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WHY NOT LOWER THE EXCHANGE?

The answer to this question has two components: the first is the amount of dollars available in the market to buy and the latter are the expectations of investors about the country's political conflict.

tenders offered by the Central Bank in the last two weeks have not been sufficient to meet the demand for foreign investors and to consider that the country's revenues fell sharply in 2009 and that CADIVI forced to reduce by 40% the supply of foreign exchange. While it is true that oil prices have risen compared to last year, the national executive has a number of commitments and expenses so high that the reality is that even at 4.30 there is money to meet importers.

is why if you need to bring materials or repatriate profits, should I go to so-called parallel market and buy at the price stated herein. Analysts serious demand for dollars in the market in 2009 was 80 MM dollars a week, if the State has so far released only 180 million in two weeks, and there is a lag in the currencies of at least 3 months, I got you. account and you will see that unless there is a considerable increase in the supply of securities in this market the dollar exchange, there is no incentive to lower price.

is obvious that the government may surprise the market, increasing the amount of auctions and changing the instrument to be auctioned to provide greater flexibility and liquidity to the market, but here's when the other component has its effect.

The extent of devaluation can be healthy, poor necessary as a diet or comply with a tortuous treatment, but requires the creation of a climate of confidence and helps the business to its positive effects are seen. This is where the State has failed, threats, conflicts, expropriation, closures, punishments ultimately, coercion, creates distrust among investors and this feeds the appetite for hard currency by safeguard the hard-earned Bs.

This uncertainty acts as a balloon that is placed under water, while you have a subject, not out but if you're not careful, he flees to the surface, the state can flood the market with dollars but if the conflict continues and increasing distrust the slightest wink, the exchange rate as the balloon rises.

Until next entry.

PS: I'm not foreshadowing that the dollar will reach 8 Bolívares simply that the uptrend is likely to continue state efforts may be null if there is no trust to stabilize the perception of investors.

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Re-Devaluation, Devaluation

After decision to devalue the currency January 8, the government took on the task of trying to diminish the negative effect of devaluation, announcing price controls, minimum wage increase and the supply of bond auctions by the Central Bank to intervene in the so-called "market parallel "currency.

Moreover the president has redefined the economic term indicating that the measure was a revaluation of the bolivar, which simply seeks to try to minimize the drastic effect that involves the measurement itself.

Perhaps most interesting of all is the international perception that has been positive so far and even has given the nation an improvement in their rating risk, which has made the debt more attractive in international markets generating increases of more than 15 percent in the prices of some of the titles.

International investors see the positive side, less need to issue debt to fund domestic needs in Bs and an adjustment to the imbalance of the foreign exchange market. It seems that so far fulfilled its purpose.

To complement all the government announces auction of securities that are actually more deals as the price is fixed, ie there is the famous bid that is traditionally in this type event, which is logical as the government does not want the dollar alternative to fire and to the strong demand for the currency and the low supply, it is more likely that the price to skyrocket.

In any case, these auctions will provide some respite to the market, because although the dollars are not received immediately, there is the possibility of obtaining them. The problem here is that this scheme may not lower the price of the dollar, and nobody will leave their dollars today at a price less than 5.8 for having to wait three months to receive a 5.

This situation might improve, as the state use other titles such as PDVSA bought back bonds that are traded today much better than the past and could further stimulate the market downward.

So far so good, until we reach the barbarity of the expropriations. Was not it easier to give a little and meet with the commercial sector employers and reach an agreement? Furthermore I believe that the trade sector may have held a little higher prices because many of them already have their prices to the dollar to 10 BSF. I'm not saying they are saints, but closing stores and expropriate.

What money does the State expropriate? has not yet fulfilled the commitments of the previous expropriation and income have been reduced so?. Where is the generation of trust?. At this rate the possible positive effect the devaluation happens very fast and have the same risk, with a dollar more expensive price.

If the intention is to suppress the production system and the financial and corporate sectors of the country to do succumb, are on the right track, I just hope that the road does not end up scorched themselves.

Until next delivery!

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Expropriation Auctions and Venezuela will have limited benefits: Fitch - RTRS

NEW YORK, Jan 11 (Reuters) - The potential benefits of the devaluation that Venezuela ordered this weekend could be silenced by the political cycle and macroeconomic distortions existing in the country unless they are fiscal and monetary adjustments, said Monday the agency Fitch.

The government of President Hugo Chavez announced on Friday the devaluation of the bolivar and the implementation of a dual exchange rate system.

