Reuters: Regulatory News: UPDATE 3-Venezuela gives few details of new forex system

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UPDATE 3-Venezuela gives few details of new forex system Mar 20th 2013, 01:10 Tue Mar 19, 2013 9:10pm EDT * Acting President Maduro faces April 14 election * Will "increase availability of foreign exchange" -govt * Opposition leader says government is "trapped" By Brian Ellsworth and Deisy Buitrago CARACAS, March 19 (Reuters) - Venezuela vowed on Tuesday to provide more dollars to importers through a new foreign exchange system, but officials gave only vague details of how it will work and skirted around key issues including what the rate would be. The measure appeared to be an attempt by 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. 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. But the move would almost certainly require selling dollars at a rate higher than the official rate of 6.3 bolivars - constituting a politically hazardous devaluation that could further spur one of the region's highest inflation rates. "We are going to increase the availability of foreign exchange," Finance Minister Jorge Giordani told a news conference. The new system, he added, would guarantee the "absolute transparency of the distribution of currency." Statements by Giordani and the central bank president, Nelson Merentes, suggested the mechanism would sell dollars for more than the official rate, but less than the black market rate of about four times that. But they declined to answer repeated questions by reporters as to how much the dollars would sell for, and said they had not determined how many would be sold or how often. "The auction will be defined by some parameters, which are explained in the document that will be published ... it has to be something democratic and open but with a cap," Giordani said. Such a mechanism appears to be similar to one based on bond swaps that the government scrapped in February, in which the exchange rate was effectively fixed. HIGH INFLATION Analysts said the new system raised the possibility of an exchange rate in some way driven by supply and demand. "Nonetheless, if the government tries imposing a low ceiling, it will be fixing a second exchange rate," Barclays Capital said in a research note. "Meanwhile, it is likely to have a maximum limit that companies could demand." Venezuela devalued its currency by 32 percent last month in the fifth such move in a decade under Chavez's rule. Critics were already complaining on Twitter that the new mechanism constituted a second devaluation in just six weeks. Maduro said on Monday the new system would help lower the parallel rate, which has been a key factor in pushing up consumer prices. At about 20 percent a year, Venezuela's inflation is one of the highest in the region. Merchants frequently mark up prices in response to shifts in the volatile parallel exchange rate, which has weakened considerably since last year during a period when there has been a lack of greenbacks. Critics say the decade-long currency control system creates ample opportunities for corruption by allowing well-connected Venezuelans to buy dollars at the official rate and resell them on the black market for a 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. Speaking to Reuters during a campaign tour in southern Venezuela, opposition leader Henrique Capriles said the government was trapped but did not want to admit it. "So they're doing everything in a more tangled way. They tell people there are currency controls, but they have the parallel market ... in the end, they'll come back and order another devaluation. That's the hidden reality," Capriles said. "It makes me laugh that the International Monetary Fund gave its blessing, congratulated them (on last month's devaluation)," he added. "Of course, they (government) kept quiet about that, no?" Link this Share this Digg this Email Reprints

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