President Hugo Chavez vows that his Bolivarian revolution is going to tame the parallel currency market in coming days.
Speculators are going to get hammered, Chavez threatened today. His exact words, in Spanish: “A los especuladores del dólar le vamos a dar en la madre, escríbelo así, en la madre.”
The swap (“permuta”) Bolivar (BsF) closed today at BsF 8.20 to buy dollars.
The Chavez regime reportedly plans to shut down the “permuta” market by making two amendments to the Ley de Ilicitos Cambiarios:
*All government debt bonds (including Pdvsa debt) will be defined as “cash” subject to prior Cadivi authorization;
*The Central Bank of Venezuela (BCV) will have sole decision-making power over all hard currency transactions, which means that Cadivi would become wholly dependent on the BCV.
These proposed reforms, if approved by the National Assembly, would have some immediate consequences:
*The legal swap market, where currency traders and corporate/individual clients generally know who they are doing business with, will vanish and be replaced by a black market where cash transactions would be the norm.
*The black market exchange rate will devalue very significantly with respect to the current swap market rate of BsF 8.20/$. Currency traders based in Panama, Colombia and the Netherland Antilles – and in Miami’s “grey” financial market – will be important actors in this black market. But there also will be a local black market where regional drug traffickers will launder some cash.
*Multinationals and local companies that cannot obtain dollars for imports legally through Cadivi or the existing “permuta” market will face tough choices: A) break the law by going to the black market; B) break the law by bribing Central Bank and Cadivi officials to get needed currency authorizations; C) reduce or shut down local production completely; D) reduce or suspend imports; E) ask the regime to expropriate their assets and hope for a few crumbs of compensation.
*Inflation now averaging 30.4% for the year ending on 30 April, 2009 likely will jump to over 50% before end-2010 as shortages of everything increase rapidly. As shortages increase, the odds also will grow that the regime could institute policies to ration food, medicines and other goods.
*More corruption, of course.