CARACAS, Venezuela — When Jose Humberto Vivas needs to trade dollars for Venezuelan bolivars, he usually flouts the nation’s rigid exchange controls by turning to illegal currency traders.
But last week, Vivas put a few hundred dollars in his wallet and headed to an exchange house regulated by Venezuela’s socialist government, lured by the seemingly improbable prospect of an official rate that is more inviting than the black market rate.
“I haven’t been here in years,” Vivas said as he stood in line outside Italcambio, a normally lifeless exchange house in downtown Caracas protected by tinted windows and an armed security guard who inspects customers’ IDs.
“There’s a long wait here . and it takes days to get the money transferred to your account, but it might be worth it,” said Vivas, who makes a living from selling dairy products.
Little noticed amid the turmoil unleashed by the opposition’s renewed push to oust President Nicolas Maduro, Venezuela’s central bank devalued the country’s currency on Jan. 28 by 50 percent, eclipsing the parallel black market rate.
The government now buys $1 for 3,303 bolivars, while the informal market buys them at 3,120 bolivars, according to the website DolarToday. It is the first time the official exchange rate has been higher than that of the black market since currency controls were put in place more than a decade ago, analysts said.
The controls were implemented in 2003 by Hugo Chavez, the late president who initiated Venezuela’s socialist system, and have frequently made the simple task of exchanging money into a stressful ordeal that involves searching for illegal currency dealers, logging into websites banned by the government, and sending wire transfers to foreign banks.
But as Maduro’s government runs out of hard currency amid an onslaught of international pressure and economic sanctions, it is tacking in a markedly capitalist direction, encouraging Venezuelans to sell their greenbacks to the local financial system.
In a statement issued Jan. 29, the Central Bank described the devaluation as an economic stabilization measure aimed at controlling hyperinflation by undermining the black market.
Analysts called it a desperate gambit to raise hard cash in a country now beset by severe U.S. oil sanctions that could cost the government up to $11 billion in revenue over the next 12 months. Without one of its most important sources of income, Venezuela will be hard-pressed to purchase food and other imports, potentially worsening shortages and deepening its economic collapse.
Russ Dallen, CEO at Caracas Capital Markets, said dollars could now come into Venezuela’s empty state coffers through state-regulated wire transfers from the estimated 3 million Venezuelan migrants who have fled the country’s instability. Up until now, they have mostly used black market traders to an estimated $1 billion a year to loved ones, but could be enticed into the official system if the official exchange rate stays favorable.
“They are going for the diaspora dollars,” Dallen said of Maduro’s administration.
The government is also attempting to gain more dollars from rich Venezuelans and a few straggling tourists who use their foreign credit cards at the official exchange rate, something that would have been unfeasible a few weeks ago.
But the strategy is controversial.
Maduro’s opponents argue that selling dollars to the government is tantamount to funding repression. Others say the move will not eliminate the longstanding spread between the two rates, which has often allowed richer Venezuelans to take advantage of the distortion and pocket juicy profits.
Asdrubal Oliveros, an economic consultant based in Caracas, predicts the amount of money the Venezuelan government can raise through currency markets will fall short of what it needs to remedy its financial woes. Strict requirements mandated by U.S. sanctions could also force some foreign banks to stop funding credit card transactions in Venezuela altogether, as Bank of America recently announced.
The government and its state-owned entities currently owe around $150 billion to creditors around the world, while the country’s foreign currency reserves have fallen to just $8 billion.
Forced to meet interest payments on the few remaining loans and bonds the government hasn’t yet defaulted on, the Maduro administration must finance its huge budget deficit by printing even more bolivars, further accelerating prices.
Last year, inflation in the South American country hit 1 million percent.
“Hyperinflation is a fiscal problem,” Oliveros said. “If you don’t control your expenditures and reduce deficits, you will not be able to tackle it.”
Meanwhile, other obstacles could limit the central bank’s efforts to raise dollars.
Currently, it takes four days — an eternity in today’s Venezuela — for the bolivars purchased at state-regulated exchange houses to be deposited into a person’s account. Cash exchanges have been impossible for months due to shortages of bolivar bills.
“Reliability, speed and convenience carry a lot of weight in currency exchanges,” Oliveros said.
Last week, dozens of people trying to sell small amounts of dollars and euros at the official rate were turned away from exchange houses after trading was suspended due to a glitch with the central bank’s currency platform.
“It’s so frustrating,” said Adolfo Estanford, a lawyer who had hoped to get $20 worth of bolivars. He said he needed the money for food and transport.
“Everything here is so improvised,” he said. “I feel like I’ve been made a fool of.”
Manuel Rueda on Twitter: https://twitter.com/ruedareport