Given its high dependence on oil, government revenue would be the main beneficiaries of devaluation, Fitch said.

However, "improvements in income resulting from the devaluation would be channeled to boost spending on the eve of legislative elections in September," said analyst Erich Arispe, director of sovereign ratings at the agency.

((Editing by Inés Guzmán English, English Edition Desk +56 2 437 4417)) REUTERS

IG LEA

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Exchange Agreement No. 14

Bolivarian Republic of VENEZUELA MINISTRY

PEOPLE'S POWER FOR ECONOMICS AND FINANCE

Exchange Agreement No. 14

The National Executive, represented by the citizen Ali Rodriguez Araque, in his capacity as Minister of Popular Power for Finance, approved by Decree N º 2278 dated January 21, 2003, on the one hand, and on the other, the Central Bank of Venezuela, represented by its President, J. Nelson Merentes D., authorized by the Board of the Institute in session No. 4256, on January 8, 2010, in accordance with the provisions of Article 318 of the Constitution of the Bolivarian Republic of Venezuela, in accordance with the provisions of Articles 5, 7, paragraphs 2, 5 and 7, 21, paragraphs 16 and 17, 33, 110 and 112 of the Central Bank of Venezuela, and 6 of the Exchange Agreement No. 1 February 5, 2003, have agreed as follows:

Article 1. The settlement of transactions of sale of foreign currencies to the concepts listed below under the relevant order issued by the Foreign Exchange Administration Commission (CADIVI) shall be made at the rate of two Bs and sixty cents ( Bs 2.60) per dollar of States States of America:

a) Imports for the food, health, education, machinery and equipment, and science and technology, according to trade policy established by the National Executive.

b) Operations of remittances to relatives living abroad.

c) Payments for expenses of students studying abroad academic activities.

d) Payments for costs of recovery of health, sport, culture, scientific research and other cases of special urgency, according to the Foreign Exchange Administration Commission (CADIVI).

e) Payments to retirees and pensioners living abroad.

f) Purchase of foreign currency by diplomatic, consular officials, as well as by foreign officials of international organizations accredited to the Government.

Article 2. Settlement of the sale of foreign exchange operations conducted by the Central Bank of Venezuela for the payment of non-oil public sector, including the payment of external public debt, will be made at the rate of two Bs and sixty cents (2.60 Bs ) per dollar of the United States.

Article 3. The settlement of foreign exchange sales transactions under the Exchange Agreements, other than those specified in Articles 1 and 2 of this Convention, shall be the exchange rate of Bs and thirty four cents (Bs 4.30) per dollar of the United States of America except the rules laid down in Article 5 of this Exchange Agreement.

Article 4. The exchange rate applicable to purchases of foreign exchange earned by the public sector other than those specified in Article 5 of this Convention and those obtained by public non-oil exports will be two Bs to five thousand nine hundred thirty-five ten thousandths (2.5935 Bs) per U.S. dollar in America.

The exchange rate applicable to purchases of currencies other than those indicated in the heading of this Article and under Article 5 of this Convention, including exports from non-oil public sector and private, will be four Bs with two thousand eight hundred ninety-three ten thousandths (4.2893 Bs) States dollar USA. This latter type of change will apply to purchases of gold by Central Bank of Venezuela.

Article 5. exchange rates that will apply to purchases of currencies covered by Article 1 of the Exchange Agreement No. 9 of July 14, 2009, published in the Official Gazette of the Bolivarian Republic of Venezuela No. 39,239 dated August 11 2009, will be four Bs with two thousand eight hundred ninety-three ten thousandths (4.2893 Bs) per U.S. dollar of America or two Bs to five thousand nine hundred thirty-five ten thousandths (2.5935 Bs) per dollar of United States, according to the established by the Central Bank of Venezuela, in keeping with the proportions to be determined for the settlement of transactions provided for in Articles 1, 2 and 3 of this Convention. This latest exchange rate will apply for at least thirty percent (30%) of purchases of foreign exchange contracts to this article.

The purchase of foreign exchange to the National Development Fund (Fonden) contribution arising from Petroleos de Venezuela, SA operates, there will be at the rate of four Bs with two thousand eight hundred ninety-three ten thousandths (Bs 4, 2893) per dollar United States of America.

exchange rates that will apply to the operations of currency sales as provided in Article 6 of the Exchange Agreement No. 9 of July 14, 2009, published in the Official Gazette of the Bolivarian Republic of Venezuela No. 39,239 dated August 11, 2009, will be two Bs and sixty cents (Bs 2.60) per dollar United States of America or four Bs and thirty cents (Bs 4.30) per dollar of the United States, according to the established by the Central Bank of Venezuela.

