Venezuela offers more USD but leaves shortages unchecked

Venezuela imports almost everything these days so retailers hoping to stock up before the year-end festivities – who will need hard, foreign currency to do so – are biting their nails as the government goes on fiddling with its controls on foreign exchange.

“We will have here all of the elements for Christmas, all of it will be guaranteed, ” said Rafael Ramírez, the oil minister who was appointed to head the cabinet’s economic team last week. He said regular weekly dollar auctions using a system known as Sicad would begin on October 16.

That may come as a relief to anyone hoping to buy whiskey, toys and other seasonal goods in the next couple of months – or maybe not. A shortage of dollars for importers has been causing rampant shortages nationwide, of niche goods to mass-market staples, from ceremonial wine to toilet paper.

In the latest twist, officials said they would auction $100m a week. As Reuters reported:

Ramirez said officials would keep studying how to improve the work of the state currency board Cadivi, which provides dollars at the official exchange rate of 6.3 bolivars for priority goods such as food and medicine. “We’ll keep revising, optimizing and improving Cadivi’s processes to continue attending to all our fundamental and productive needs,” the minister said. “And we’ll keep releasing dollars through Sicad for other needs, which don’t have anything to do with food, health or other priority areas.”

In recent months only four Sicad auctions have taken place, totalling $859m. Recently, the government has promised to unveil a new system, without providing much detail.

The latest announcement is unlikely to make much difference.

“For this market, that would do nothing,” says José Guerra, a Caracas-based economist. “What it could do is to provide a certain sense that there is not much scarcity in the coming months but it won’t solve the problem.”

Strict capital controls, originally imposed by the late president Hugo Chávez to prevent capital flight, have caused a crescendo of economic problems: dollars that fetch about seven times the official rate in the parallel market, a constantly rising “scarcity index” that tracks shortages of staple goods, and annual inflation of 49.4 per cent in September.

While Ramírez denies there is any shortage of dollars, Maduro has been blaming Venezuela’s mounting crisis on sabotage, speculation and hoarding. Last week he asked congress for decree powers for a year in order to wage an “economic war.”

For Efraín Velázquez, president of Venezuela’s National Economic Council, the Maduro administration is implementing an “inconsistent” economic policy, where loose fiscal and monetary policies drive consumption and imports in a context of limited foreign exchange reserves.

“The government is putting measures in place to try tackle the current situation,” he says. “But it remains to be seen if they have enough liquid resources to finance those measures.”

Related reading:
Venezuela gets new economy head as government veers between pragmatism and radicalism, beyondbrics
Venezuela’s Maduro seeks to rule by decree, FT
Nicolás Maduro seeks to deflect blame as Venezuela’s woes mount, FT
Venezuela battles shortages and inflation, FT