Venezuela Bolivar Near 5-Month Low Vs Dollar In Black Market

CARACAS (Dow Jones)--Venezuela's bolivar dropped toward its lowest level against the dollar in five months in unregulated trading Monday as traders said local companies began losing hope of getting the greenbacks they need at the cheaper, official rate.

A dollar was fetching about 6.45 bolivars in Venezuela's black, or so-called parallel market Monday, traders said, adding that the rate was very close to levels unseen since August. Some Web sites that track the unregulated market were quoting a rate of VEF6.52 per dollar Monday afternoon, which would be the bolivar's weakest level since Aug. 21, when it was at VEF6.54 for $1.

The government of President Hugo Chavez devalued the currency's official, pegged rate by half in early January, to VEF4.3 per dollar from VEF2.15 per dollar.

In doing so, the government indicated this would give it the ability to provide more local firms with the dollars they need at the official rate, and thus would reduce the need for black market trading.

"For the past month, there's been a wait-and-see attitude on the part of companies," said Russ Dallen, a trader at Caracas-based BBO Financial Services.

But, Dallen said local firms, many of which need hundreds of thousands of dollars at a time to pay for everything from auto parts to tires to foods that aren't made or processed in Venezuela, are having little luck meeting all those dollar needs through official channels.

As a result, they are once again being led back to the parallel market, which is driving up dollar demand and pushing down the value of the bolivar.

-By Dan Molinski, Dow Jones Newswires; 58-414-120-5738; dan.molinski@dowjones.com
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CARACAS (Dow Jones)--Venezuela's bolivar dropped toward its lowest level against the dollar in five months in unregulated trading Monday as traders said local companies began losing hope of getting the greenbacks they need at the cheaper official rate.

A dollar was fetching about 6.45 bolivars in Venezuela's black, or so-called parallel, market Monday, traders said, adding that the rate was very close to levels unseen since August. On Friday, the bolivar was at about VEF6.3 per dollar.

Some Web sites that track the unregulated market were quoting a rate of VEF6.52 per dollar Monday afternoon, which would be the bolivar's weakest level since Aug. 21, when it was at VEF6.54 for $1.

The government of President Hugo Chavez devalued the currency's official pegged rate by half in early January, to VEF4.3 per dollar from VEF2.15 per dollar.

In doing so, the government indicated this would give it the ability to provide more dollars at the official rate to importers and other firms, which would help convince those companies to stop going to the black market for their foreign-currency needs.

"For the past month, there's been a wait-and-see attitude on the part of companies," said Russ Dallen, a trader at Caracas-based BBO Financial Services.

But Dallen said importers, many of which need hundreds of thousands of dollars at a time to pay for everything from auto parts to tires to foods that aren't made or processed in Venezuela, are having little luck meeting all those dollar needs through official channels.

As a result, they are once again being forced back to the parallel market, which is driving up dollar demand and pushing down the value of the bolivar.

Analysts also say the bolivar's weakness is a simple result of the devaluation itself, which has caused many ordinary Venezuelans to lose confidence in their currency and seek out greenbacks in exchange.

The higher demand for dollars comes despite another $40 million bond auction Monday by Venezuela's central bank, the sixth such auction this year. The sales have been aimed specifically at driving down dollar demand in the parallel market and providing strength to the bolivar.

The 90-day, zero coupon bonds were priced at 112%, meaning that local investors that purchase them would buy dollars at a rate of 4.8 bolivars, according to estimates from Caracas-based research firm Ecoanalitica.

That rate is higher than the official VEF4.3 rate but well below the current price for dollars in the so-called black market.

Given that the dollar continues to strengthen despite those bond sales, which will be paid for from the country's foreign reserves, some analysts say the bolivar's weakness could accelerate if the government decides to halt the auctions.

The bolivar certainly has room to weaken more, as its weakest level last year came in April, when a dollar was fetching as much as 7.10 bolivars for $1 in the black market.

While the main official rate was devalued to VEF4.3 per dollar last month, the government also set up a second official rate of VEF2.6 per dollar for "essential items" such as medicine.

Spanish firm Telefonica SA (TEF) indicated last week that it had received approval to get the more advantageous VEF2.6-per-dollar rate for profits it hasn't repatriated yet.

-By Dan Molinski, Dow Jones Newswires; 58-414-120-5738; dan.molinski@dowjones.com