Maduro approves $900 mln for Venezuela currency auctions

October 11, 2013


By Daniel Wallis and Diego Ore

CARACAS, Oct 10 (Reuters) - Venezuela raised the amount of dollars to be auctioned by the central bank to local businesses via a complementary foreign exchange system, and the president said on Thursday that such sales could now be held every week.

The economy has become a major challenge for President Nicolas Maduro, who faces dollars trading on the black market for seven times the official rate and annual inflation that hit almost 50 percent last month.

The central bank says it has allocated a total of $859 million to importers over the last seven months through four auctions of the new foreign exchange mechanism, known as Sicad, which was set up to complement decade-old currency controls.

Maduro said on state TV he had approved $900 million for the auctions, $100 million of which would be available immediately.

"I just approved ... the release of $900 million, as an extra effort, in order to invest all the weeks that come. From today, they are going to inject no less than $100 million in the Sicad system," the president said.

The auctions are aimed largely at local businesses who complain that lack of access to dollars has caused shortages of consumer goods ranging from flour and car parts to toilet paper.

Trade groups representing business sectors given priority to receive funds in the Sicad auctions so far say they have no idea where most of the $859 million went.

The government says currency controls - a cornerstone of Venezuelan economic policy since 2003 - have been exploited to the tune of billions of dollars by shell companies claiming fictitious exports.

Set up by Maduro's predecessor Hugo Chavez to stop capital flight and inflation, the controls offer big profits for anyone who can buy dollars at a preferential rate and then resell them for about seven times more on the black market.

Speaking earlier on Thursday during a televised meeting with the army's high command, Maduro had appeared suggest the central bank could auction $900 million a week via Sicad if needed.

"The dollars the fatherland needs to function are completely guaranteed, without problems, up to Dec. 31," he said, drawing loud applause from his uniformed audience.

"If it goes beyond that, I've decided, perfecting Sicad, to offer via Sicad an amount of not less than $900 million a week to complement whatever needs the economy might have."

Market players said that figure sounded high, given that it was roughly equivalent to the OPEC nation's total oil income. On the other hand, $100 million was much less than what was needed.

"You have a market starved for dollars because of the lack of Sitme (a defunct currency auction system) and Sicad supply this year, and demand for dollars for Christmas imports, Christmas vacations and bonuses," said Russ Dallen, head trader at Venezuela investment bank Caracas Capital Markets.