News / Americas

CURRENCY DEVALUATION 0
SHORTAGE-PLAGUED VENEZUELANS
FILE - A shopper in a Caracas supermarket
holds her basket of products that have been in
short supply, Feb. 3, 2015.

Venezuelans puzzled over the impact of a complicated currency devaluation

and fretted that dire product shortages in the OPEC nation's 1-hit economy would
not go away.
President Nicolas Maduro's 2 government this week launched a 70 percent
devaluation via a new "free-floating'' currency system known as Simadi, the third of
three-tier 3 controls created by his predecessor, Hugo Chavez
"They're doing this because they don't have any money,'' said a man who gave his
name only as Felix.
"This is not going to solve the problem,'' said Felix, 83, as he stood in a
senior 4 line with about 50 other people to buy rice and coffee at a Caracas
supermarket. "We're going to keep waiting in line to buy anything we need.''
The Simadi system on Friday posted an exchange rate of 174 bolivars per dollar,
but state officials insist most of the country's foreign exchange will be 5 at two
preferential rates: 6.3 for essential goods such as food staples, and 12 for other
sectors.
The country's central bank administers dollars at those two rates, but
importers 6 that allocations are limited, are often delayed and require
overwhelming paperwork. Dollars on the black market fetch 190 bolivars.
The two preferential rates of 6.3 and 12 can help keep prices down for food and
medicine, but businesses 7 struggle to obtain dollars at the official rate, which
means they cannot bring in raw materials or machine parts. As a result, there are
shortages of basic 8 goods ranging from chicken to laundry detergent, leading to
occasional scuffles for scarce products.
Approval rating sinks
The scarcities and lines have contributed to a dip in Maduro's approval
rating to 22 percent, according to one pollster and give opponents hope of
wresting control of 9 from the ruling Socialist Party in a vote later this year.
Maduro says the country is a victim of an "economic war,'' and argues that
Venezuelans today are generally better off and better fed than they were before
Chavez took office in 1999. The devaluation is likely to ripple across the balance
sheets of foreign corporations with significant 10 to Venezuela, ranging from
household products maker Kimberly-Clark to oil services company Schlumberger
NV.
Venezuelan bonds were up Friday after the release of the exchange rate, as
devaluations tend to reduce the cost of imports and free up more hard currency to

pay 11. The benchmark Global 2027 was up 0.603 point to a price of 41.570 and a
yield of 24.261 percent. Economists believe the benefits of devaluing are muted
because the new Simadi system will receive only a small fraction of the dollars that
the government sells, with the vast majority being sold at preferential rates.
Essentially, those who cannot obtain dollars at the other two rates will try to get the
Simadi rate.
"We remain 12 skeptical about the impact this three-tiered FX system will
have on an already stagflationary economy,'' wrote UBS economists in a research
note. "We 13 that Simadi will, at most, remain a rather marginal FX allocation
system.'' Venezuela's bonds are trading at distressed levels on concerns that the
rout in oil prices could prompt a default; on average, they pay 26 percentage
points more than 14comparable U.S. Treasury bills. Maduro dismisses default talk
as ill-intentioned rumor-mongering.
Few products available
Unlike previous devaluations, when Venezuelans crowded electronics shops
to pick up appliances before prices rose, lines were 15 Friday because low
inventories have left shelves largely bare. "The last televisions we sold arrived in
November and were gone the same day,'' said a salesman at one popular
electronics shop who asked not to be named. "If they come at the black market
rate, I think people would buy them no matter the price.''
Other Venezuelans worried that inflation, already the worst in the Americas
at an officially estimated 64 percent last year, would spike even further.
"Everything's going to carry on being tough,'' said a 38-year-old woman, who gave
her name only as Josefina, in a Caracas shopping line of about 100 people
Opposition 17 complained that Maduro had disguised the devaluation, which came
via an Excel sheet on the central bank's website, and sought to distract
Venezuelans by simultaneously denouncing a coup plot in the air force.
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