SICAD: Birth of a Red Tape Behemoth

Giordani explica el SICAD
Any questions?

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.

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A journalist, political commentator and news obsessive, Francisco Toro is the Founder and Executive Editor of Caracas Chronicles.


  1. Easy solution: Sobrefacturacion! National guards are going to check the merchandise arrived at the port? Bribe them. Problem solved! These guys are really smart

    • I can’t believe what I’m about to say: I hope Giordani stays as minister, at least he doesn’t have a reputation for being a thief.

      • I’d prefer a thief as Minister if that thief were a person wouldn’t want to ruin the economy on purpose for ideological reasons. Giordani has made this country lose more money and resources and diminished the purchasing power of the middle and lower classes more than several of our worst thieves combined.

      • If you think about it, he doesnt need to be a thief. He can access dollars at 6,30 whenever he wants. Trade them back to bolivar fuerte via black market. Then trade back to dollars at 6,30 again… And repeat ad infinitum

    • Overinflated prices will not work for some products in their pharma and food sector because their prices are regulated. Cadivi will remain their best choice

    • “Easy solution: Sobrefacturacion!”

      Not as easy as you would think.

      You need a willing company outside, and one willing to assume the risk with you. You therefore are going to need to reward them as well, and trust them to kick back when paid. Assume for a second they do not kick back to you, what are you going to do, sue them? Where?

      You are also going to need to bribe whoever checks in Venezuela whether or not the products you bought were bought at market prices. And the Nazional guard in Bolipuertos and the stray Cuban as well.

      If you are talking consumer goods, medicines, etc. this becomes very hard. There are tons of places to be checked for fair market pricing.

      If you are talking machinery, then you have a better shot as many manufacturers can (and do) make so many different models with so many options it is easy to obfuscate the true price.

      Not saying it’s impossible (nothing is impossible in Venezuela when you are talking about skirting the law) but certainly harder than under SITME

  2. Putting aside that this system is flawed due to the amount of red tape and the bribes importers will have to pay. Has there been any indication of how much money will the Central Bank be “auctioning”? Are experts expecting more Dollars than in Sitme? Less?

    • I have heard from a source I trust that 7.5 billion USD will be put into the system yearly if conditions stay the same (price of oil, budget,etc). That money comes to more or less about 30 million a day (considering only weekdays). Now if you ask me where those dollars are coming from I am stumped. The guy who let me into these figures tells me that there are enough dollars to supply this market, but even if everything works porperly the amount of BsF is so vast that the price for USD outside of these two mechanisms will hardly vary.

  3. Venezuelan Letter of Credit. Now that’s an old trick you only fall for once. My terms dealing with Venezuela, Cash up front always in USD. Bolivars have a habit of loosing value. I remember being in a bar and having the price of booze go up about halfway thru our party!

    • Roger : Probably the BCV or some other government bank issues the original LC then the foreign supplier demands that a respectable reliable international bank act as the confirming bank so that the supplier gets the actual payment guarantee from the latter , thus assuring himself that the money is there when the shipment is delivered . Confirmation at the discharge port that the shipment is what its supposed to be will most likely be delegated to an independent surveyor appointed by mutual agreement of the government and the supplier . The confirming bank isnt going to let himself be hoodwinked by any Venezuelan bank shenanigans !!.Oriental Banks also like playing games with their LC’s so there is a lot of practice in dealing with this sort of thing.

  4. CADIVI, RECADI, SICAD: access to Fx in Venezuela is like the core theme of all the telenovelas – only the name changed and then barely (Topacio / Cristal).

    And who will end up in jail one day?

    1. “El Ruso de SICAD”!?
    2. “El Sirio de SICAD”?
    3. “El Irani de SICAD”?

    Nada nuevo bajo el sol

  5. Personal insights:

    – They will try to allocate a bigger part of their dollars in this new system to avoid selling them at 6.3 and increase cash flow

    – Auction winners will always be:
    — Without corruption in the middle: Small distributors that are currently selling products calculating a 20 – 25 Bs/$ FX rate
    — With corruption in the middle: Small distributors that are willing to bribe their way though auctions

    Great article, and great way of explaining the method -although still very hard to understand, no se le pueden pedir peras al olmo-

  6. You opposition supporters need to get a clue! The reason there is a shortage of dollars is because the government has increased the purchasing power of the lower classes in Venezuela so quickly through the massive production of Bolivares. Would you rather that the poor and lower classes have NO BOLIVARES? The fact that people in the opposition denounce shortages (which really are the result of increased consumption and demand) shows just how out of touch they are from the poor in Venezuela!

