Venezuela’s Sicad II gets tentative thumbs up
New forex regime in Venezuela, which decriminalizes parallel market transactions, viewed positively
Sicad II, Venezuela's new foreign exchange regime, has been
greeted with cautious optimism by analysts who say it could cut
The new law, announced last week, makes it legal to buy and
sell dollars privately. It is likely to result in a much-needed
devaluation of the Venezuela bolívar, analysts said.
Sicad II allows public sector institutions to sell dollars
at a higher price than the official rate of 6.3 VEF, according
to Barclays analysts. The probability success in the new regime
was "high", they said.
"The appreciation of the non-official exchange rate is an
important step in reducing the major problems of the economy,
such as balance of payments concerns, the high level of
scarcity, and the excess liquidity held by the financial
system, which is clearly pressuring prices."
The new forex regime could result in an average exchange
rate of 25 to 40 VEF to the dollar, a devaluation of 43% to
57%, according to economists at Bank of America Merrill
That could lower the 2014 deficit to 9.2% to 3.2% of GDP -
from around 14.4% at the current average exchange rate of 14.7
VEF to the dollar - the analysts said. The average exchange
rate blends the official and black market rates.
They cautioned, however, that many details were still to be
"The law does leave the specifics of these transactions to
be set out in further regulations to be published in coming
days. In principle, it is not hard to imagine that these
regulations could place severe limits on participation, making
it into simply one more tier of the exchange controls system."