MNCs selling essential goods in Venezuela will now get less for them.
Almost a year after implementing it, Venezuela eliminated its two-tiered foreign exchange system that gave preferential treatment to certain goods. This follows a similar move introduced in January 2010 when Venezuela devalued the bolivar from 2.15 to 2.60 for goods like food, medicine. But starting today the government says the rate will be 4.6 bolivars for those preferential goods.
SITME (which replaced the old parallel market in June – see related story here) remains in place with an implicit rate of 5.30, but with strict limits on tradable amounts.
This latest devaluation along with other events that have taken place over the last year in Venezuela – bond sales, etc – will likely be fodder for lively discussions when members of The NeuGroup’s Latin American Treasury Manager’s Peer Group meets later this month (January 19-20). What this means for foreign corporations doing business in Venezuela is that they will now have to buy US dollars at the 4.30 rate even for essential goods vs. the preferred rate of 2.60 that they used to get through CADIVI. The question is: how many essential goods will the continue to choose to sell at these exchange rates? How the devaluation will affect Venezuela bondholders and the use of bonds to swap currency is also a question.
Many observers and news reports thought the Venezuelan government would make some sort of move in 2011, which means only the timing caught a few off guard. “We were expecting Venezuela to devalue sometime in 2011 so maybe just the timing was a bit of a surprise,” said one treasury manager whose company does business in the region.