Venezuela: Venezuela devalues currency, eliminates SITME
February 8, 2013
On 8 February, Finance Minister Jorge Giordani and Central Bank of Venezuela (BCV) president Nelson Merentes announced an adjustment to the official exchange rate from the previous VEF 4.30 per USD to VEF 6.30 per USD. With this move, Venezuela has devalued its currency five times since President Hugo Chavez took office in 1999. That said, the devaluation was no surprise, as a majority of LatinFocus Consensus Forecast panellists had already anticipated the move.
The devaluation is expected to have a positive impact on the fiscal deficit - which ballooned last year ahead of the October presidential elections - as the government finances most of its budget through oil revenues in USD. However, analysts warn that a weaker bolivar will add further pressure on the already high inflation, mainly as a result of higher import prices.
In addition, Giordani announced the creation of the Superior Body for the Optimization of the Exchange Rate System (Organo Superior para la Optimizacion del Sistema Cambiario) - comprised by the Ministry of Finance, the Ministry of Petroleum and Mining and the Central Bank - which will be in charge of setting the priorities of foreign exchange allocations as well as to manage overall flows of foreign currencies into the economy.
Moreover, Merentes announced the end of the regulated foreign exchange parallel market - Transaction System for Foreign Currency Denominated Securities (SITME) - where the bolivar traded at an implied rate of VEF 5.30 per USD. In order to enhance availability of dollars for trading, the Bank also lowered the amount of dollars that exporters have to repay to the Central Bank from 70% to 60%.