Caracas, March 10, 2016 (venezuelanalysis.com) – Venezuela announced Wednesday key changes to the country’s currency exchange regime designed to streamline access to dollars for production and essential imports as well as combat inflation.
According to Vice-President for Economy Miguel Perez Abad, the government will consolidate its 6 and 13 bolivar exchange rates into a new protected rate of 10 bolivars per dollar, which will be made available for vital imports such as food, medicine, raw materials for production, as well as pensions for Venezuelans living abroad.
The new rate, known as DIPRO, will also be used for payments in the state sectors of healthcare, culture, sports, scientific investigations, and in other cases of special urgency.
Venezuelan students studying at academic institutions abroad will likewise have access to DIPRO to finance their studies.
“This new exchange rate seeks to preserve and protect the Venezuelan family, the productive sectors, and above all the sector of food and medicine,” explained Abad, who is also minister of industry and commerce.
While DIPRO is not free floating, the new rate will be progressively adjusted over time to account for economic and social impacts, though specific details regarding this fluctuation have yet to be released.
The vice-president also unveiled a second floating exchange rate known as DICOM, which will govern all other transactions not covered by DIPRO.
As the replacement for SIMADI, DICOM will fluctuate according to market supply and demand, opening at an initial rate of 206.92 bolivars per dollar.
In a crucial modification, travellers’ dollars, which Venezuelans could previously acquire at the CENCOEX rate of 13.5 bolivars per dollar, will now only be available at the floating DICOM rate, amounting to a 1,425.9% devaluation.
That is, in order to access the maximum annual limit of 2,500 travel dollars, Venezuelans will now have to pay 513,300 bolivars in lieu of 33,750 bolivars.
Similarly, the dollars provided to Venezuela’s diplomatic missions will be denominated at the new DICOM rate.
The new rate is intended to promote national production and incentivize non-oil exports, as exporters and investors will now be permitted to exchange their dollar earnings for bolivars at the floating DICOM rate rather than the fixed CENCOEX rate of 13.5.
“We are opening a mechanism for investors that will foster greater flows of capital to the country as well as optimum financing for firms that produce in the nation,” Abad asserted.
However, as long as the black market bolivar rate remains more than five times the highest official rate, firms and individuals will have little incentive to change their dollars at the latter rate.
With the new floating DICOM rate, the government hopes to reduce this gap and bring inflation under control.
However, in the 24 hours since the announcement of the measures, no fall in the parallel Dollar Today rate has been reported.
In another important change unveiled yesterday, the state oil company PDVSA will now sell dollars to the Venezuelan state at the DIPRO rate of 10 bolivars per dollar instead of the prior rate of 6.3.
The move is anticipated to generate greater revenue for the state oil giant, which is needed to cover internal operational costs, honor debts with contractors and providers, as well as continue funding social programs.
This adjustment follows on a host of other measures announced by President Maduro in February including an increase in the domestic price of gasoline and an overhaul of the nation’s tax system, which are similarly aimed at shoring up PDVSA’s fiscal solvency and arresting the inflationary effects of unbacked lending by the Central Bank.
Venezuela is obligated to make a $8.1 billion payment on PDVSA bonds to international creditors by the close of 2016.
In February, Venezuela earned only $70 million in oil revenues, down from $3 billion in January 2014.
The OPEC crude oil price dropped by two cents on Wednesday to $35.05 per barrel, after rising from an average of $26.50 in January.