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Venezuela forex auction targets food staples amid high inflation
January 8, 2014 / 6:15 PM / 4 years ago

Venezuela forex auction targets food staples amid high inflation

CARACAS, Jan 8 (Reuters) - Venezuela’s central bank said on Wednesday that a new $90 million currency auction will include companies in the food and packaging industries as the government seeks to get more dollars to importers.

Under Venezuela’s foreign exchange system known as Sicad, the bank holds weekly auctions to sell dollars at around 12 bolivars, compared with the official rate of 6.3 bolivars.

In December, the administration of President Nicolas Maduro said it was expanding the use of Sicad, meaning fewer transactions would be carried out at the 6.3 rate, in what economists largely viewed as a partial or disguised devaluation.

Word of the auction raised eyebrows because it will target importers of products such as corn and wheat flour, corn oil, rice and pasta, the central bank said. Importers of those basic items had been receiving dollars from the government’s Cadivi currency board, which sells greenbacks at 6.3 bolivars.

But dollars fetch more than 10 times that on the black market as delays and restricted access to Cadivi sales leave businesses struggling to pay offshore providers.

The Sicad auction will also be open to businesses in the paper, cardboard and wood sectors - important in the Venezuelan food chain. Pharmaceutical firms and automakers are also included. The results are due on Jan. 14.

A devaluation of the bolivar has long been predicted for early 2014, but analysts say the government is already effectively moving in that direction by shifting more products to Sicad instead of Cadivi.

“This piecemeal approach to a forex devaluation is likely intended to diffuse the political backlash with a gradual transition,” said Jefferies investment bank Latin America expert Siobhan Morden.

Maduro, who narrowly won a presidential election in April to replace his late mentor, Hugo Chavez, believes inflation and shortages of consumer products are caused by political rivals backed by U.S.-based foes who want to undermine him.

Critics say high inflation is due to economic mismanagement and the failure of government policies, including a decade of strict currency controls that were set up by Chavez.

Last month, the government said annual inflation hit 56.2 percent in 2013, but that the monthly rate slowed in November and December after Maduro began an “economic offensive” involving a campaign of forced price cuts.

The economy grew by an estimated 1.6 percent last year, compared with 5.6 percent recorded in 2012.

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