Venezuelan Authorities Reject Predictions of Dollar Shortage

The president of Venezuela’s Central Bank (BCV) has rejected negative forecasts of Venezuela’s ability to meet foreign currency obligations, arguing yesterday that operational international dollar reserves are “in normal conditions”.

By Ewan Robertson
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BCV president Eudomar Tovar (Fausto Torrealba/ AVN/ Reference)
BCV president Eudomar Tovar (Fausto Torrealba/ AVN/ Reference)

Mérida, 29th November 2013(Venezuelanalysis.com) – The president of Venezuela’s Central Bank (BCV) has rejected negative forecasts of Venezuela’s ability to meet foreign currency obligations, arguing yesterday that operational international dollar reserves are “in normal conditions”.

The comments come after several financial press outlets speculated as to whether Venezuela could have problems meeting international and internal foreign currency obligations, based on an alleged shortage of dollars available to the government.

Venezuela’s international reserves have fallen 29% this year from US $29.9 billion in January to US $21.2 billion currently, reports local newspaper El Universal. The reserves are made up of gold deposits, bonds, and dollar current accounts. When former president Hugo Chavez came to power in 1999, international reserves were below US $15 billion, according to AVN news agency.

Further, Venezuela’s crude oil price has fallen to a sixteen month low, at US $93.98 per barrel. State oil company PDVSA states that a drop in the price of a barrel of oil by $1 costs Venezuela about $700 million per year. 95% of Venezuela’s foreign currency earnings come from oil sales.

“Oil prices in the low $90s would leave Venezuela with a current account deficit,” Ben Ramsey, an economist at JPMorgan Chase & Co. told Bloomberg on Monday.

Other observers disagree with such negative forecasts. Washington-based economist Mark Weisbrot recently pointed out that Venezuela has far higher oil revenue than import or debt repayment costs.

“How can a government with more than $90bn in oil revenue end up with a balance-of-payments crisis? Well, the answer is: it can't, and won't,” wrote Weisbrot.

Meanwhile, local business groups accuse the government of dipping into reserves to cover foreign currency demand, and complain that insufficient dollars are being pumped into the domestic economy.

Jorge Roig, the head of business federation Fedecamaras, recently claimed that the state has granted 54% less dollars to the private sector this year compared with 2012. Official sources say that 2.6% more dollars have been distributed to the economy this year overall.

Since 2003 the Venezuelan government has maintained currency controls to avoid capital flight, and allocated dollars to companies for the importation of goods necessary for production and consumption.

Critics blame insufficient dollar allocations for the shortages in some food and consumer products the country has faced this year, as well as inflation of 54% and a black market dollar worth 10 times the official rate of 6.3 BsF to the dollar.

However the administration of Nicolas Maduro has argued that product hoarding, “grotesque” overpricing and speculation on the dollar as causes of economic difficulties. Officials accuse business groups aligned with the conservative opposition of waging an “economic war” against the government.

BCV assures foreign currency reserves “normal”

Yesterday Venezuelan Central Bank's (BCV) president Eudomar Tovar assured the public that the country’s “operational” foreign currency reserves are in “normal conditions” and dismissed negative forecasts on Venezuela’s international reserves.

The BCV president explained that the economy was growing and the country was fulfilling its debt obligations as normal.

This year PDVSA estimates it will have given the state a total of US $47.3 billion for distribution in the economy. “That is sufficient for the economy” said Tovar.

Oil minister Rafael Ramirez has previously explained that between international reserves and other sources, including loans from China (paid for in oil shipments), Venezuela can actually count on reserves of US $30.5 billion for its foreign currency needs.

The minister predicted that international reserves will finish the year in “optimal conditions”, which are topped up from PDVSA and other funds to reach the “ideal” level of US $29 billion.

BCV president Tovar also played down rumours that the government is looking to lease some of its gold reserves to a Wall St. bank in return for dollars. He said the government was looking to strengthen dollar supply and had received various proposals, “but nothing more”.

Tovar explained that the government is looking to “rationalise” the economy’s use of foreign currency and cut down on “excessive” dollar demand. Maduro has referred to some Venezuelan business sectors as the “parasitic bourgeoisie” in relation to speculative practices in which companies only request official-rate dollars to then mark up prices or sell these dollars on the black market for a profit.

Earlier this month state officials discovered a scam where electronics and other companies were importing products using official-rate dollars then marking up prices by over 1000%. The government intervened, forcing companies to sell their products at “fair” prices.

As a result, a new register of small and medium companies has been created which prevents any company which has engaged in abuse of state-granted currency from accessing further dollar grants. The government has also created a new National Centre of Foreign Trade to oversee and improve the system of currency controls. These are part of a package of policies the government is using to fight the “economic war”.

Tovar predicted that despite problems this year, Venezuela’s economic outlook was positive, and the economy would grow by 2.5% in 2013.

“This is good news for the population, because as the economy grows, it generates an effect in society; there is income, there is consumption, and there is a multiplier effect. I see favourable perspectives”, he stated.

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