CARACAS (Reuters) - President Nicolas Maduro’s government denied on Friday forecasts of an imminent devaluation due to anxiety in Venezuela over shortages of dollars and the soaring black market rate for the greenback in the South American OPEC nation.
“A devaluation is not being planned here,” said Rafael Ramirez, whom Maduro recently named vice-president in charge of economic policy as well as being oil minister.
“This is not a problem of lack of foreign currency,” he added, saying Venezuela had ample reserves - about $30.5 billion - combined in the Central Bank, its special development fund Fonden and from Chinese loans.
Many private economists have been predicting a devaluation of the bolivar after local elections in December, probably in early 2014. Ramirez said such talk was unjustified scaremongering from business groups and anti-government media.
“They want to create panic,” he said, casting the devaluation talk as part of a wider political campaign against the government of Maduro, who replaced late socialist leader Hugo Chavez after his death from cancer earlier this year.
His first six months in power have been dominated by economic issues. Critics say Maduro’s mismanagement, and the failure of 14 years of socialist policies under his predecessor and mentor Chavez, are to blame for embarrassing shortages of products and inflation that has reached an annual 50 percent.
But Maduro and supporters say an “economic war” is being waged by U.S. backed political opponents who are deliberately sabotaging the economy via speculation and hoarding.
Under currency controls first created by Chavez in 2003, the bolivar’s official rate is currently 6.3 to the dollar. Businesses say not enough greenbacks are available at that price, and the dollar goes for seven times that rate on the black market.
In the latest of various forecasts of an exchange adjustment, Bank of America Merrill Lynch said this week in a comment titled “Venezuela: Devaluaton ahead” that it expected such a measure after the December 8 municipal polls.
“Venezuela’s economy is severely distorted by a massively overvalued exchange rate, in our view,” it said, estimating the official bolivar rate would have to be adjusted to 14.6/dollar in order to bring the fiscal deficit to under 3 percent of GDP.
Ramirez said there was no need for alarm over the fall in Central Bank reserves this year from $29.8 billion in January to $21.5 billion now. The reserves would return to their “optimum” level of around $29 billion by the end of the year, he said.
And anyway, Ramirez argued, Venezuela’s dollar reserves were also spread among two other funds: the discretional Fonden fund set up by Chavez for social development projects, and the China Fund which has received $41 billion in loans since 2007.
“The currency controls have actually preserved the national reserves,” Ramirez said, saying speculators had been thwarted.
“They want us to announce a devaluation ... but what we are going to do is control foreign currency more strictly.”
He was speaking to journalists after announcing the results of an allocation of $100 million to local businesses in revived, weekly auctions by the Sicad foreign currency fund.
Though the figure was not announced officially, local business sources say dollars went for about 11 bolivars at that auction. Web sites run by illegal currency changers say the greenback is selling for about 45 bolivars on the black market.
In the past, Venezuelan officials have frequently denied devaluations before then adjusting the currency rate.
The already powerful Ramirez, who is president of state oil company PDVSA as well as being a cabinet minister, has become Maduro’s main spokesman on economic matters this month.
That appears to have sidelined Finance Minister Nelson Merentes, whom many had viewed as a pragmatist who would perhaps nudge Maduro toward more market-friendly measures and away from the hardline statist economics that Chavez entrenched in Venezuela.
“There are strong internal divisions within the more pragmatic and radical factions of the administration in terms of how to allocate dollars,” Eurasia group consultancy said this week in an analysis of Venezuela’s economy.
“The more radical factions believe the state needs to maintain as much control as possible over the allocation of resources and the price at which it is allocated. It is clear now that these factions retain enormous influence in the administration,” it added.
Along with Ramirez, Vice President Jorge Arreaza - the son-in-law of Chavez - and Planning Minister Jorge Giordani are considered by economic analysts to be key figures in the more hardline faction.
Markets are watching warily.
Venezuela’s credit profile of sovereign and quasi-sovereign debt issues has deteriorated this year. The nation’s credit returns are down 8.65 percent year-to-date, according to the benchmark JPMorgan EMBI Global index as of October 17. The overall index is off 5.55 percent over the same period of time.
Additional reporting by Eyanir Chinea in Caracas, Daniel Bases in New York; Editing by Andrew Hay and Carol Bishopric