Venezuela’s Bolivar Rises as Rodriguez Presents Plan (Update1)

By Matthew Walter

Aug. 18 (Bloomberg) -- Venezuela’s bolivar strengthened in unregulated trading after Finance Minister Ali Rodriguez said he plans to close the gap between the parallel and official exchange rates.

The bolivar gained 0.7 percent to 6.75 bolivars per dollar at 2:10 p.m. New York time, paring its loss this year to 16 percent. Rodriguez said in a statement yesterday that he’s presented a plan to President Hugo Chavez that would reduce the “imbalance” in the parallel rate, which trades 68 percent weaker than the official government-set rate of 2.15 per dollar.

“They are going to do something,” said Nelson Corrie, head trader at Caracas-based Interacciones Casa de Bolsa. “The parallel market should strengthen a bit.”

The spread between the official and parallel markets “has risen to levels that require action,” Rodriguez said in the statement. The statement didn’t say what the proposed measures are.

Venezuela’s government controls the supply of dollars at the official exchange rate under restrictions Chavez imposed in 2003. He last devalued the official rate in 2005, pushing it down 11 percent. Venezuelans who don’t get government authorization to buy dollars at the official rate turn to the parallel market.

Chavez may be considering measures including dollar auctions at the central bank or the sale of dollar-denominated securities to local investors, Corrie said.

Chavez may look to devalue the pegged exchange rate, which would give the government more bolivars for every dollar of oil it exports, said Boris Segura, a senior economist at RBS Securities Inc. in Stamford, Connecticut.

Devaluation

The price of oil, which has rallied 103 percent since bottoming out in February, is still down 53 percent from its record in July 2008. Oil accounts for more than 90 percent of Venezuela’s exports.

“If they devalue, the fiscal prospects improve,” Segura said. “If they don’t devalue the official exchange rate, we’re going to go to a dual-exchange rate, formalizing the current arrangement.”

Rodriguez said June 27 the government can’t rule out weakening the exchange rate at some point, which would lead to faster inflation.

In July, annual inflation accelerated to 28.3 percent, the highest rate in the Americas.

To contact the reporters on this story: Matthew Walter in Caracas at mwalter4@bloomberg.net

Last Updated: August 18, 2009 15:40 EDT

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