Sun | May 28, 2017

Businesses in Venezuela quietly dollarise

Published:Wednesday | May 27, 2015 | 5:00 AM
President of Venezuela, Nicolas Maduro. (AP Photo/Ariana Cubillos, File)

It's still possible to buy a gleaming Ford truck in Venezuela, rent a chic apartment in Caracas, and snag an American Airlines flight to Miami. Just not in the country's official currency.

As the South American nation spirals into economic chaos, an increasing number of products are not only figuratively out of the reach of average consumers, but literally cannot be purchased in Venezuelan bolivars, which fell into a tailspin on the black market last week.

Businesses and individuals are turning to dollars even as the anti-American rhetoric of the socialist administration grows more strident. It's a shift that's allowing parts of the economy to limp along despite a cash crunch and the world's highest inflation. But it could put some goods further out of reach of the working class, whose well-being has been the focal point of the country's 16-year-old socialist revolution.

The latest sign of an emerging dual-currency system came earlier this month when Ford Motor Company union officials said the company had reached a deal with officials to sell trucks and sports utility vehicles in dollars only.

A few weeks earlier, American Airlines announced that it had stopped accepting bolivars for any of its 19 weekly flights out of Venezuela. Customers must now use a foreign credit card to buy the tickets online. Virtually all other foreign carriers have made the same switch with the government's consent, according to the Venezuela Airlines Association.

Driving the shift is the crumbling value of the bolivar, which has lost more than half its value this year, plunging to 400 per US dollar on the free market as Venezuelans scramble to convert their savings into a more stable currency. Desperate, people are selling bolivars for a rate 60 times weaker than the strongest of country's three official exchange rates.

It's a politically uncomfortable situation for President Nicolas Maduro, who regularly leads chants of "gringo go home" and says currency speculation is one of the main tools used by enemies to try to sow chaos and force him from power.

It's not just businesses chasing greenbacks. Real estate contracts are still drafted in bolivars to satisfy a requirement imposed by late President Hugo Ch·vez, but in upscale neighbourhoods most owners operate outside the law and sell and rent in dollars only. A group of realtors in tony eastern Caracas has established a password-protected website for listings in dollar prices.

Analysts say the administration likely sees a limited dollarisation as the only way to prevent multinationals from leaving the county altogether, as Clorox did last year, citing problems brought about by decade-old currency controls, supply shortages and inflation that hit 68 per cent last year, and economists believe is now well into the triple digits.

Production at Ford has fallen by 90 per cent as the company struggles to gain access to dollars needed to import parts. Customers will now transfer Ford dollars in advance to pay for the import of the parts needed to assemble the cars in Venezuela, according to union officials.

Foreign airlines made their switch to dollars after the government refused to let them convert and repatriate nearly US$4 billion worth of profits held in the country.

Meanwhile, inflation is racing so fast that ATMs have failed to keep pace. Many deliver a maximum of just US$1.50 worth of bolivars per transaction. Some shoppers stay away from cash altogether, according to reports in local media, leaning more heavily on credit cards so they can pay for purchases later, when they'll cost less in dollar terms thanks to inflation.

Decade-old price controls make staple items ridiculously cheap for all Venezuelans. A bottle of vegetable oil costs 20 cents at the black market rate, a package of rice costs half that, and a sack of sugar costs even less.

The move toward currency substitution doesn't sit well with hardcore government supporters, many of whom cut their political teeth listening to Ch·vez's tirades against the "dictatorship of the dollar".

"How is it possible that in the face of the US effort to sabotage the revolution, we are allowing transnational companies to conduct business with the imperialist dollar in our country?" wrote Omar Hernandez, an engineer who works with Chavista community programs, on the influential pro-government website Aporrea.

But outside economists say Maduro would be wise to embrace the dollar outright.

Steve Hanke, a Johns Hopkins University economist who has long advised governments facing currency crises, says replacing the bolivar with the dollar would nip Venezuela's inflation problem almost overnight and become an anchor of economic stability, though it could also force austerity measures.

He points to the example of Maduro ally Rafael Correa in Ecuador, who has railed against the US during his eight years in office but has so far shown no desire to bring back the old national currency, which the country did away with in favour of the dollar.