VenEconomy: No Ceiling for the Exchange Rate in Venezuela? From the Editors of VenEconomy Latin American Herald Tribune November 14, 2014
A year ago, Venezuela’s then-Vice President for the Economic Area, Rafael Ramírez, stated that the Government would "crush" the dollar sold in the parallel market that fetched Bs.60 per dollar. According to Ramirez, the exchange rate went out of control after a "relentless attack" against the national economy since the health of the leader of the Venezuelan revolution, Hugo Chávez, deteriorated in November of 2012. He emphatically claimed that "we are going to crush it (when referring to the parallel dollar), because we are going to recoup all those dollars they are stealing from the nation through over-invoicing or diversion of the dollars allocated by the Commission for the Administration of Currency Exchange (Cadivi).”
Another unfulfilled promise! The rate continued to climb, reaching Bs.100 per dollar. For several weeks, it seemed it was stabilizing at that level. Yet, prices of the parallel dollar started to rise again from October 23, hovering around Bs.120 per dollar on November 14; and worst still, no one knows what the ceiling is going to be.
To VenEconomy, this is no free market rate. It is a market of buyers, of people forced to pay very high prices for key imports, for travel expenses, debts, etc.
But there are no sellers. There are no people willing to invest in the country. Foreign capital does not find Venezuela any attractive to invest in due to the absence of the Rule of Law, excessive red tape and obstacles for doing business in the country. Today the World Bank has ranked Venezuela as one the worst countries for doing business in the world with the 182nd position (out of 189 economies evaluated.) No foreign investors, no supplies of foreign currency.
What’s more, there are no tourists taking advantage of the seemingly "cheap" that would be traveling to Venezuela. The reasons? High crime rates that have gone beyond national borders, deteriorating road infrastructure and the critical situation of public services have weighed more on the decision of tourists than the beauty of the country’s landscapes.
When foreign exchange controls were implemented by the government of Jaime Lusinchi (1984-1989), the dollar was controlled at Bs.14, while that of the free market traded at Bs.20. During the tenure of Romulo Betancourt (1945-1948), the official dollar fetched Bs.3.35, while that of the free market traded at Bs.4.50. In both cases, the ratio was approximately 3 to 2.
Today, the free-floating dollar trades four times more than the average of the official rate and more than doubles the Bs.50 per dollar of the SICAD II auction system rate.
But all that has an explanation.
First of all, according to unofficial sources, many of the sellers in the parallel market were individuals and companies that had bought foreign currency through SICAD II and, rather than paying for the imports they signed up for, they expected to win back 100% of their "capital" in a matter of hours by selling the dollars in the parallel market.
Second of all, also according to unofficial sources, it seems that the Government is controlling the destiny of the dollars it sells better. This means that those who buy them through SICAD II are importers and not speculators.
Third of all: There are also those who believe that the measures taken by the governments of Venezuela and Colombia to fight smuggling have altered the dynamics of formal and informal commercial activities across the border, making the bolívar currency fall with respect to the Colombian peso, hence influencing the rise of the dollar.
Therefore, there are fewer dollars coming in the parallel market. Prices soar after supplies are reduced.
Paradoxically, it is worth considering that the Government scored a success with the increase in prices of the parallel dollar.
Yet it is a relative success. It would be far better if the Government understood that the real solution to stabilize the value of the bolívar is an adjustment program through which controls are abolished and both guarantees and the Rule of Law are restored.
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