New Foreign Exchange Initiative in Venezuela Hopes to Aid Economy

The Complimentary System of Foreign Currency Acquirement (Sicad) held its second auction of US dollars this week, with thousands of individuals and companies participating.

In total, 1,085 companies and 21,916 individuals made successful bids, according to a statement posted on the Central Bank of Venezuela’s (BCV) website.

US $215.3 million was successfully auctioned; exceeding the initial offer of US$200 million. According to the BCV, this was due to the participation of private sellers.

“The Sicad operation has generated great, positive expectations,” Maduro stated after bidding ended on Tuesday.

“We are guaranteeing the flow necessary for the economy, and mechanisms for checks [and balances],” he said.

US$170 was initially on offer to businesses, while US$30 million was earmarked for individuals. However, following the auction the BCV reported that US$180.5 million had been sold to businesses, while individual bidders had been allocated US$34.8 million.

On Wednesday, Venezuela’s minister of finance Nelson Merentes told media in Caracas, “we want more companies to sell dollars.”

“There were some problems with the banks, but they have been resolved,” Merentes stated.

In a statement released last week, the BCV urged banks authorized to process Sicad transactions to make access to the scheme as easily available as possible, and not turn away customers.

Travelers were also able to participate in the auction. Venezuelans holding return tickets for international flights between July 11 and September 15 could purchase dollars though Sicad, but with some restrictions.

Sicad dollars can only be used to cover expenses related to study, healthcare, sports and cultural events, scientific research, other specific occupational requirements and emergencies.

Automotive and health sector businesses, along with companies registered in areas of Nueva Esparta and Falcon state were eligible to participate. However, restrictions have also been imposed on the use of dollars by businesses. In a statement, the BCV announced that buyers would be unable to use Sicad dollars to pay off debts, and barred companies that were not active in the 2012 fiscal year from bidding. Information from the National Customs and Tax Administration Service (Seniat) was used to ensure that ineligible businesses didn’t participate, according to the BCV.

Businesses could order between US$8000 and just over US$1 million, while individuals could make purchases between US500 and US$2500.

This week’s auction was intended by the Venezuelan government to be the first in a more regular schedule. According to the BCV, auctions will now be held roughly twice a month.

The only previous Sicad auction was held in March, when US$200 million was sold, mostly to private importers.

Opposition Response

Last week, former presidential candidate Henrique Capriles criticized Sicad on his internet program at Capriles.tv, describing it as a “new devaluation”.

“US dollars are in short supply and they are looking for a way to legitimize the parallel exchange rate, which is over 30 bolivars per US dollar,” Capriles stated.

However, BCV director Armando Leon has hit back at Capriles’ remarks. In an interview with Globovision, Leon emphasized that, “there is no formal or official movement of the exchange rate.”

“The official exchange rate of 6.30 bolivars [to the US dollar] remains in place,” he stated.

According to Leon, the prices paid for US dollars though Sicad will not “be made public”.

Leon also stated that the auction process which started last Friday had progressed smoothly.

Inflation

Leon likewise responded to criticisms from Capriles of the government’s handling of inflation, arguing that price rises will be “significantly lower” in the second half of the year compared to the last six months.

Between February and May, the monthly rate of inflation increased from 1.6% to 6.1%, according to the BCV’s National Index of Consumer Prices (INPC). The rate of inflation in May was the highest recorded by the INPC since it was established in 2008. However, in June inflation dropped to 4.7%.

According to Leon, prices of consumer goods are likely to stabilize over the next few months, though he stated that the BCV has advised authorities to revise price controls every five or six months.

When Sicad was first announced in March, former minister for finance Jorge Giordani described it as a public “bidding system”that would ensure “transparency in the process of assigning foreign currency”, and would operate parallel to the pre-existing Foreign Exchange Administration Commission (Cadivi). Maduro stated the new system would help “overcome” the currency black-market.