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Dollar on the black market surpassed the barrier of 100 bolivars in Venezuela

Dollar on the black market surpassed the barrier of 100 bolivars in Venezuela

Posted by Dubraswka Aguilar on September 27, 2014

The plummeting Venezuelan currency breached a new, symbolic low of 100 bolívares per dollar on the black market Friday, according to market-tracking websites, in a sign of the worsening greenback shortage faced by President Nicolás Maduro's government.

Economists say the bolívar is collapsing as Venezuelans clamor for dollars to protect themselves from an inflation rate topping 60%. But the government, which tightly restricts access to dollars, has cut the supply this year, prompting the value of the bolívar to plunge in unofficial street transactions.

The lack of dollars—evidenced by mounting debts with private companies such as airlines and importers that service the country—has sparked fears of a potential default, since the country has more than $6 billion in bond payments due over the next three months.

The bolívar dropped to 100.7 per dollar Friday, according to DolarToday.com, a website that tracks Venezuela's parallel market, where individuals and businesses go when they are unable to buy hard currency through strict government regulations. That makes 100-bolívar note, the largest bill printed by Venezuela's central bank, the equivalent of $1. A greenback fetched around 40 bolívares on the street a year ago.

Venezuela's government has three different exchange rates for the dollar with the cheapest greenbacks made available at 6.3 bolívares to importers of priority goods like food and medicine. A currency market that sells dollars for 50 bolívares was introduced earlier this year in a bid to contain the black-market rate but has so far failed to do so.

The weakening has led some analysts to note ironically that the currency's official name is the "Strong bolívar," ever since the government introduced it in 2008 after slashing three zeroes off the previous currency.

 "The bolívar is strong when the people have confidence in it but people clearly haven't had confidence in it for decades; and even less now," said Henkel Garcia, director of the Caracas-based business consultancy Econometrica.

Polls show President Maduro's popularity has dropped this year, with the country plagued by shortages of basic goods ranging from motor oil to pain medications as dollars for imports go scarce. And despite frequent promises to correct Venezuela's economic woes, analysts say the government has so far failed to deliver meaningful measures.

"It doesn't look like the market has much confidence in the government's ability to get things under control," said Russ Dallen, partner at brokerage Caracas Capital Markets.

Venezuela's central currency board, known by its abbreviated name Cencoex, offered nearly 30% fewer dollars to the local economy in the first half of this year at its most-subsidized exchange rate, compared with the same period in 2012. The government hasn't published data on its dollar sales for 2013.

The central bank's international reserves meanwhile are down 29% to $21 billion since the start of 2013.

Mr. Maduro and his allies say the bolívar's weakening on the parallel market is part of a so-called "economic war" waged by capitalists trying to destabilize his Socialist government.

Distortions in the economy mean that the government will need to devalue the currency this year, analysts at risk consultancy Eurasia Group said, by selling more dollars at the weakest of its three exchange rates. Such a move could help boost dollar supply while also allowing the state to rake in more bolívares for each dollar that it sells and plug its fiscal deficit.

But an official devaluation carries political risks as it is likely to exacerbate inflation, which is already the highest in the Americas.

"The government is highly unlikely to undertake a large enough devaluation that would materially impact demand for dollars and imports, which means that politically sensitive goods scarcity and a high demand for dollars will persist," Eurasia said.

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