Venezuela overhauls foreign exchange system

AP News
Posted: Jan 22, 2014 3:24 PM

CARACAS, Venezuela (AP) — Venezuela's government is tightening a much-used loophole in rigid currency controls as part of an overhaul of its foreign exchange system to safeguard a dwindling supply of dollars.

As part of the changes announced Wednesday by Oil Minister Rafael Ramirez, Venezuelans traveling abroad will no longer be able to purchase air tickets or obtain cash at the official rate of 6.3 bolivars per dollar.

Instead, they'll now be required to make purchases at a higher rate established at weekly central bank auctions, where the greenback currently fetches about 11 bolivars. The fluctuating rate also will apply to the limited quantity of money Venezuelans can send abroad to family members and to foreign companies investing in Venezuela.

Ramirez, who is also President Nicolas Maduro's top economic adviser, denied that forcing travelers to pay more for dollars signals a stealth devaluation as many economists have argued. He said that more than 80 percent of the nation's dollars will still be sold at the official rate.

The central bank's international reserves have fallen to a 10-year low as demand for air tickets and dollars has soared in tandem with 50 percent inflation and the bolivar's plunging value in the black market. Foreign airlines say they have an equivalent of $3.3 billion in bolivars tied up in Venezuela by decade-old exchange controls that make it impossible to send earnings abroad.

Ramirez said that last year alone more than $8 billion leaked from the oil-dependent economy as even some non-Venezuelan travelers purchased hard currency at the "preferential" rate.

"The big debate here is whether we give dollars to travelers or we import food," Ramirez told reporters in Caracas.

Ronald Balza, an economics professor at the Andres Bello University in Caracas, said that using multiple exchange rates won't stop the hemorrhaging of dollars, galloping inflation and shortage of basic goods created by years of government controls and excessive spending.

"The distortions the government is facing right now and the type of policies it is pursuing lead us inevitably on the path of more devaluation," he said.

The currency overhaul came as Venezuela's biggest food company warned that it may be forced to idle some assembly lines because of government delays of up to 230 days processing its request for $463 million needed to pay overseas suppliers.

Empresas Polar said in a statement on Wednesday that foreign credit lines have dried up and suppliers abroad are threatening to cut off the shipments of food, packaging and other supplies unless they receive payment soon.


AP Writer Jorge Rueda contributed to this report