Caracas Chronicles

There was huge confusion yesterday following the launch of SICAD (the newfangled “Sistema Complementario de Administración de Divisas”), meant to supply additional dollars to importers shut out of the main currency control mechanism, CADIVI.

SICAD will replace the previous, impossibly dysfunctional alternative-to-CADIVI, known as SITME, which died peacefully in its sleep last month. SICAD looks likely to prove just as unworkable.

SICAD’s launch was characteristically mangled: an explanation so turgid even industry insiders were left scratching their heads. Thankfully one local economist, Leonardo Vera, managed to explain the system in pretty understandable terms.

With his permission, I’ve translated his take on it:

Finance Minister Jorge Giordani, together with Central Bank chief Nelson Merentes and PDVSA boss Rafael Ramírez, have just announced the creation of SICAD, a mechanism to “auction” a few dollars among thousands of firms. You can get a sense for how freeflowing and hassle-free the mechanism is likely be from Giordani’s explanation. Merentes was, once again, sublime, saying with total sincerity “we don’t pretend like today everything will be clear and we’ll all get top marks.”

So here’s more or less how it goes. A firm wants to import, let’s say, Metformin, (a medicine for diabetes). The firm goes to its bank with a request. The request is then forwarded to the Central Bank. The Central Bank in turn takes it to the Órgano Superior para la Optimización del Sistema Cambiario – the Superior Organ for the Optimization of the Currency Exchange System (a.k.a., Giordani.) 

Giordani carefully weighs each request (among dozens, hundreds, perhaps thousands) and selects this one as an “auction winner” (on criteria known only to him). Back goes the requests to the Central Bank, and then on back to the bank who finally informs the client, “hey, you won!”

The winning firm can now call its supplier in, say, Hong Kong and proudly tell him, “we won!” Next they have to rush off with all their paperwork neatly set out in file folders to the Superior Organ who will corroborate (ex ante) that all the paperwork is in order, and will order the commercial operation to import Metformin. 

Those insulin-dependent patients will just have to sit tight while Giordani leafs through the mountain of paper. 

Once it’s verified, and if – miraculously – no problems come up, the importer gets the go-ahead to deposit the bolivars that will be used to pay for the dollars going to the supplier in Hong Kong into a special account held by his bank 

The importer then instructs his bank to produce a Letter of Credit (Carta de Credito) setting out the terms of the deal with that supplier in Hong Kong including specifics on price, type of shipping, quality standards, quantity, etc. Sit tight, Mr. Patient, this could take some time. 

Now notice one thing: when the importer’s bank issues that Letter of Credit, it’s taking on a legal obligation to pay the seller as soon as the conditions set out in the letter are met. But in this system, it’s the Central Bank that actually pays the exporter. Giordani was quite explicit that dollars will touch neither the banks nor their local clients’ accounts. So local banks have to take on a legal obligation to do something they can’t do. But there’s more.

If the counterparty in Hong Kong is crazy enough to accept those terms, the exporter ships the Metformin and, a few days later, it arrives in Puerto Cabello. There, some National Guard dogs are waiting to sniff it, and they, along with SENIAT and the Superior Organ all have to stamp papers verifying the physical arrival of the merchandise. 

Then, and only then, does the Central Bank transfer the dollars to the supplier’s account in Hong Kong. What are the chances those diabetics still have all their toes by this point?!

Chamo, if this’s the setup we’re counting on to clear the shortages and get consumer markets supplied once more, we’re in some considerable trouble.