Article 6. Natural persons or legal entities, engaged in export of goods and services may retain and manage up to thirty percent (30%) of income earned in currency, because of exports, this percentage will be used to cover the costs of export activity, other than financial debt.

will retain the regime under the Exchange Agreement No. 9 of July 14, 2009, published in the Official Gazette of the Bolivarian Republic of Venezuela No. 39,239 dated August 11, 2009, and Exchange Agreement No. 12 of June 11, 2009, published in the Official Gazette of the Bolivarian Republic of Venezuela No. 39,207 of June 25, 2009.

Article 7. The acquisition of foreign exchange required for the payment of principal, interest, collateral warranties and other private external debt owed to any creditor abroad, including multilateral and bilateral integration or foreign governmental entities, agencies and export financing, will be made through banks and other authorized exchange operators for these purposes, after complying with the requirements and conditions to be established by the Currency Administration Commission (CADIVI ), the exchange rate to be determined by the Government and the Central Bank of Venezuela.

Article 8. Buying in the primary market and securities in national currency of the Republic or of its decentralized issued or issued in foreign currency shall be made at the exchange rate be determined for this purpose the Government and the Central Bank of Venezuela.

Article 9. The Central Bank of Venezuela will make buying and selling securities issued currency foreign local market, when appropriate.

also the realization by the agencies and entities of the transactions contemplated in this Article shall coordinate with the People's Ministry for Economy and Finance and the Central Bank of Venezuela.

Article 10. operations buy and sell currencies whose settlement had been requested from the Central Bank of Venezuela before the entry into force of this Convention, shall be paid to the exchange rates established in the Exchange Agreement No. 2 dated 1 March 2005, as appropriate.

Sale transactions conducted by foreign exchange traders before the entry into force of This Agreement, based on the generic authorizations issued under the provisions of the Order of the Commission on Administration of Foreign Exchange (CADIVI) No. 097 of June 11, 2009, published in the Official Gazette of the Bolivarian Republic of Venezuela No. 39,210 of June 30, 2009, will be liquidated by the Central Bank of Venezuela at the rate established in the Exchange Agreement No. 2 dated March 1 2005. Same rate applies to purchases of foreign currency by currency traders before the effective date of this Agreement.

The sales of foreign exchange operations conducted by exchange operators for the payment of consumption made by credit card in accordance with the orders issued for the purpose by the Committee on Administration of Foreign Exchange (CADIVI), will be liquidated by the Central Bank of Venezuela to the exchange rate for sales force at the time of post operation.

Article 11. is repealed Paragraph One of Article 27 of the Exchange Agreement No. 1 of February 5, 2003, published in the Official Gazette of the Bolivarian Republic of Venezuela No. 37,653 dated March 19, 2003, the Exchange Agreement No. 2 1 March 2005, published in the Official Gazette of the Bolivarian Republic of Venezuela N º 38,138 of March 2, 2005, Article 2 of the Exchange Agreement No. 4 of October 3, 2003, published in the Official Gazette of the Bolivarian Republic of Venezuela No. 37,790 dated October 6, 2003, the Exchange Agreement No. 8 of September 2, 2004, published in the Official Gazette of the Bolivarian Republic of Venezuela No. 38,015 dated September 3, 2004, as well as any other provision that collides with the provisions of this Exchange Agreement.

Article 12. This Agreement shall enter into force on January 11, 2010.

Given in Caracas, eight (8) day of January two thousand and ten. Year of Independence 199 º and 150 º of Federation.

Ali Rodriguez Araque

People's Minister for Economy and Finance

J. Nelson Merentes D.

President of the Central Bank of Venezuela

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Does anyone surprised? Beginning in 2010

President Hugo Chavez announced on Friday, almost clandestinely, the devaluation of the official exchange rate of 2, 15 for the so-called basic items such as food, health, etc. and including of course the public sector imports, remittances and foreign students to 2.60 and everything else to 4.30 BsF. dollar. Additionally, again recognized the existence of an alternative market which will involve the Central Bank to prevent speculation in it and the price to skyrocket.

