Amid the country’s deepening malaise, the fall has been a fast one: a year ago, a greenback fetched less than 40 bolívares fuertes. The fuerte – or strong in Spanish – has since become a wisp of a thing with the country’s biggest banknote – the 100 bolivar – now changing hands for a mere US dollar.
Nevertheless, Venezuelans are desperate to get hold of greenbacks to hedge against runaway inflation at 63 per cent. But due to tight controls imposed over a decade ago, the government sells a limited amount of dollars at overvalued rates ranging from 6.3 to roughly 50 bolívares, depending on the country’s multiple exchange rates.
And as dollars from from legal sources are so scarce for importers and others, many turn to the curb market. To stem the rise of the black market rate, the government has established exchange mechanisms “to pulverise the parallel dollar”, and threatened to jail those who break currency laws.
Yet this, it seems, has exacerbated the bolívar’s slump, accentuating the difficulties that private companies have securing dollars with which to import vital parts and components. With liquid reserves hovering at around $2bn, the shortage has raised the spectre of a potential default, as the country has $4.5bn of bonds maturing next month. Other analysts say that Venezuela is unlikely to default, given its considerable oil revenues, plus what it has in off-budget funds, cash accounts of its state-run energy company, as well as semi-liquid assets.
To some economists the crux of the issue is that is Venezuela is selling dollars too cheap. The whopping black market premium only fuels incentives for people to try to take advantage of arbitrage opportunities through corruption, over-invoicing, contraband exports, or other tricks.
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