The head of Venezuela’s economics team, Miguel Pérez Abad announced, a new foreign exchange system with two official rates. If you love weird new acronyms, the minister has a treat for you.

The stronger rate will be called DIPRO, which Pérez Abad explained stands for Tipo de Cambio Protegido (don’t ask why it’s DIPRO and not TIPRO, we don’t know either). This rate will start at 10 VEF/USD, so basically it’s just a new name for the old Cencoex rate. Except this one “will be progressively adjusted over time”. Or, um, so they said.

In theory, DIPRO will be the prevailing rate for imports of essentials goods such as food and medication, and the raw materials for their production; social security pensions for Venezuelans abroad; imports related to sports, health and culture; and Venezuelan students abroad. (In practice, we know what these extra-cheap dollars really get used for. )

The second and weaker rate it’s called DICOM, for Tipo de Cambio Complementario (just… don’t). This will be a floating rate, and will open around 206 VEF/USD.

No, really, it will float, free. Free as a bird. The minister said it would!

DICOM will be used for everything not included in the DIPRO: imports of non-essentials goods; foreign currency for Venezuelan travelers (the cupos remain the same); currency sales for diplomatic missions; proceeds from exports; basic industries and other non-oil entities; foreign oil companies and sales of hydrocarbons.

We will know more once the Convenio Cambiario between the government and the Central Bank is published tomorrow. Several important details were missing from the announcement. We don’t know, for example, at what rate will PDVSA sale the bulk of it’s dollars.

In the next few days we’ll see if the DICOM really floats. And then, for how long. Remember how SITME, SICAD 2 and SIMADI were all supposed to float freely? The government has a big credibility hole to climb out of on this stuff.

The first indications are that Pérez Abad took one look at the broken windows in the house of a guy going bankrupt to pay heating bills and…decided to change their names.

With price and exchange controls in place, having two rates with one floating and the other anchored at a level 95% lower is simply suicidal. It “legalizes” a massive increase of controlled prices, and large price distortions. And because the government continues to sell the bulk of its dollars at a rate much lower, it does nothing to address the enormous deficit that drives central bank money printing and, with it, runaway inflation.

As it stands right now, this does the opposite of what economic textbooks say about devaluations in oil-rich economies: a devaluation that increases the fiscal deficit. It’s quite an achievement.

 

15 COMMENTS

  1. “the cupos remain the same”

    Well, the monopoly stands untouched, of course due to political reasons, the base cause that plunged this country into economic ruin.

    Congratulations, abad, chavizmo positions itself in history as the “government turned dictatorship that drained Venezuela and tossed the empty hust away”

  2. The fact remains that there are very few dollars to feed the Dicom market so here we go again.

    The reaction of the DolarToday market was to increase the price of US$.

    This is another total fail.

  3. Nagel debe estar cagado de la risa. En Chile, DICOM es algo que todo el mundo teme. Ahora en Venezuela también.

  4. Holy cow! Did I read that right? Venezuelans receiving social security payments can tap in to the preferred exchange rate by just living outside of VZ and demanding to be paid in US dollars?

    WTF? Why would the government allow that? Why wouldn’t every beneficiary get paid the same? Then if an ex-pat wants to convert his benefit to another currency, he/she can figure it out on their own. Like asking their local bank to do it for them.

    • Yes. By social security payments we mean pensions. Pensioners living outside of Venezuela can receive their payments in the local currency. But it only applies for Venezuelans living in very few countries: Spain, Portugal, Italy and two or three in South America. The process to obtain this pension abroad is, of course, lengthy and full of bureaucratic obstacles. Recently there were delays in the payments.

      • So it the DIPRO rate also absurdly lopsided for Euros as well as US dollars? If so, then those who want their SS pension paid in Euros are making bank. Man, what a scam!

        • ALL the currency exchange control system is a scam to suck dry Venezuela’s resources, man, pensions and traveling quotas are just a tiny speck in this lacerny, the true “capital leaks” are the massive overbilled fake imports that get you barrels full of fresh green bills.

        • The bolivar is pegged to the US dollar, and all other official rates vs. other currencies fluctuate as they move vs. the dollar. So, for example, if the official Bs/$ rate is at 10bs/$, and today the Euro is at 1.10$/Euro, then the Bs/euro rate for today is 11Bs/euro. It changes daily, as the $/Euro changes. With the pension currently at around Bs11000 monthly, pensioners abroad should receive the equivalent to $1100 per month (or 1000 euro). But that’s because the pension has been increasing non-stop while the exchange rate is anchored (the pension is basically linked to the minimum wage, which the government keeps increasing almost every quarter),. But not that long ago, before the minimum wage / pensions exploded to keep up with inflation, I remember pensioners were receiving a lot less, around 400 euros.

          There are not that many pensioners in those six countries receiving this. It’s around 11000 people. So it costs the government around $150 million per year. Obtaining this pension paid abroad is not only a long and difficult process, they also have to renew their applications every six months. Every six months they to prove they are still living in that country.

  5. It’s kinda like putting high speed fans in the broken windows with the heat on in the house at full blast. But, don’t worry, don’t panic, there will be no electricity to drive those fans in about 3 or 4 weeks anyway. That must be the plan.

  6. I love new acronyms coming from Venezuelan officialdom and society. I have always loved them. They are some of the ugliest, most cacophonic and dissonant “words” to come from Spanish speaking mouths. You love them like anatomy museum curators or carnies love the things they keep in jars.

    But this is a disappointment. It’s short. It should be DIPROTEGI, or DIVICOMPLEME. Anyway it’s just more nonsense to keep the exchange control scam going for a couple more months. Oh yeah, screwing a whole country to starvation and collapse, becoming filthy rich in the process, Sub-saharan kleptocracies, you got nothing on Venezuela!

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