By Brian Ellsworth
CARACAS Feb 10 Venezuelan dollar-denominated
bonds soared on Monday following comments by a top official that
the government this month will open a new foreign exchange
mechanism to boost the flow of dollars that has slowed to a
trickle under the country's 11-year-old currency controls.
The OPEC nation's sovereign bonds rose over 3 percent and
the bonds from the state oil company jumped more than 9 percent
after Oil Minister Rafael Ramirez said the creation of a
long-awaited swap or "permuta" foreign exchange system would be
in place before the end of February.
The system would allow the exchange of bonds in bolivars for
dollars at a rate weaker than the official one.
Ramirez, who is also Venezuela's vice president for the
economy, told local media the new system "will be more
transparent and would allow different public and private players
to participate and bring foreign currency in."
He offered no more details but the news of the revival of
the swap system was positive for bondholders because it would
likely signify another devaluation of the bolivar currency. That
would help spur economic growth by improving access to dollars
and boosting government resources to make debt payments.
"The words from Ramirez were what the market needed to hear
and caused shorts to run for cover," said Russ Dallen of Caracas
Capital Markets in a note to clients.
"The Government has been vacillating for years that it will
bring back the 'permuta' market, but it would finally seem that
they are getting closer."
The swap or "permuta" system was created after late
socialist leader Hugo Chavez established currency controls in
2003, but was shuttered by authorities in 2010 on the grounds
that it was speculative activity that was harming the economy.
On international markets, the price of Venezuela's benchmark
global dollar-denominated bond maturing in 2027
rose 3.1 percent to bid 66.76 points, yielding 15.05 percent.
The last time the bond rose more than 3 percent in a one-day
session was on Sept. 16.
The price of state-oil PDVSA's dollar-denominated bond
maturing in 2027 soared 9.42 percent to bid
52.250, yielding 13.064 percent.
The current dual-exchange rate currency controls distribute
greenbacks at 6.3 bolivars for preferential goods and 11.3
bolivars for other items.
But the system has been amply riddled by corruption due to
the ease of making a quick by buying acquiring dollars at those
rates and flipping them on through black market where they fetch
80 bolivars each.
Businesses complain they cannot obtain hard dollars due to
delays in the currency controls, meaning they cannot import
items ranging from auto parts and machinery to toilet paper -
creating shortages of goods across the economy.
President Nicolas Maduro blames these problems on an
"economic war" launched by political rivals.
Maduro first spoke of creating such a mechanism in
September, but the government has repeatedly postponed its
launch while offering few details about how it would work.
Launching the platform would weaken the exchange rate for
some imports, which risks further spurring inflation that
reached 56.2 percent last year.
Some ruling Socialist Party hardliners see the exchange
controls as the principal pillar of Chavez's economic legacy and
have balked at allowing supply and demand determine the exchange
An auction system known as Sicad that was created last year
has set a de facto upper limit on how much bidders can pay for
dollars, leading critics to complain that it is an arbitrary
distribution mechanism rather than an market-based system.
Demand for dollars has seemed insatiable in part because of
a nearly 70 percent expansion in monetary liquidity in 2013.