“Criminal dollar”: what Maduro says about the dollar increase and what is really happening

“Criminal dollar”: what Maduro says about the dollar increase and what is really happening

Published on 01 Mar 2023

In the streets of Venezuela, the conversation is not dominated by the World Cup, but by the price of the dollar. A country that has just emerged from a process of hyperinflation looks anxiously at the behavior of the exchange rate. So far in December, the price of the dollar has risen more than 30% and the Maduro government blames "powerful agents". Is this true?

By Ariana Briceño Rojas


While this Friday, December 9, the World Cup in Qatar had the two great Latin American soccer powers (Argentina and Brazil) in total tension, in Venezuela the tension was also felt in every home, in every business and in every job, but it had nothing to do with soccer. Although Venezuela is not participating in the World Cup, the country had the feeling of a country that is losing by a landslide. The brutal increase in the price of the dollar awakened in many Venezuelans the fear of living again what seemed to be overcoming: inflation, recession, uncertainty. In response to this, Maduro’s government has already responded: the parallel dollar is again a “criminal dollar”.


This work is part of the deliveries of the Coalición Informativa “C-Informa”, a Venezuelan journalistic team of which El Estímulo is a member.


In the first 10 days of December, the price of the dollar rose 37.8% and last week the increase accelerated impressively. “In January 2022 the exchange rate was 4.98 bolivars and this Friday it closed at 18.26. We are talking about a 340% devaluation,” says economist José Manuel Puente. “It is overwhelming that this is happening,” he says.



This Friday, December 9, the cost of the currency oscillated between 17.77 and 18.58 bolivars per dollar among the accounts that are averaged to determine the parallel price.



The official exchange rate reported by the Central Bank of Venezuela (BCV) was 14.01 bolivars per dollar. This creates another problem. A gap between the official dollar and the parallel dollar that generates distortions in the economy.





Chavismo: blaming others


In response to the questions about the increase in the exchange rate, the Government took out of its repertoire a repeated shuffle: it is someone else’s fault, it said. There is speculation, he repeated. “Criminal dollar”, it was heard.


On Saturday, December 10, Nicolás Maduro broke the silence: “Facing the attack of the criminal dollar, I ordered the economic team to take measures in defense of the Official Rate, for a healthy trade that respects the rights of the people. We will guarantee a merry Christmas by defeating the mafias. Nobody will stop economic growth!”.



Chavista deputy Jesús Faría, president of the Economy and Finance Commission of the Parliament, had already made accusations about the increase in the price of the dollar a few days before. The culprits: “Actors with a lot of power” who seek to destabilize the country and who “activate and take advantage of these situations to put more pressure on financial speculation”.


In addition, the sanctions also came to light as being responsible for the escalation of the exchange rate. According to the parliamentary representative, the growth of the economy “demands a significant amount of foreign currency” which the State cannot access due to international economic sanctions.



Then, in the face of the external culprits pointed out by the Government, a solution that did not work in the past returned: price controls.


“The Government has adopted a set of decisions to establish maximum retail prices in more than 40 products of mass consumption of the population,” said Faría, without specifying products.


The ghost of the price control that was experienced for 3 years in Venezuela (2015-2018) and that generated widespread shortages of food and medicines revives in the country.





4 reasons that explain the escalation of the dollar price and point to the government as the responsible party


Neither sanctions, nor speculation, nor the powerful actors pointed out by the Government. Experts warn that the responsibility for the behavior of the exchange rate responds to structural issues that for more than a year have been hidden through injections of dollars to the national banks by the Venezuelan Central Bank.


These are the 4 reasons that disprove Chavismo’s discourse on the powerful actors that manipulate the price of the dollar:



1. The dollar is overvalued in Venezuela and the BCV is responsible for it.


The exchange rate has been maintained in a fictitious manner for a long time, below its equilibrium exchange rate. How? Through weekly injections of foreign currency by the Venezuelan Central Bank to the banking exchange tables.


We explain: As if by magic, Maduro’s government has been disappearing millions of dollars in front of our eyes. In theory there is talk of injecting foreign currency into the banking system, in practice it is burning dollars. It is as if the Government took part of the money that should be going into the international reserves, doused them with gasoline and threw a match at them. And thus, the money that was there no longer exists.


How does it do this? It simply transfers the foreign currency from the Venezuelan Central Bank to the accounts of the national banks so that they are in charge of placing this money on their exchange tables. In this way he increases the supply of foreign currency to pressure the price of the dollar downwards. With this he managed to keep the exchange rate stabilized for a while, although experts warned that it was not sustainable, and it was not.


The problem with this policy is that when there are not enough dollars to inject, the exchange rate will seek its equilibrium price. The last injection made by the banks was 60 million dollars on Monday, December 5. The aim was to contain the upward trend. But it was not achieved.



