(Adds Maduro comments, paragraphs 12-13)
By Brian Ellsworth
CARACAS, March 25 Investors see Venezuela's new
free-floating foreign exchange system as an important step
toward improving the country's stretched finances, but
economists question whether it can provide enough dollars to
kick-start the economy.
The Sicad 2 mechanism opened on Monday and has offered
dollars at around 51 bolivars, or eight times the official rate.
After 11 years of currency controls, critics said the launch
of Sicad 2 amounts to a devaluation of 88 percent. Fitch Ratings
cut its rating for Venezuela debt.
Still, Venezuela's bonds rose on Tuesday, extending gains
from Monday as the measures encouraged investors.
It remained unclear how much the system will ease dollar
shortages that have left factories without replacement parts and
consumers without basic goods including toilet paper.
"With no real efforts to significantly increase the supply
of foreign currency, we suspect that it is another false dawn in
Venezuela's battle to overcome a dollar drought," wrote David
Rees of research firm Capital Economics in a note.
The measure offers companies such as American Airlines
and Colgate-Palmolive a legal alternative to
repatriate revenue. But that would imply heavy losses for the
companies. Airlines, for example, sell tickets at the official
rate but would repatriate funds at the much weaker Sicad 2 rate.
The central bank has not provided details on how much
currency has changed hands under Sicad 2, and did not respond to
calls seeking comment.
President Nicolas Maduro over the weekend said the system
will supply 8 to 10 percent of the economy's demand for dollars.
That would mean around $60 million per day compared with the
$100 million daily volume of a similar market that functioned
until 2010 when it was outlawed, according to Russ Dallen,
managing partner of Caracas Capital Markets.
"Anything's better than nothing, and at least they've done
something," said Dallen, who facilitated transactions in the
prior market. "They control it and only they can see what's
happening, so it's kind of a black box to us on the outside."
Sicad 2 has added a third tier to the currency control
mechanism that already sells dollars at 6.3 bolivars for
preferential goods and at around 11 for non-essential items.
On Tuesday, Maduro said the system would supply between 5
and 7 percent of "non-essential currency needs," adding that
nearly 85 percent of dollar demand would be supplied at 6.3.
Insufficient supply of dollars would leave importers and
businesses struggling to obtain hard currency. That could
further pressure the black market rate, which helped drive
inflation to 57 percent in February.
DEBTS PILE UP
In the run-up to Sicad 2, the bolivar strengthened on the
black market to reach 59 per dollar on Monday from nearly 90 in
recent weeks. On Tuesday the rate slipped back to nearly 73,
according to the widely watched website DolarToday.com.
The Sicad 2 rate is the average of transactions in a trading
day, reported by the central bank after the close of operations.
That adds a third official exchange rate to the 11-year-old
currency mechanism created by late socialist leader Hugo Chavez.
Barclays analyst Alejandro Grisanti said Maduro's comments
suggested the system would provide about half the volume he had
"We see that as a concern," he said. "Lower FX sales in
Sicad 2 would imply a smaller average devaluation, smaller
fiscal improvement, a more limited capacity of this new market
to stabilize the exchange rate."
For years, the government currency board has declined
repatriation requests from foreign companies operating in
Venezuela, preventing transfers of revenue to headquarters.
Companies would suffer substantial losses buying dollars at
the Sicad 2 rate, especially airlines that must sell tickets in
bolivars at the rate of 6.3.
The International Air Transport Association says its members
have $3.8 billion in revenue frozen by the currency controls. On
Tuesday, its representative said the new exchange rate would not
apply to its members because they sold tickets at 6.3 bolivars,
and at the previous official rate of 4.3.
The Sicad 2 rate will also be available to tourists, who
have traditionally used the black market.
Chavez set up currency controls in 2003 after an
opposition-led oil industry shutdown nearly left the country
without hard currency.
He maintained that policy even after the government
stabilized output and soaring oil prices flooded the country
with cash. That spawned corruption as well-connected officials
bought cheap dollars and flipped them for huge profits on the
(Additional reporting by Andrew Cawthorne and Girish Gupta;
Editing by Kieran Murray, David Gregorio and Eric Walsh)