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Venezuela Activates New Exchange System to Strengthen the Economy

The Venezuelan government announced Wednesday the activation of a new exchange rate system based on a preferential rate of 6.3 Bolivars to the US Dollar for priority items, and a maximum rate set by the auction of the Foreign Exchange Administration (SICAD) for non-essential items such as foreign travel, credit cards, airlines, remittances, foreign investment and reinsurance.

The rate of 6.3 Bolivars to the dollar would apply to 80% of the country’s production requirements, as well as to students abroad, pensions and retirement, consular and diplomatic issues, and special cases usually related to health.

Explaining the new system, the vice president for the economy, Rafael Ramirez, said the decision is in part a response to the economic war waged by the right wing against the country’s Bolivarian Revolution, and to move toward the new economic order for the transition to socialism.

"This band system will be a great stabilizer,” Ramirez said.

To ensure balance in the management of foreign currencies entering the country – of which 96% come from oil revenues – the Executive designed its 2014 General Plan for Currencies, which determines the amount of foreign currency required by the nation and its distribution among various economic sectors.

The plan provides an estimated $42.7 billion to meet the requirements of the economy this year, which is similar the amount for prior years and slightly higher than the $37 billion allocated last year.

"Now we will optimize the use of these currencies," Ramirez said during a press conference at the headquarters of the national oil company, Petroleos de Venezuela (PDVSA), in Caracas.

The government’s Import Plan, prepared by the Venezuelan Foreign Trade Corporation, aims to ensure an economic growth rate of 4% in 2014.

This plan addresses the requirements of key sectors, both public and private, including oil, petrochemicals, construction, industrial manufacturing, agriculture, agribusiness, tourism, textiles, mining and communications.

About the New Exchange System

The new system involves strengthening SICAD, which was created last year to complement the Administration Commission (CADIVI), whose functions are to be absorbed by the National Center for Foreign Trade.

Since late last year, SICAD has offered weekly currency auctions targeted for different sectors of the economy, dispensing $100 million each time. It will soon begin to offer $220 million weekly, for a total of $1.114 trillion this year.

Travelers do not have to participate in the auctions, and should instead follow specifications soon to be issued by the National Center for Foreign Trade. The exchange rate for these cases will be the same one used in auctions by SICAD, which currently stands at 11.36 Bolivars to the dollar.

This rate varies according to the results of the auction, and will be updated daily, Ramirez said.

Credit card purchases over the Internet should also expect the release of the provision for its activation and is governed by the SICAD rate.

The intention of the new system, as well as a reform to the Law on Illegal Exchange, is to ensure that the private sector gains access to foreign currencies in a lawful manner, Ramirez said.

He warned entrepreneurs: "Do not be cheated by the parallel market, do not engage in stealing for the unpatriotic speculative sector, for we will attack with the full weight of the law."

He noted that the State will continue its fight to curtail the parallel foreign exchange market, which he described as a fundamental element of economic war by the right wing, a war that has spurred inflation, caused shortages and distorted the economy.

"We will continue to work against the parallel market and the agents that feed it," the economic vice president said.

AVN / Press-Venezuelan Embassy to the US / January 23, 2014

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