Regional Treasury: Treasurers Try to Make Sense of Latest Venezuela Rules

February 10, 2014

The prickly LatAm country continues to demand a lot of attention of treasurers.

Venezuela continues to take up proportionally more time and effort for less than proportional rewards. That’s according to the consensus of a recent NeuGroup Latin American Treasury Managers’ Peer Group (LATMPG) meeting.

A steady decline in economic growth, business-unfriendly government, slowing oil revenues and tight FX controls make for disappointed treasury folks. A devaluation was expected in early January and two scenarios seemed likely beforehand:

  1. Official exchange rate will be established at 11 and the SICAD will be moved up to 16. The new official FX will only be maintained for food supply and medicines. SICAD is an auction system created in 2013 that sets a de facto upper limit on how much bidders can pay for dollars.
  2. Official exchange rate could be maintained at 6.3 but only for certain goods/products included in one list, and for direct imports executed by the Government.

And on January 23, rather than a devaluation announcement, FX rules were changed such that travelers, e‐shoppers, some importers and airlines, among others, were no longer eligible to purchase dollars at the official 6.30 rate, but would instead need to buy on the SICAD weekly auctions, the allocations for which were to increase to $220 million per week (Sicad rate is around 11.3).

Already high, the black market rate went higher still and hit the high 70s (the PPP rate is estimated to about 14-20), while shortages of basic goods remained, and price controls by way of rules limiting profits keep merchants in check.

A couple of LATMPG members kicked off the discussion with the topic of Cadivi approvals, or lack thereof. The concern, generally, is increased overall risk to companies and worry about whether the government will ever be able to clear the debts that have accumulated.

  • New Sicad rules – how will it work? Not a lot is clear about how the new Sicad market will work. As information and guidance becomes available, we will endeavor to update our readers.
  • Meanwhile, what FX rate to use for converting financials to USD? The dilemma with the “devaluation by any other name” is that the accounting rate stays at the official rate and unless companies can reliably transact on the Sicad market, using that rate is not appropriate, according to PwC among others.
  • Where to put the cash? With banks refusing deposits above a certain level, companies need accounts with as many banks as possible to spread it out. This may not meet policy on counterparty risk but, as members agreed, the counterparty risk is the government anyway at the end of the day. Lending to other companies is a possibility but surprisingly competitive: don’t ask for collateral or too high a rate or you will get outbid.

The time-suck of Venezuela’s enduring mysteries continue.

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