Venezuela's encripted devaluation


dolarbolivarAn 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)


  1. It cracks me up that the same government that routinely protects the shipment of tons upon tons of cocaine to the U.S. and Europe feels like it needs to make a special announcement for an arcane bureaucratic change like this one… 🙂

  2. The other thing that gets me: they’re announcing a change that basically will put extra money into FONDEN. Very good.

    But wait, it hasn’t even been a full month since Maduro solemnly announced FONDEN was going to be abolished.


    He said all parafiscal funds were going to be wound up and consolidated into a single “Strategic Fund”, which was never spoken of again after its presidential announcement.

    Entonces how the hell do you take any policy announcement seriously from these clowns?

  3. Thanks for this piece Juan! This issue really needs some clarity as the vagueness of the press release lends itself for many scenarios.

    My first take, as you correctly stated, is that the main factor behind this move is to try to bring balance to PDVSA’s books (maybe this policy move was lobbied by Lazard?..).
    Another intended effect, as I see it, is to try to reduce inorganic money creation (PDVSA’s IOUs to the BCV) by means of a transaction between these two that helps PDVSA’s cash flow and that actually has a counterpart (as BCV will still receive bucks, albeit more expensive).

    My opinion is that, from a money perspective, this opens the gates for agressive monetary expansion the following year: since the transfers to FONDEN are currently calculated not by some nominal amount of VEF, but as a function of oil prices ($) and volume of exports (q) – both variables being in real terms -, the end result is that FONDEN may get a substantially larger amount of VEF nominal to binge-spend on next year’s election cycle, for a given tajada of oil exports. Nevertheless, given that PDVSA has liquidity issues and a significant debt burden for the following years, it’s also likely that the amount of oil money transferred to FONDEN in real terms will be reduced, as to further bring balance the finances of PDVSA.

    My two cents for now.. trying to make sense of it.

  4. What I find interesting is that they are discriminating one source of extra-budgetary spending from another – allowing FONDEN to do more with each one of its dollars, but limiting the chance for additional social / wagebill spending from the company itself within the country. Maybe it’s due to the fragmentation within the government?

  5. Left well-hidden in the new announcement is a codicil which will allow a PDVSA money changing vehicle to cross the Colombian border three times a week. The driver has an uncanny resemblance to Rafael Ramirez. There’s BIG money to made across the border. Today the black market Bolivar rate in Cucuta hit 100! The ‘new’ money gleaned from this PDVSA money changing scheme will more than pay for ALL of the new oil development costs in the Faja,…..maybe. OK, I was lying….

  6. We are navigating on the dark here.

    The only sure thing is that PDVSA is allowed now to sell a portion of its US$ at the rate of 50 BsF/US$. Some say this has a positive impact in PDVSA’s balance, some say not.

    The other sure thing is that BCV will now be buying some of the US$ from PDVSA at a 50 BsF/US$ rate, if they -BCV- insist in channeling the same amount of US$ trough the 6.3 window, the central bank will incur in balance loses. And all we have to know is that Central Bank´s loses are net monetary expansions just as inflationary as funding directly PDVSA.

    • It could help improve the fiscal deficit number: central bank losses are typically not included there. We could even show a fiscal surplus at the consolidate public sector level!?

        • I was thinking about the deficit of the sector publico restringido, which I understand is the headline deficit number most people look at. I think that number would likely improve with these announcements. But you are right, we just dont know at this stage.

        • I was thinking this would both serve to make PDVSA somewhat more solvent on its balance sheets while also creating a mechanism to leach some of the expansionist monetary policy at the same time. Whether that’s the intention behind this, or a simple consequence, as you note, its a bit too dark.

          PDVSA gets more bolos for less dollars. That seems good on its face, but its in the execution of the usage of those dollars that really matters, and we have no idea how that will play out. I think they’ll just end up elsewhere as a transfer, or they’ll sit on huge reserves of bolivars which the government will list at a lower exchange rate, since they can pick, and on paper, PDVSA looks like it has more money than it really does.

          I don’t think anyone with a semi-serious financial background will be duped by this, but I can see them using this as a rationale for better bond ratings/floats.

  7. “…but if you think the government isn’t the creator and biggest recipient of the black market…”
    There, fixed it for ya.
    I know that non-government people also get stupid benefits from black market, I’m not that blind, but come on, it’s just common sense that the government who created the dollar monopoly did so just to rip off everybody and their mothers.

  8. BCV selling USDs at black market rates? Not quite. It is actually PDVSA and Fonden, and never at black market rates. They usually sell to an intermediary at an arbitrary price closer to the Sicad I rate, in turn, the intermediary resells those dollars on the black market. Sweet deal, right?

    • “Never” at black-market rates? I’ve seen at least one example in the recent past of PDVSA selling as much as $100 million directly at the black-market rate. Certainly there was an intermediary, but the bolivares went straight to PDVSA.

  9. Mmmm… A devaluation? Yes. PDVSA used to be forced to sell petrodollars at 6.30, and only the dollars from international financing operations (bonds and loans) could be sold at SICAD 1 or SICAD 2 rates. Now some petrodollars can be sold the SICAD 1 and SICAD 2 rates (that used to be sold at CADIVI/CENCOEX rates). This hints to the devaluation by tracks, where different segments of the economy are moved at a different pace to more expensive dollar prices.

    BCV loses? Maybe, if they choose to go from PDVSA deficit to BCV deficit. It’s not an inherent flaw of that reform. It could lead to BCV losses if BCV sells more dollars at VEF 6.30 than it buys from PDVSA at VEF 6.30; or if they sell more dollars at VEF 12 than they buy from PDVSA at VEF 12.

    However, if BCV buys X dollars at VEF 6.30, Y dollars at VEF 12, and Z dollars at VEF 50; and then sells at most X dollars at 6.30, at most Y dollars at 12 or at most Z dollars at 50, it’s trivial to see BCV doesn’t make a loss and instead pockets the small differential between the buy and sell prices of each rate.

    BCV can even stay away from the red, cross-subsidizing the rates. The only condition that has to be met is that the total VEF BCV pays PDVSA for the USD at all rates is equal or lesser than the total VEF BCV gets from the economy for the USD sold at at all rates.

    I wouldn’t put it past chavistas to botch yet another one of their reforms (like they botched the USD auctions), but that is a failure in the execution not the model (not that the model is perfect).

    My guess is that their goal with this reform is to let PDVSA fund a larger part of its costs from dollar sales to BCV instead of doing it from USD loans sold at SICAD 1 and 2, or VEF loans from BCV.

  10. Two additional factors : average per bl export sale price is dropping some 10% from last year, second a big portion of fondem projects involve not the expenditure of bs but the expenditure of foreing currency in imported goods from china korea etc , specially the fpndem oil projects. Dont know the end game but something is cooking !!

  11. Quico: Had not seen your post, I guess we have a special place in our minds for the way Fonbden is run. In acse you did not see it, this is what I wrote:

    And then there is Convenio Cambiario #30, some analysts hail it as a sign of further “adjustment”. A positive. But all I see is a decree allowing Pdvsa to have total freedom as to whether it gives Bs. at three different exchange rates, to opacity-ladden-Fonden, so that Maduro may have more funds at his convenience, simultaneusly creating a new perverse mechanism for printing money: Pdvsa exchanges with the Central Bank at Bs. 50 (Sicad 2 rate) but the BCV can turn around and sell those same dollars at Bs. 6.3 per US$. All stages of this may be done with total discretion and no disclosure. Sorry, not a positive, another negative.

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