Caracas Chronicles

An obscure document was published yesterday by Venezuela’s Central Bank (BCV), allowing PDVSA to sell the dollars it makes via oil exports to the BCV for deposit into an undeclared, secret fund at a more comfortable rate.

Up until now, the rate that PDVSA got for its hard-earned dollars was the cheapest of the four that currently exist in Venezuela, BsF 6.3. This was a raw deal for the oil company – it was basically subsidizing everybody’s purchases of dollars, because the BCV then turned around and sold those cheap dollars at different rates: some at 6.3, some at 11 something (Sicad I), some at 50 something (Sicad II), and some at the black market rate of about 100 (they’ll never admit to it, but if you think the government doesn’t use the black market, I have a bridge to Margarita that I would like to sell to you).

As Econ_Vzla explains, the BCV will now buy at a high rate, and be forced to sell at low rates. Thanks to this accounting gimmick, the BCV is now the main subsidizer of Venezuela’s horrific exchange rate subsidies.

The value added from Econ_Vzla’s piece: (sorry, in Spanish)

“Con el nuevo convenio cambiario, el BCV empezará a comprar una parte de los US$ de PDVSA a una tasa de, digamos, 50 BsF/US$ (Sicad II). Pero si mantiene inalterados los montos asignados para la venta a través de los mercados Cencoex, Sicad I y Sicad II, el BCV comenzará a experimentar una pérdida contable por estas operaciones. Es facilíto: comprará dólares caros para venderlos baratos.”

Will this result in an expansion of the money supply? Econ_Vzla doubts it. Does it amount to a devaluation? Maybe, as long as the supply of dollars at the expensive Sicad II rate increases, and that market expands. It seems that economists are not really sure yet.

Some people think this is about putting extra money in PDVSA’s pocket, and it may yet turn out that way. But on its face, it’s really FONDEN that will benefit from the under-the-table devaluation: PDVSA only gets to sell its dollars at a higher rate for the purpose of FONDEN contributions. (Which, of course, in no way rules out FONDEN turning right around and sending those extra bolivars to PDVSA, which we would never hear about because, lest we forget, FONDEN spending is secret.)

I won’t go into more detail because it would bore you. Let’s just say that the government is fiddling with its own numbers, and leave it at that.

(Note: Please let me know if I got some of this right … I’m not ashamed to confess I’m bordering my limits on this one)