Venezuela: Non-official exchange rate depreciates sharply amid U.S. dollar shortage
September 8, 2014
A severe shortage of U.S. dollars has caused the bolivar to depreciate sharply in the parallel market. On 8 September, the non-official exchange rate traded at 88.2 VEF per USD, which was 16.7% weaker than on the same day of the previous month. On an annual basis, the bolivar was 126.1% weaker in the black market. LatinFocus Consensus Forecast panelists project a non-official exchange rate of 84.9 VEF per USD by the end of this year. In 2015, the panel sees the non-official exchange rate depreciating to 128.3 VEF per USD.
Meanwhile, the three official exchange rates remained broadly stable during the same period. On 8 September, the bolivar traded at a weighted average of 50.0 VEF per USD under the Sicad II mechanism and at 11.70 VEF per USD in the Sicad I system. The official exchange rate was unaltered at 6.30 VEF per USD. LatinFocus Consensus Forecast panelists expect the Sicad II exchange rate to remain relatively stable for the rest of this year and to trade at 50.1 VEF per USD in 2014. Next year, the panel sees the bolivar in the Sicad II system weakening to 58.5 VEF per USD. Conversely, LatinFocus Consensus Forecast panelists still expect a sharp devaluation of the official exchange rate in the months to come. Panelists see the official exchange rate ending this year at 10.00 VEF per USD, which is virtually unchanged from last month’s estimate. Next year, the panel sees the bolivar weakening even further than the expected 2014 depreciation and trading at 14.16 VEF per USD.
Following the introduction of the Sicad II system in March, the bolivar that is traded in the black market began to gain some ground. However, rising demand for U.S. dollars due to worsening economic conditions and an alleged reduction of dollar allocation in the secondary markets led to a surge of the parallel dollar.
In order to address the country’s mounting economic problems, President Nicolas Maduro announced an “economic shake-up” on 3 September. President Maduro reshuffled his cabinet and removed Rafael Ramirez as Economy Vice President, Minister of Petroleum and Mining, and President of state oil company Petroleos de Venezuela (PDVSA). Instead, he was named Foreign Minister and Vice President of Political Sovereignty. The decision to remove Ramirez put an end to his decade-long grip on the country’s economy. Minister of Economy and Finance Marcos Torres was appointed as Economic Vice President, Asdrubal Chavez was named Minister of Petroleum and Mining, while Eulogio del Pino was put in charge of PDVSA.
Analysts were largely disappointed by Maduro’s announcement as it failed to deliver the country’s much-needed economic reforms. In addition, the de facto Ramirez demotion represented a setback in reforming Venezuela’s exchange rate system as, in recent months, he had vowed to weaken the bolivar by unifying the three official exchange rates. As Miguel Carpio, finance manager at Delsur BU points out:
“Given the Venezuelan economy’s complex situation, more was expected than the simple announcement of the 3 September cabinet reshuffling. However, this was the only announcement that was made. Regarding the foreign exchange rate system, the undertone of President Maduro’s speech seems to point to maintaining the current scheme and does not envisage substantial changes that would correct distortions in the FX market. Perhaps the clearest sign of this is Rafael Ramirez’s exit from both the PDVSA and his role as Economy Vice-President.”