Venezuela Relaxes Forex Ceiling as Oil Prices Remain Stable

Venezuela's official currency exchange rate is gaining ground on the country's thriving dollar black market, according to data released by the central bank Thursday.

By Ryan Mallett-Outtrim

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President Nicolas Maduro has long vowed to stamp out Venezuela's currency black market, which he has argued has contributed to the country's economic crisis. (Ryan Mallett-Outtrim/Venezuelanalysis)
President Nicolas Maduro has long vowed to stamp out Venezuela's currency black market, which he has argued has contributed to the country's economic crisis. (Ryan Mallett-Outtrim/Venezuelanalysis)
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Puebla, Mexico, June 17, 2016 (venezuelanalysis.com) – Venezuela's official currency exchange rate is gaining ground on the country's thriving dollar black market, according to data released by the central bank Thursday.

The country's currency, the Bolivar (BsF) is now trading for as little as 600.99 for US$1 through official exchange channels, the Central Bank of Venezuela (BCV) said in a statement. Comparably, US$1 is worth around BsF1000 on the black market, according to figures published by unofficial currency tracker DolarToday early Friday.

The rate of BsF600.99 to the dollar is the monthly ceiling of DICOM, the lowest exchange rate offered through the government's multi-tiered exchange system. When DICOM was first announced in early March, it was touted by the government as a free floating rate with a monthly ceiling, which would be set by the BCV. The ceiling was initially set at 206.92 BsF per dollar, with the government claiming the rate would eventually match the black market.

If DICOM devaluations continue at the current rate, the official exchange rate could hit the today's black market rate by October.

The black market rate has remained relatively stable since it crashed to around BsF1000 to the dollar in February.

The government says DICOM has become gradually easier for both ordinary Venezuelans and international travellers to access. If DICOM can match black market prices while being easy for the public to access, this would be a major victory for the government. President Nicolas Maduro has long vowed to stamp out the black market, which he has argued has contributed to the country's economic crisis.

Venezuela's economy has struggled since global oil prices slumped in 2015, hitting record lows of nearly US$25 a barrel in January 2016. Venezuela's government is heavily dependent on oil income for revenue.

Venezuelan oil is now fetching US$44.03 a barrel on international markets, according to figures released by the Organisation of the Petroleum Exporting Countries (OPEC) on Thursday. That figure is down from earlier this week, when Venezuela's oil was selling for over US$45 a barrel.

Venezuela's state oil firm PDVSA needs around US$50 a barrel to avoid defaulting on its debt, according to the company's president, Eulogio Del Pino.

“$50 is enough,” he told Bloomberg on Thursday.

Independent estimates have suggested Maduro's government needs around US$100 a barrel to not only stave off a PDVSA default, but also cover public sector costs, including social services.

The firm has US$1.4 billion in debt due in October, and another US$2.4 billion set to fall in November, according to data compiled by Bloomberg. In total, these payments account for one of the largest chunks of the government's roughly US$10 billion in debt due this year. While Maduro has long pledged to repay all international debts, the October and November PDVSA payments have emerged as a closely watched milestone for analysts uncertain whether the government could face default.

Speaking Thursday at the 20th St. Petersburg International Economic Forum in Russia, Del Pino said PDVSA is seeking to boost output, and will meet its debt obligations.

"We are declining the production of the light and medium oil, and increasing the production of heavy oil," he said, according to Russian state media.

Back in Venezuela, the government has expressed willingness to trim social services to meet debt obligations.

“Bondholders … have the absolute assurance that their securities are guaranteed,” Venezuela's Vice-President for Economy Miguel Perez Abad told Bloomberg in May.

During the interview, Perez said the government has “applied a very austere” economic program, including slashing imports of goods by as much as US$15 billion over the year.

“We’re going to maintain this level of restriction to force the productive sector of the economy to increase output,” he said.

Since then, Venezuela has faced widespread scarcity of consumer goods ranging from staples like cornflour to medicine and vehicle parts.

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