2. Spending is increasing


The price of the dollar responds to supply and demand. With foreign currency injections into the system depleted and public spending increasing, the logical inference is that the price of the exchange rate will increase.


“A greater execution of expenses in bolivars, due to payments to suppliers, advances of Christmas bonuses and executions that tend to occur at this time of the year, throw much more bolivars to the street, bolivars that have not been able to be compensated by the sales of foreign currency by the BCV”, said Giorgio Cunto, economist at Ecoanalítica and professor at the Ucab, in an interview with César Miguel Rondón.


Monetary liquidity is growing at an accelerated rate. In the week of November 25, the amount of bolivars circulating in the country rose 10.55% to 16,164 million bolivars.






3. Insufficient reserves and fewer dollars


The level of international reserves in the country has been plummeting. In fact, it is the lowest in the last 35 years. “This means that the Venezuelan Central Bank does not have the dollars in reserves to be able to defend its exchange rate policy”, pointed out José Manuel Puente.


For Luis Arturo Bárcenas, from Ecoanalítica, the fragility of the Venezuelan exchange rate environment is explained in a graph: “Despite the lower disbursements of the public sector (blue line) and the higher placement of securities by the BCV (orange line), the unofficial exchange rate continues to rise. The reason: less foreign currency (grey line, approx.)”.





4. Inflation outpaces the rise in the dollar


A phenomenon occurring in Venezuela is that inflation has been increasing more than the exchange rate. This, caused by the injection of foreign currency into the system by the BCV to fictitiously maintain a lower price of the dollar, causes the market to try to readjust itself, even increasing the cost of goods and services in dollars, which is why importing is cheaper than producing in the country.


“When you have an inflation differential between your economy and the rest of the world, your exchange rate undergoes a process of appreciation in the nominal exchange rate and your only adjustment variable is devaluation,” explained José Manuel Puente.



Image

Source: BCV



The problems caused by the increase in the price of the dollar


In a mostly poor country, the increase in the price of the dollar generates more poverty. The most affected are those who receive salaries in bolivars, pensioners and public workers. So far this month, more than 40% of the salary in bolivars has disappeared. In view of this crisis, the interest of the population to quickly exchange bolivars for dollars is increasing, which again puts pressure on the dollar. An endless vicious circle.


In addition to this, the business sector is also being affected. Forced to charge for products and services at the exchange rate determined by the Central Bank, businesses are suffering from the gap that is widening between the official exchange rate and the parallel dollar.





“In the last few weeks the BCV has had difficulties in procuring foreign currency to feed the exchange system and the official dollar has lagged behind in the parallel markets with a differential of more than 25%, which is very significant”, warned Puente.



To get an idea, if a business charges 100 dollars in bolivars at the official exchange rate, it could only buy 74.5 dollars in the parallel currency market.



“We reiterate that the most worrying aspect of the current rise in the exchange rate is the huge gap between the parallel and the official exchange rate, which reached the maximum of 2022 (27.7%),” assured the data company Albusdata.





What can businesses do?


Economists’ advice to business owners is clear. Inventory should be taken care of, even if sales are lower.


“There is no way to come out unscathed from such an aggressive episode of devaluation as the current one, but it is key for your company to protect its inventory (and replenishment) even if that means a lower sales rate in the short term,” said Asdrúbal Oliveros.




The ghost of price controls and the accelerated escalation of inflation and the exchange rate are back, so the advice given at that time is back.


This is what economist Luis Oliveros points out: “It is time to dust off the tweets-presentations-mails-advice from the times of the HI: piles with the inventory, structure the coverage, check prices, be careful with the CxC, try to pay everything in Bs, do not be paralyzed, etc. Venezuela is an eternal economic Loop”.




Asdrúbal Oliveros, recommends 5 steps to manage a company in this scenario:



  • In your decision making go into crisis mode, this means that you have to act differently from normal.
  • Evaluate the financial options and choose the lesser evil. A significant devaluation generates losses. You cannot avoid it, but you can minimize it.
  • Allow information and communication to flow in your team. The worst thing that can happen is that your people don’t know what to do.
  • Avoid making decisions that have a long-term impact. The crisis will pass, but what you decide may not.
  • In a country like Venezuela, there is no expensive dollar. Many have forgotten this.



This work is part of the deliveries of the Coalición Informativa “C-Informa”, a Venezuelan journalistic team that aims to confront disinformation and is integrated by Medianálisis, Efecto Cocuyo, El Estímulo, Cazadores de Fake News and Probox with the support of the Consorcio para Apoyar el Periodismo Independiente en la Región (CAPIR) and the advice of Chequeado from Argentina and DataCrítica from Mexico.

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