Maligned Dollar Flourishes in Venezuela

By Juan Forero
Washington Post
Friday, May 17, 2013

http://www.washingtonpost.com/world/the_americas/maligned-dollar-flouris...

CARACAS, Venezuela -- The once almighty U.S. dollar has lost its luster in some corners of the world.

But there's one outpost where greenbacks have never been stronger: in socialist, anti-imperialist Venezuela, whose government rails against American-style capitalism as the bane of humanity. The dollar is not just holding steady here -- it is flourishing like nowhere else, the byproduct of the fast-wilting economy President Hugo Chavez left behind when he died in March.

Black-market dealers operating on the thriving underground market sell greenbacks at more than four times the official, government-set rate of 6.3 bolivars to the dollar. And the price they're getting these days -- 28 per dollar -- is more than three times what it was just eight months ago.

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Because the bolivar is artificially overvalued and practically worthless outside Venezuela, everyone here is desperate for dollars, from auto-part importers to supermarkets to ordinary Venezuelans planning to travel abroad. Even government officials and the politically connected businessmen who have made fortunes off the free-spending state search out and trade in dollars.

The dollar may fluctuate in other markets, or even make a spirited comeback against some currencies, as it has this year. But in Venezuela, greenbacks have skyrocketed, with people buying and selling them on an illegal and shadowy parallel market the government has been unable to control.

"We depend completely on the dollar," said one black-market dollar dealer who asked that he be identified only by his first name, Fernando, for fear of winding up in jail. "Buying dollars is practically the national sport."

It is a sport that Chavez's handpicked successor, President Nicolas Maduro, has pledged to control as part of the huge challenge he faces in trying to correct an economy in a shambles.

Hundreds of state-run companies are moribund, and private industry has been paralyzed by state interventions. Rolling blackouts leave much of the country in the dark. Crime is so rampant that Venezuela is more violent than many countries at war, crimping investment. Hamstrung by byzantine currency controls and a dearth of dollars, foreign companies -- among the few employers to create jobs here -- struggle to repatriate profits.

And then there's inflation, driven by profligate spending, coupled with an economy starved for dollars. It hit 4.3 percent in April, about equal to the annual inflation rate for some of Venezuela's neighbors, and could easily top 30 percent for the year.

Being an oil power helps, and Venezuela's state oil giant, along with its foreign partners, are paid in dollars.

But oil production fell sharply during Chavez's 14 years in power. Aside from exports to the United States and China, much of the oil pumped here is practically given away to Venezuelan motorists or traded at subsidized prices to Cuba or other countries.

"Essentially, they've hit a plateau, and Venezuela's oil production hasn't gone up," said Russell Dallen, head trader at Caracas Capital Markets and a longtime student of Venezuela's economy. "What that really means is that Venezuela doesn't have enough dollars to pay for all the things that they need to pay with dollars."

In a country that produces little else but oil, the government understands that importers must get dollars to buy the food, medicine, construction material, machinery and other products society requires. But Maduro's government officials, who tout Cuba as a model to emulate, also want to tightly control the currency to stem capital flight.

The government uses a rare two-tier exchange system, much reviled by Venezuelans because it is used to reward the government's allies and punish its enemies. Those with little weight -- such as, say, Jose Molina, a small businessman here in the capital -- are often left in limbo, unable to buy products they can purchase only with dollars.

"I've had problems trying to get dollars," he said. "It's hard because of all the paperwork. In the end, the process can take three to six months before you even get your goods."

The country's central currency authority, the Commission for the Administration of Currency Exchange, or CADIVI, is selling dollars at 6.3 bolivars, following a 32 percent devaluation in February. A complementary system called the Superior Body for the Optimization of the Exchange System, or SICAD, was unveiled in March to give companies importing priority goods such as food and medicine the chance to obtain dollars at a better price.

Bureaucracy has proved a huge hurdle to a smooth-running system. SICAD, for instance, is set up to disburse dollars not to the importers but to the suppliers, after the products arrive in Venezuela.

The result is that the shortfall in dollars in Venezuela exceeds $100 million a day, according to Dallen, the trader. Venezuelan companies in need of large amounts of dollars -- food conglomerates that want to buy corn, drug companies that need medicine, car companies looking for parts -- have trouble importing what they need to operate at capacity.

On the store shelves, it means that one out of every five products consumers need is now missing, according to Central Bank data. Lately, consumers have been particularly irritated about one vital but scarce product, toilet paper, the commerce minister blamed on "excessive demand" generated by the media.

Maria Sanchez, who runs a truck dealership, said her business is unable to plan for the future.

"It's been months since I had trucks, because of the dollar problem," she said. "And I have to pay my workers. If this keeps up, I'll have to let go of people and close dealerships."

Venezuelans facing such challenges -- as well as those simply trying to prop up the value of their earnings -- search out dollars on the black market.

"The only way your savings are really savings is by turning them into dollars," said Fernando, the black-market dealer. "If you have them as bolivars, they will devalue so utterly fast that there's just no point."

But trying to exchange dollars has its risks.

Recently some Venezuelans lost their savings after wiring their bolivars to shady operators who had falsely promised to quickly change their currency into dollars. Others who went to meet people they thought would sell them dollars ended up being robbed.

"People who were once prudent become desperate," Fernando said. "Now they arrange a meeting with people they don't know and their money is stolen."

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