Experts: Venezuelan merchants will pay to curb dollar speculators


"It was decided to index the credit and the interest rate with the exchange rate, because everyone who is going to ask for credit, mostly, if not in its entirety, acted as receivers of credits to buy dollars, and will no longer have that stimulus, because at the time of paying the credit its speculative gain in the foreign exchange market will be diluted, that applies to legal persons, "said Jesus Faria, an economist who is a member of the Finance Commission of the National Constituent Assembly (ANC).
As stated by the Venezuelan Government, a sector, specifically legal / commercial, was asking banks for loans to buy dollars.
"You ask for a loan in bolivars, you buy dollars and when the bolivar is devalued you sell the dollars, you pay the credit and you have a speculative gain, and under that premise the Government makes the decision to:" we will burn the hands of the speculators " , explained in an interview with Sputnik, Leonardo Buniak, master in international economics, specialist in international finance, strategic planning consultant and bank risk qualifier.
The problem, Buniak questioned, is: "How many people ask for money to buy dollars? What about the real sector of the economy? What about the small and medium-sized business that does not speculate in the foreign exchange market?" .
Faria, who between 2016 and 2017 served as Minister of Foreign Trade of Venezuela, explains that resolution 41,742 of the Central Bank of Venezuela is aimed at correcting a problem that affects all sectors of the national economy: unbalanced dollar fluctuation.

The economist considered that no policy to stop this alteration could be executed without a collateral effect.

"In a situation as complex as the one in the country, you will never get any decision or some policies that try to correct something and have no collateral effects, in this case the real traders or investors, but those collateral effects will have to be corrected by other policies, "he said.

The economist and doctor of management of the Central University of Venezuela, Andres Giussepe, former deputy of the Latin American and Caribbean Parliament (Parlatio) in the period 2000-2005, said that the indexation of credits becomes unfeasible for those who need money to buy machinery or generate jobs.

Indirect dollarization?

Giussepe said that this type of measures only promotes dollarization, since he maintains that a merchant will not request a loan in bolivars, to be charged in dollars, if his product is traded in the local currency, taking into account its accelerated devaluation and the impossibility of generate a fluctuation calculation in the future.
"Therefore, this decision of the Central Bank is an indirect dollarization, taking into account that it is an economy that is totally volatile, with an unprecedented exchange volatility in the world and that makes it very risky to dare to ask for a loan, unless the merchandise is sold in dollars, "he said.
Faria debates this opinion, and considers that indirect dollarization is already under way and not because of the measures taken by the Central Bank of Venezuela (BCV), but as consequences of the sanctions that the United States Government has applied to its country since 2017.

"The issue of dollarization is progressing, that is like another line in a tiger, and dollarization will not be reversed if that decision is stopped, it is a reality, and that reality you have to compose in a way progressive, because there are no magic wands to solve them, "he said.

In addition, he points out that the objective of this measure is to discourage the actions of the groups engaged in exchange rate speculation, and to recognize that it may not be fully achieved, "but it is what you want."

Indexed Credits

The Central Bank of Venezuela did not offer details on how many entrepreneurs were using these credits to obtain speculative gains in the foreign exchange market, but said the measure seeks that the credits be used for productive activities.
"Taking into account that we are not in a normal economy and many people used bank credit to buy currencies and not to generate production and that caused the dollar to skyrocket to the levels we have had (…) now the credit will be for activities productive and to defeat the economic war, "said Jose Javier Morales, president of the state Bank of Venezuela, about this measure.
The Central Bank authority was not available to declare this agency, but during a conference reviewed by the deciphered web portal, it indicated that according to how this resolution works the national financial entity will review the legal reserve policy for the bank to lend money and do your financial intermediation work.

The BCV announced the first increase in legal reserve in October 2018, when it went from 21.5% to 31%; and in January of this year it rose again to 57%, its increase reduces the resources that the bank can allocate to credits and withdrawals from the public fund in order to generate a reduction in monetary liquidity (amount of money available in bolivars) , as explained by the authorities.
This adds to the increase in the marginal legal reserve, which went from October 2018 from 31% to 40%, and in December of that year to 50%, and closed in February 2019, at 100%.
The purpose of these measures, as indicated by the BCV, was also that companies do not apply for loans taking advantage of low bank interest rates and hyperinflation, to buy currencies at the parallel rate, but for Buniak this The measure only had a debilitating effect on banks.

Squalid Bank

Therefore, in his opinion, the Government was forced to launch a lifeguard to the public and private banks for the imminent bankruptcy of many financial institutions, before the process of financial "dwarfism or rickets" that this sector suffered in the midst of hyperinflation and hyperdevaluation.

"This is a lifesaver, because there were going to be bankrupt banks, they were happening with public and private banks alike; the banking system is extremely sensitive, what was wanted to be avoided (the government) was to stop the extinction in foreign currency to securities constant of the bank's credit portfolio, "he said.

Although banks will now have to manage credit risk in more detail, Buniak explained, the bailout is that it is allowed to have a value of dollars in the loan portfolio.
"That is, if tomorrow the dollar rises and my credit portfolio is not going to fall, now my credit is indexed to the dollar," he said.

Giussepe, on the other hand, considered that stimulating the loan portfolio and taking measures to favor banking is to support a sector that, in his opinion, does not act for the benefit of the country.

"If the government wants to stimulate credit, what is being stimulated to the speculative banking sector, that has never invested in Venezuela"he said.
However, Faria explained that banking is vital for the operation of the country, so his opinion is that a balance must be found for its existence.
"The bank is necessary for an economy and if the bank disappears, if the financial intermediation disappears, we are very bad, what happened now ?, it happened that no loans were being given, because the Central Bank of Venezuela had an absolute fit of all the resources, because I wanted to prevent money from flowing into the exchange market, now whoever borrows to get into the exchange market and speculate, is going to have to pay all his profit at the end, "he added.

This measure, for the constituent, is attached to others, which in the midst of a scenario that defines economic warfare, are necessary to cope with the hyperinflation facing the country since November 2017.
For its part, the banking risk specialist, Leonardo Buniak, believes that hyperinflation and the regulation of the price of the dollar will not be achieved through these types of measures.
Buniak stressed the need for "return its autonomy to the BCV", to protect the bolivar so that" it stops financing the deficit management of the Government "and the bimonetary economy, which maintains the circulation of the dollar and the bolivar with great differences, is stopped.

Meanwhile, for Giussepe it is necessary to control inflation and create competition from other currencies with the dollar.

"The dollar is the one that is hurting us, I have been proposing that a complementary exchange system be generated, as was done at the end of the 80s", something that for Buniak and Faria is not the central point of the problem facing the economy Venezuelan

In this scenario, the forecasts of the International Monetary Fund (rejected by the Venezuelan Government), remain discouraging and point to an economic contraction of 35% and an inflation of 200,000% by the end of 2019.
Given these perspectives, the Venezuelan president, Nicolas Maduro, called for a cessation of the financial blockade executed by the United States, a country that demands his resignation as head of state, as a condition to lift the sanctions that have intensified since 2017, and which mainly aimed at the sector oil, main source of income.

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