  7. Why does this post make no mention of the fact that dollars will be adjudicated through a modified Vikrey auction? Vera makes it sound as if Giordani is allocating dollars ‘ a dedo’. This is misleading at best. Giordani stated several times in the press coference that the system would be the same modified Vickrey auction currently used by the National Public Credit Office. As in any reasonable auction, dollars go to the highest bidders. It is true that it is as of yet unclear whether there will be preconditions to participate, and if there are, there will be some room for discretion. But ignoring the fact that dollars will be allocated by an auction mechanism leads to a complete mischaracterization of the system.

    • If there is a band then it’s not a true auction. There can’t be a “highest bidder” when you have tens of thousands of bidders willing to pay the maximum allowed price. Either the mechanism will eventually reach the real market rate, or it will be same old same old.

      • There was absolutely no mention of bands at the press conference. The only reason anyone is talking about bands was that SITME had bands. Even with a band you can have an auction as long as the cap is above the clearing bid. So the band would only make the system irrelevant if it is set below the clearing bid. But why then go through the trouble of setting up the auctions at all?
        I don’t think it makes sense to analyze a policy announcement on the assumption that the policy will be combined with a restriction that policymakers have not even alluded to. You may want to hypothesize that they’ll be forced to use bands, but that is different from using the existence of these bands as your baseline. What would be reasonable is to start oit from the auction system as announced, without bands.
        This will produce a market rate which will be higher than 6.3 but likely lower than the black market rate, as all black market actors cannot participate here. It is an additional devaluation through a dual rate system.

        • A cap was mentioned quickly in passing, and it assuredly will be below the clearing rate–voila, they will have publicity-wise substantially lowered the Parallel Rate (NOT). As proof that this system is more unworkable than SITME, with more red tape and corruption in the “intermediation” process, the Parallel Rate edged up today against the announcement. Finally, the theoretical implied rate ( circulation/international reserves) will soon shoot up from its current 27 or so value to 30-35, as the Ven. Govt. pours out the money for the Election and the coming large May 1 increase in minimum wage (not to mention a recent rumored large shipment of gold out of the Country of some $4 bb,).

          • This is most likely a reference to the caps on the amount of the bids. The subastas for Letras del Tesoro cap bid amounts at 15% of the total, to ensure that one participant does not get the complete allocation. This is very different from a cap on the bid price. Giordani’s comment makes sense in the interpretation that he is talking about caps on bid amounts, as these – unlike price caps – do ensure that the auction is open and democratic (by evading capture by one or a few agents).
            Giordani emphasized at several times in the presentation that the system would be the same as used by the ONCP, which does not cap bid prices. An objective analysis of the system should thus have started out from the assumption that that is how it will work. But you have in contrast started out from the assumption that this will be a process of adjudicacion directa, similar to the ONCP auctions only in name. This makes the whole post grossly misleading. Writing a new post on auctions won’t fix that – though amending this one could.

          • Ah, that’s interesting. Though my sense is that if they don’t cap the price, they’ll end up with a SICAD dollar in the Bs.15-25 range, and that’s plainly politically unacceptable to them. Even if they don’t initially intend to, they’ll end up with a “dirty auction”…

    • Godgiven2013

      “Why does this post make no mention of the fact that dollars will be adjudicated through a modified Vikrey auction?”

      Bingo! This is indeed the key question.

      It merits a post of its own, which is in the works. Check back later.

  8. A pox on all their houses none of the bozo’s from yesterday, who are playing at the edges of Viet or Chinese style capitalism know what F— they are doing but then again all of Europe, China and the US ( the major players) are seeing their house of cards starting to fall more each day as they also make it up as they go along, entering deeper into the world economic crisis.

    • You should be happy, Cort.

      After all there can be no true revolution until the whole world is burnt and the true revolution rises phoenix-like from the ashes.

      It’s like the Book of Revelations for Marxists coming true!


  9. Is it “Sight tight, Mr. Patient, this could take some time” or “Sit tight, Mr. Patient, this could take some time”?

  10. A system is only as good as the people that run it , if you give a 10 year old a Ferrari to run a race , his performance is going to be awful and probably short lived , The simpler the system the less likely that it will malfunction .unless everyone that participates in it is really top notch.( in current Venezuela a rather unkilely thing) The systems looks like a rube goldberg obstacle course full of checks and filters to assuage Mr Giordani probably justified concerns about unscrupulous people gaming the system to make a quick buck. The problem is if that by creating so many checks and barriers you make it more likely to malfunction at some step of the way . If you make the criteria for selecting the kind of import the currency will be used to make too restrictive , you may become so discriminate and selective so as to defeat the systems pruposes . Also the amount of dollars put into auction may be so small that it will do little to sattisfy the countries import needs . The succes of the system doesnt look very promising but only time will tell , well just have to sit tight and wait and criminally for some that will mean giving up their lives to some bureacratic hassle.. ,

    • BB

      The success of any system is only as efficient , workable and honest, as are the people playing it.People trump systems every time.We wait, we see.

