“The great gap” between the official dollar and the parallel dollar in Venezuela increases before Christmas

The difference between the official exchange rate and the price of the dollar in the parallel markets in Venezuela is accentuated. This “large gap,” considered the highest this year, creates “distortions” in the economy a few weeks before the Christmas holiday season, experts say.

Exchange control has been in force in Venezuela from 2003 to date, during the socialist governments of Hugo Chávez and then under the mandates of Nicolás Maduro, amid phenomena such as high inflation and up to 3 monetary reconversions.

After 9 months of relative moderation and stability, the currency market in the country began to experience shocks at the end of September, until there was a price difference close to 25% between the so-called official dollar (41 bolivars per unit) and the parallel. which this Monday closed again at close to 50 bolivars for every US dollar.

Gustavo Machado, Venezuelan economist and university professor, specifies that the official exchange rate has increased at a weekly rate of 1 bolivar per dollar, essentially due to the insufficient foreign currency to satisfy the country’s economic agents and the increase in public spending to pay end of year bonuses.

However, the millions of pensioners and public sector workers, including teachers, doctors, nurses and university professors, are not part of the sector with surpluses in bolivars to “increase the demand for foreign currency” in the country, he notes.

These bolivars end up “under the control of economic agents with the capacity” to accumulate them and direct them to the exchange market, causing the price of currencies to rise in both markets, the official and the parallel, due to the lack of supply of dollars, he explains.

Market distortions

This exchange rate situation translates not only into the increase in prices in Venezuela, but also into very particular anomalies in commerce and the administration of the family budget, explain the analysts consulted by the Voice of America.

Goods and services companies that are governed by the official rate tend to increase their prices by percentages similar to the daily gap between the regular and parallel dollars. For example, if a product costs 100 dollars, they now offer it for 120 or 125, or its equivalent in bolivars, always according to the price of the Central Bank.

According to the Central Bank of Venezuela, the accumulated inflation between January and September of this year is 12.1%, after last year it closed at 189.8%. The South American country went through a hyperinflationary cycle for more than four years between 2017 and 2020, experiencing official peaks in its price index of up to 6 digits, as in 2018, with more than 130,000%.

This October, analysts warn that those who have dollars sell them in the parallel market and accumulate more bolivars to buy in businesses that are regulated by the official rate. Thus, they can make their money go up to 20% more than if they paid directly with dollars, they explain.

All these strategies are nothing more than “distortions,” he assures the VOA the Venezuelan economist Manuel Sutherland.

In his opinion, the official price of currencies in Venezuela has “a strong lag” and is an exchange rate “appreciated” by the government, which usually injects millions of dollars into the market from its oil businesses to maintain its stability. This is what independent researchers and economists call “dirty” currency interventions.

Other retailers have begun charging for their products in euros, a currency that is officially valued at about 10% more than the dollar.

There are also merchants who, under the risk of being penalized, do not sell in bolivars, citing inventory difficulties.

In addition, there are companies with dollars in hand that now prefer to sell them according to the prices of the parallel rate to pay their employees in bolivars.

“People lose money”

Sutherland, director of the Center for Workers’ Research and Training (CIFO), values ​​that petrodollars “are irrelevant to the true productivity of the economy and tend to overvalue the exchange rate,” making the local industry less competitive.

The “gap” between the two rates causes ordinary people to “lose money,” “destroys profit and reinvestment possibilities” for entrepreneurs, and fuels an arbitration that disfavors multiple agents at some point in the economic chain, he says.

“The policy of anchoring the exchange rate to an appreciated price to contain inflation has failed thousands of times in Venezuela, it does not make solid economic sense and is linked to a double policy of credit and tax asphyxiation,” he says.

Henkel García, financial analyst and director of the Albusdata firm, indicates that the difference between both exchange market rates “is a clear sign” that the supply of foreign currency is insufficient on the eve of the end of the year.

Another of the difficulties for businessmen is to replenish inventories with referenced prices according to the Central Bank of Venezuela with such a “large” exchange gap.

“It is an immense discomfort,” he says, in reference to the measures of both Venezuelan businesses and consumers to face the exchange rate situation.

“Consumers get upset. It is survival for businessmen, for the most part,” he points out. The government of Nicolás Maduro has considered the parallel dollar to be “criminal” and has sanctioned speculators for years with closures and fines.

García also emphasizes that 10 dollars is equivalent to just over 400 bolivars according to the official rate, while that same amount would be close to 500 bolivars in the parallel market.

“Paying in dollars doesn’t make much sense” these weeks, he points out. Likewise, since last year, a tax on payments in dollars of 3% of the total amount has been in force.

The exchange situation coincides with a political crisis after the presidential elections in July. Officially, Nicolás Maduro won his re-election, but the opposition denounced fraud and presented copies of the voting records to show that he won with more than 36 percentage points of difference.

The National Electoral Council did not present evidence or details of the disaggregated vote in each electoral center in the 24 regions of the country, demanded by dozens of governments that refuse to recognize the victory of Chavismo without independent verification of that data.

Maduro is scheduled to assume a new 6-year term starting January 10, 2025. Opposition leaders say Edmundo González Urrutia, the opposition candidate, exiled in Spain, should take office then.

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