| CARACAS, March 25
CARACAS, March 25 Venezuelan bonds rose again on
Tuesday in a continued positive market reaction to a new
free-floating foreign exchange system that offered dollars for
eight times the official price at its opening session.
Traders said they expected the price for dollars to stay
roughly in the 50-55 bolivars range on the Sicad 2 mechanism's
second day, given the high demand and still uncertain offer.
President Nicolas Maduro's government launched the system on
Monday in an effort to tame the black market for greenbacks
while also giving businesses easier access to foreign currency.
Based on supply and demand, the new platform added a third
state-sanctioned exchange rate to 11-year-old currency controls,
where dollars also sell at 6.3 bolivars for preferential goods
and around 11 bolivars for other items.
The average price at Sicad 2 on Monday was 51.8 bolivars.
That was close to the black market price of around 57-59
bolivars, according to illegal web sites that track it.
Though Maduro's opponents decried the new currency system as
devaluation by stealth, Wall Street was delighted.
"There is euphoria on the first signs of pragmatism from the
Maduro administration to confront macro imbalances," said
Siobhan Morden, Jefferies' head of Latin America strategy.
Most Venezuelan bonds rose strongly on Monday as a result of
Sicad 2, and the gains continued on Tuesday.
The JPMorgan EMBI+ index showed returns of
sovereigns up 0.49 percent overall in early trading. The
benchmark 2027 bond rose 1.04 percent to bid at
Venezuela's most senior economic official, Rafael Ramirez,
hailed the new system as a success.
"It's a complement to our exchange system. It will end
speculation and the parallel dollar," he tweeted, adding that
all Monday's offers were from private entities.
Government entities including state oil company PDVSA are
expected to enter the market soon offering dollars. The
government says Sicad 2 will account for about 8 percent of
dollar sales in the South American OPEC member nation.
Despite criticizing Venezuela's long-standing currency
controls for years, opposition politicians reacted angrily to
Sicad 2, calling it a "mega-devaluation" that would fuel an
inflation rate already the highest in the Americas.
"It's Nicolas' 'black Monday'," opposition leader Henrique
Capriles tweeted, saying the government had taken advantage of
unrest on the streets to quietly introduce the measure.
Most private economists, though, said the move was a
much-needed market-friendly policy that should help government
coffers once PDVSA starts selling its oil revenues there for a
higher price than it was getting previously.
The extent of the impact on inflation and state finances
will, however, depend, on the volume traded.
Barclays' analyst Alejandro Grisanti said he had expected
annual trade of about $11.6 billion, or around $63 million per
day on Sicad 2, but weekend comments by Maduro implied offer
would be about half that.
"We see that as a concern," he said.
"Lower FX sales in SICAD II would imply a smaller average
devaluation, smaller fiscal improvement, a more limited capacity
of this new market to stabilize the exchange rate."
Grisanti estimated, however, that Sicad 2 had the potential
to give the government additional revenues equivalent to 12
percent of GDP.
Maduro's predecessor, the late Hugo Chavez, set up currency
controls in 2003 as part of a socialist-style overhaul of the
economy that he said would channel more wealth to workers rather
than to wealthy people with bank accounts abroad.
Critics say the controls spawned corruption, curtailed
business and gave birth to the black market for dollars.
Foreign companies have long complained of difficulties in
getting profits out of Venezuela in hard currency. Sicad 2 gives
them a clear legal alternative, reducing the temptation to turn
to the illegal market.
Sicad 2 trading takes place daily until 1 p.m. (1730 GMT),
with the bank announcing the average price afterward.
(Editing by Stephen Powell)