One surprise: the bolívar, Venezuela’s eroded currency, has been stable since October after years of violent depreciation. A cost: more than 2,000 million dollars injected by the State into the foreign exchange market. One goal: curb inflation.
The Central Bank of Venezuela launched, according to the consulting firm Aristimuño Herrera & Asociados, some 2,200 million dollars to the market in the last five months to increase supply and tie the price of the bolivar with respect to the currency of the United States, which took to the streets in 2019 after a 15-year ban due to exchange control that had to be relaxed due to cash problems.
Inflation closed 2021 at 686%, according to the BCV, the highest in the world, but had reached 130,000% in 2018, 9,585% in 2019 and 3,000% in 2020.
What is the limit?
“You are offering dollars above the demand and that generates stability in the rate,” he comments to the AFP César Aristimuño, director of the consultancy.
Without disclosing amounts, the BCV recognizes 29 “interventions” since October 2021, when a new reconversion subtracted six zeros from the bolivar (1 million, for accounting purposes, became 1 bolivar) and the government promised to restore confidence in the local currency. . This month a 3% tax on foreign exchange and cryptocurrency transactions comes into force.
“The legal tender is and will continue to be the bolivar,” insisted Delcy Rodríguez, vice president and minister of Economy and Finance, on Tuesday when presenting accounts to Parliament.
Since October, the official price of the dollar went from 4.18 to 4.34 bolivars, a depreciation of 3.69% after reaching 76% in 2021, until the reconversion; and more than 95% each year in 2018, 2019 and 2020.
With a GDP that fell more than 80% in eight years of recession until it rebounded, according to the government, by 4% in 2021, “our economy is so small that a policy like this is applicable. The issue is how long you are going to be able to sustain it”, says Henkel García, director of the Econometric firm. “It’s going to be growing what you need” inject him.
According to sources from Aristimuño Herrera & Asociados, the BCV injected some 1,500 million dollars into the foreign exchange market in 2021 and 700 million in the first quarter of 2022.
Some experts consider that the government “burns” international reserves, but Aristimuño and García maintain that the dollars offered come from improvements in Venezuela’s oil income due to the rise in crude oil prices and a recovery, limited, but recovery nonetheless, of the production of the state-owned PDVSA.
PDVSA’s production, which exceeded 3 million barrels per day (bpd) in 2014, collapsed to 400,000 bpd in 2020. Today it is 680,000 bpd according to OPEC.
The BCV reports reserves of 10.8 billion dollars, less than half that in 2014 and a third that in 2007. This includes 5 billion allocated by the IMF in a global plan to increase liquidity in the midst of the covid-19 pandemic, that they have not turned themselves in due to the questioning of Maduro’s re-election in 2018, unknown by fifty countries, including the United States, and denounced as fraudulent.
Liquidity in bolivars is up, but liquidity in dollars -mass that moves largely outside the banking system- is more than four times higher, according to private estimates.
Collateral damage
There are “collateral effects,” warns Aristimuño. On the one hand, as inflation is still very high and exchange rates remain the same, the purchasing power of the dollar falls; on the other, “exports lose incentive” in favor of imports.
Carlos Fernández Gallardo, president of the Fedecamaras employers’ association, expresses “concern.”
“There is an increase in costs in dollars for producers, with a pernicious effect for the consumer,” Fernández told AFP, stressing that the industrial park barely works at 27% of its capacity. “What’s going to happen when those dollars aren’t available?” he adds.
Another policy against inflation was to increase the banking reserve in 2018, which contracted credit, which was already in free fall due to the collapse of the bolivar. Banks were required to keep 85% of their deposits with the BCV to meet withdrawals, and the remaining funds could be used for operations such as loans.
The credit portfolio in Venezuela did not reach 140 million dollars in 2021 compared to 14,000 million in Colombia.
Although this would have an inflationary impact, the government took a step back in February, authorizing dollar-indexed loans under certain conditions and reducing the reserve requirement to 73%.