The question one asks immediately. Was it necessary? Of course if the economy was crying out for four years. This did not come with the financial crisis of 2009, this is the result of wrong economic policies without going into technical detail, we have seen this movie four times already Venezuelans. At least I do in my 2 decades of experience professional I have seen that many times including this one.

any wonder? Not really. analyst Particularly as the first option considered by the strong political cost has, this story of the dual exchange already has more than a year and a half discussion in the corridors of Miraflores, but gave no numbers and now popular not just was inevitable.

In my opinion, the government not have to give all currencies required by the Venezuelan productive sector, makes the dollar a bit expensive to curb demand and take advantage of this devaluation to use the alternative market as a source of escape; there, the Central Bank can deliver the debt bonds repurchased in the past and PDVSA surplus not have to go through this control and thus not have to resort to structured notes or assignments to finger as the table has served to inject resources into the system and maintain say the exchange rate at 5.30 which implies a differential of 23 percent over the officer, not bad.

Bs With surplus, more money can be distributed on the street and keep people happy as to force, seek to impose price controls to prevent traders raise prices and that perhaps trade was not already selling the dollar to 10 BsF? An average shirt in a shopping center at U.S. $ 35 you get it for 350 BsF. Caracas How much is the dollar then?

This means that traders are not going to raise the price? No, if you will do because we have to preserve the replacement cost and on the other goods and services before getting to what they will pay 2.15 to 4.30. That is what the state does not want to happen because that would trigger inflation. Moreover if the state sells the dollars to 4.30 as mentioned earlier, would have more money in VEB, which would ultimately mean more inflation. It's worth a quick mention here that if price control is very strict, there may be shortages again then.

Is it bad then? Not necessarily, structural economists say a surprise devaluation has a negative impact the first year, but once companies to come together and produce more because their products are more competitive because they cost less in international markets, then from the second year could have a substantial improvement, which could even completely reverse the initial damage.

To achieve this, requires an export policy and especially the generation of trust, from the point purely economic view devaluation brings confidence, but after the Alo Presidente on Sunday 10 January, where the president threatened to expropriate merchants and other banks to intervene, please explain to me where is the trust?.

Moreover, the transfer of 7,000 million dollars in international reserves to Fonden is assumed as expressed by the president, who are to encourage export, the same explanation least I've heard a couple of times in the same party and to this day, there is no way to have a statement to explain in this fund was used. Again, trust and encouragement for whom?.

What to Expect Much uncertainty, it is possible that the bull market behaves as no spokesman for the State has indicated there will be availability of foreign exchange if the new price and also there is no indication if there are enough resources in the alternative market to meet demand, so that at least in the short term might expect a dollar more expensive, higher prices and some shortages.

In any case, there is still information we do not know and that the government should inform us, I mean the exchange policy will apply and that devaluation is a economic measure but not a policy that is how we will deliver the currency, what criteria he will use if and who is not. Whether there may be a surprise.

Until next issue ...

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After a long pause, caused by overwork, we return this year with much enthusiasm the writing on the blog.

The idea this year is going to analyze economic and financial issues of general interest and comment on news stories and that may be of importance.

first thing that catches our attention this year, economic data are being reported in the international arena and dramatic contrast between the decisions taken by the Venezuelan government to try to overcome its own inefficiency and excessive optimism that has the U.S. economy.

This will not be an easy year in economic terms, because although many of the economies have recovered fairly well from the crisis, todavía la sostenibilidad de ésta es cuestionable; de allí los vaivenes del dólar frente al euro y la volatilidad del mercado accionario.

El caso venezolano es complejo ya que si bien el barril de petróleo pudo recuperarse considerablemente pasando de 38 dólares por barril (dpb), a principios de año, a algo más de 72 dpb, el alto gasto público y el uso no apropiado de los recursos, han llevado a la economía a una situación delicada que no necesariamente implica que el país está en quiebra, pero que hace más difícil resolver los problemas realmente critical and important country.

The case of electricity regulation, which reflects the bad policy of not investing in the necessary infrastructure for power generation in exchange for paying very important sums of money on the purchase of military hardware business and that no good will make the country at this time.

Instead of extreme measures, such as regulation of the schedule, because policies for the rationalization of light. There are shopping centers that have turned on lights in hallways are outdoors, there are hurdles that could not turn the light off when the bathrooms could not in use, and sure there are more savings, but is easier to use the whip thinking.

reflection, not for the government side who will certainly be those who read these lines. May this new year bring a little common sense, tolerance and above all love of country and not to government. I hope we can continue discussions throughout the year on these and other issues.

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