      • Firepigette: agree with you that all systems are ultimately trumpable , but also noting that much depends on the incentives for trumping it and the ease with which it can be done , trumping the system can be the normal practice or an exception , it can become an ‘uso’ or an ‘abuso’ ( As Ortega y Gasset would have it) . Carlos Rangel mentioned in his ‘Del Buen Salvaje al Buen Revolucionario’ , the difference between L. American lawmakers and US law makers . the first would make laws which were dauntingly difficult to comply with but which most everyone would later be able to violate while the latter made laws that seemed very practical and flexible but which then no one would be allowed to violate . Maybe this is one more example of this cultural rule.

    • What it sounds like is Giordani realizes just how much hanky panky had gone on with SITME, but is powerless to do anyting about it because both opposition and boliburgueses would get caught up in the grinder. So this is his twisted way of putting the bell on the cat.

      What is surprising to me is that after all this time he truly believes he has “fixed it”.

      In about 2 weeks, this too will be gamed and the party will continue to the detriment of those who cannot participate, and the rest of us as well in the long run.


      • It’s remarkable. He really seems to believe that if he just manages to add one more control, he’ll be able to get people to act against their own interests in a consistent and reliable basis. #MonjeBruto

        • The irony is that the limited offer of dollars because of the controls produced the arbitrage and the corruption to begin with, and now he wants to solve it by adding even more controls, is like trying to heal a wound by smearing it with a infection.

        • There should be a moratorium on calling Giordani a “monk” or “stupid”. We’re talking about a criminally insane Batman villain here. Referring to him as a simple dumb commie absolves him.

  11. So, the request for foreign exchange goes to Giordani, who decides who gets the benefit, and thus the possibility of importing anything. The criteria for granting the requests are unknown. I don’t think sane people should call this an auction. It is a “dedazo” system, or maybe “sobornazo”.

  12. El Sitme entre Giordani y Merentes
    José Guerra
    Tal Cual 21 de marzo de 2013

    El Sistema de Transacciones de Títulos en Moneda Extranjera (Sitme) fue un instrumento que estableció el gobierno nacional a través del BCV con el objeto de proveer divisas a los importadores y personas naturales a quienes Cadivi no le proporcionaba moneda extranjera para realizar sus transacciones. Su funcionamiento era el siguiente: quienes solicitaban dólares concurrían a sus bancos para que éstos tramitaran ante el BCV las solicitudes una vez que depositaran en los bancos comerciales el monto de bolívares equivalentes a los dólares requeridos. El BCV según sus disponibilidades otorgaba bonos a los importadores los cuales eran vendidos en el mercado internacional con lo cual se obtenían las divisas. ¿Dónde estaba el problema con este esquema? En el hecho de que para obtener dólares el BCV tenía que tener bonos y ello implicaba tener que emitir deuda, tal como sucedió. De esta manera el gobierno se endeudó masivamente para poder otorgar divisas a los importadores. No había que ser una lumbrera en materia económica y financiera para darse cuenta que ese sistema colapsaría inevitablemente, como muchos advertimos ya desde mediados de 2010, cuando el Sitme comenzó a funcionar. Como siempre fuimos acusados de vende patria pero el tiempo terminó dándonos la razón.

    El Sitme inicia sus operaciones el junio de 2010, siendo Jorge Giordani ministro de Planificación y Finanzas y Nelson Merentes presidente del BCV. Es impensable que Merentes hubiese lanzado un esquema cambiario de ese tipo sin que el mismo tuviese el consentimiento del Presidente de la República y el ministro Giordani. Para que quede consignado ante la historia, acá de reproducen algunas declaraciones de Merentes con su respectiva fecha. El de junio de 2010 afirmó el presidente del BCV: “El flujo está garantizado para empezar. Hay un stock importante”. Para seguidamente soltar esta perla para los anales de la economía mundial “la magnitud que nosotros tenemos estimado de la demanda no especulativa sino real para que la economía se fortalezca más está alrededor de unos 6.000 millones de dólares anuales. Este sistema puede durar por lo menos unos 50, 100 años”. Duró un año y ocho meses. Ya Merentes tiene acostumbrado al país a este tipo de declaraciones sin sentido. Posteriormente, el 28 de julio de 2010 puntualizó Merentes que “El BCV contempla cambios en el Sitme. Casi 15% de lo que se transa en el Sitme viene de empresas y eso le da mayor sostenibilidad porque ahora son privados que están alimentando al sistema no solo el sistema financiero”.

