Complementary Administration System for Foreign Exchange (Sicad II) on 24 March has helped to stabilize the Venezuelan exchange rate market. On 7 May, the bolivar traded at a weighted average of 50.0 VEF per USD under the Sicad II system, which was slightly weaker than the 49.1 VEF per USD observed in the same day of the previous month. LatinFocus Consensus Forecast panelists expect a further depreciation of the Sicad II exchange rate to 52.8 VEF per USD in 2014. Next year, the panel sees the bolivar under the Sicad II system weakening to 57.9 VEF per USD.
The bolivar traded in the parallel market also lost some ground in recent weeks. On 7 May, the non-official exchange rate traded at 66.0 VEF per USD, which was 2.2% weaker than in the same day of the previous month. On an annual basis, the bolivar in the black market was 153.0% weaker. LatinFocus Consensus Forecast panelists project a non-official exchange rate of 71.9 VEF per USD by the end of this year. In 2015, the panel sees the non-official exchange rate depreciating to 81.3 VEF per USD.
Although the introduction of the Sicad II may have provided a bit of relief, some analysts are still skeptical regarding the success of the current exchange rate regime. In this regard, Miguel Carpio, finance manager at Del Sur Banco Universal, states that:
SICAD II is a very small step in the right direction, but it was implemented too late. The U.S. dollar shortage, which was worsened by poor management of oil resources, has been a severe problem in the Venezuelan economy since the end of 2011. If we analyze the composition of the international reserves the Central Bank holds, around 10% are liquidity reserves, accounting for less than USD 3 billion dollars. As long as this situation persists, neither SICAD II nor any other policy will ease the dollar shortage. The best proof of this is that, out of the total number of companies and individuals that participated in the auctions, very few have received the dollars. In addition to the dollar shortages, we should add that the system is very slow in clearing these transactions. Taking the above into consideration, it is highly unlikely that the gap with the parallel market will narrow significantly anytime soon.
Despite the introduction of the Sicad II system, LatinFocus Consensus Forecast panelists still expect a sharp devaluation of the official exchange rate in the years to come. LatinFocus Consensus Forecast panelists see the official exchange rate ending this year at 9.12 VEF per USD, which is slightly stronger compared to the 9.16 VEF per USD expected last month. Next year, the panel sees the bolivar depreciating even further than it already has to 15.18 VEF per USD.