* Changes to Sicad system seen reducing product shortages
* Measure also likely to spur already soaring inflation
By Brian Ellsworth and Eyanir Chinea
CARACAS, July 3 Venezuela on Wednesday revamped
a currency exchange system to boost the flow of dollars into the
economy and ease nagging product shortages, a move that further
devalues the local currency and may aggravate spiraling
Changes to the Sicad foreign exchange system, which operates
in parallel with a decade-long currency control mechanism, will
include holding at least two dollar auctions per month and
loosening restrictions that business leaders had called
But the system will provide greenbacks at a rate weaker than
the official exchange rate of 6.3 bolivars per dollar, further
weakening the currency after a devaluation in February helped
push annualized inflation above 35 percent.
"This is a considerable improvement over the previous
version of the Sicad," said Henkel Garcia of local firm
Econometrica, which is openly critical of government policy,
citing elimination of bureaucratic hoops.
The change moves Venezuela toward a more market-based
economy after vast expansion of state control by late socialist
leader Hugo Chavez, whose 14-year rule was characterized by
frequent nationalizations and constant confrontations with
After heavy state spending last year, President Nicolas
Maduro faces a "stagflationary" panorama of a sharply slowing
economy combined with a rising consumer prices.
Sicad was originally unveiled in March, but held just one
auction that sold only $200 million, a fraction of the country's
monthly import bill. It was frozen amid operational problems in
The next auction will take place in the first two weeks of
July. Changes to the system include expanding the number of
people that can access the system, eliminating the need for
letters of credit, and providing hard currency directly to
importers rather than to their offshore providers.
Garcia estimated Sicad would sell dollars at a rate of
around 16 bolivars each, more than twice the official rate but
around half the price that greenbacks fetch currently fetch on
an illegal black market.
Businesses have for months complained that inadequate access
to dollars had prevented them from importing consumer staples
ranging from wheat flour to toilet paper.
One business group on Wednesday said the country may not
have enough toys for Christmas if the government does not
increase dollar sales.
Sicad system also hold "special auctions" involving the sale
of government debt, which could signal the return of a bond-swap
mechanism used in previous years as a way for the government to
provide currency to citizens and businesses.