    Mientras Merentes seguía con sus juegos de palabras, el ministro Giordani se dedicaba a aprobar las emisiones de deuda para endeudar a Venezuela y fortalecer la criatura de Merentes. Así se mantuvo el Sitme entre junio de 2010 y el 8 de febrero de 2013, cuando feneció con la devaluación decretada ese día. Pero vale la pena revisar, también para dejarlo consignado ante la historia, las declaraciones que emitió el ministro Giordani el 14 de febrero de 2013. Son todo un testimonio. “Se creó un mecanismo como el Sitme que nació genéticamente perverso. Cuando creas un sistema de administración de divisas el otro polo (la gente que quiere burlarlo y sacar provecho) nace automáticamente. Puedes perseguirlos, pero siempre le buscan la vuelta: la sobrefacturación, los containers llenos de piedra… trucos para lograr su meta: comprar barato y vender caro”. Estas declaraciones resultan insólitas, dichas por un funcionario que ha tenido el poder absoluto en materia económica y financiera en Venezuela. Pero más sorprendente fue lo que dijo el ministro Giordani el 16 de marzo de 2013 en lo que parece ser su despedida: “El Sitme era la cobija de los banqueros venezolanos, esos son más de 25 mil millones de dólares se fueron y ahora están pensando en un mecanismo sustituto”. Alguien que observe y pondere las declaraciones de Merentes, por una parte y las de Giordani, por el otro no puede sino concluir que Venezuela está en manos de unos amateurs jugando con la economía. En manos de estos aficionados Venezuela como país no ha colapsado porque la Divina Providencia ha contribuido a salvarla, al disfrutar el país de un precio petrolero que admite ese tipo de experimentos como el Sitme.

    Lo demencial llegó a su clímax cuando al eliminarse el Sitme, los genios que dirigen la economía no se les ocurrió la idea de diseñar un mecanismo sustituto que permita suplir divisas en un contexto en el cual Cadivi ha cerrado el acceso a los dólares y la economía sufre una severa astringencia de moneda extranjera.

    • Ya va, en Recadi el banco del cliente no sólo emitía la carta de crédito sino que al final pagaba las divisas. Aquí no! El banco del cliente tiene que emitir una carta certificándole al proveedor que Merentes les va a pagar!

      • Para el proveedor la obligación de pagar es del banco, tanto con RECADI como ahora con SICAD. A él no le interesa de donde viene el dinero. Con RECADI era lo mismo porque si al final RECADI no pagaba la obligación la seguía teniendo el banco, razón por la cual los bancos a su vez le exigían fianzas y garantías al importador que cubrieran la obligación en dólares. Es decir que para poder importar en dólares era necesario tener los dolares por si acaso RECADI no pagaba.

  13. “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…”

    Wooow. These guys are nuts! They want all sorts of checkpoints to make sure bankers and agents are not gonna use the dollars for something other than importing the merchandise they are stating. That’s how paranoid they are with the situation of non-scrupulous people arbitraging the cheap dollars they have been selling up to now through Sitme and what so not.

    Dude, these guys are drowning in a glass of water! This is never going to work.

    And think of it, these guys are far from being stupid- in their own communist way of course. If they are putting so many difficulties it’s because they are planning to provide cheap dollars – the most precious asset to all Venezuelan guisadores. Forget about a real auction with prices set by bidders. Prices will be capped wayyyy below the “parallel”.

    • And think of it, these guys are far from being stupid- in their own communist way of course. If they are putting so many difficulties it’s because they are planning to provide cheap dollars – the most precious asset to all Venezuelan guisadores. Forget about a real auction with prices set by bidders. Prices will be capped wayyyy below the “parallel”.

      Such a simple point, so elegantly stated. Can’t believe I hadn’t thought of that…

  14. ppl sometimes forget we are in a country standing after more than 50 years of corruption in just so many levels of the government, and society…. crticism not gonna give us the path to a better country… so i hope we all “popular critics” end up doing something way more useful… like actually test this mistery exchange system and tell if it works or not… and expose to the medias real results, and go to the government’s offices with a bunch of economist to present whole exchange system project that could make things work propperly… if you end up dying after you took the shot, then at least you will surely start some kind of revolution… and you will be really respected.

    Even if some few may consider it a fantasy, we are in need of heroes.

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