Identifier
Created
Classification
Origin
07CARACAS2362
2007-12-18 15:48:00
CONFIDENTIAL
Embassy Caracas
Cable title:  

WISHING AWAY THE PARALLEL RATE: NATIONAL ASSEMBLY

Tags:  ECON EFIN VE 
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VZCZCXYZ0014
PP RUEHWEB

DE RUEHCV #2362 3521548
ZNY CCCCC ZZH
P 181548Z DEC 07
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC PRIORITY 0315
INFO RUEHBO/AMEMBASSY BOGOTA 7621
RUEHLP/AMEMBASSY LA PAZ DEC LIMA 0911
RUEHQT/AMEMBASSY QUITO 2724
RHEHNSC/NSC WASHDC
RUMIAAA/HQ USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE
RUEATRS/DEPT OF TREASURY
C O N F I D E N T I A L CARACAS 002362 

SIPDIS

SIPDIS

HQ SOUTHCOM ALSO FOR POLAD
TREASURY FOR MMALLOY
NSC FOR JCARDENAS AND JSHRIER
COMMERCE FOR 4431/MAC/WH/MCAMERON

E.O. 12958: DECL: 12/17/2017
TAGS: ECON EFIN VE
SUBJECT: WISHING AWAY THE PARALLEL RATE: NATIONAL ASSEMBLY
REVISES LAW ON ILLEGAL FX OPERATIONS

REF: CARACAS 2186

Classified By: Economic Counselor Andrew N. Bowen for reasons 1.4 (b) a
nd (d).

C O N F I D E N T I A L CARACAS 002362

SIPDIS

SIPDIS

HQ SOUTHCOM ALSO FOR POLAD
TREASURY FOR MMALLOY
NSC FOR JCARDENAS AND JSHRIER
COMMERCE FOR 4431/MAC/WH/MCAMERON

E.O. 12958: DECL: 12/17/2017
TAGS: ECON EFIN VE
SUBJECT: WISHING AWAY THE PARALLEL RATE: NATIONAL ASSEMBLY
REVISES LAW ON ILLEGAL FX OPERATIONS

REF: CARACAS 2186

Classified By: Economic Counselor Andrew N. Bowen for reasons 1.4 (b) a
nd (d).


1. (U) The National Assembly on December 13 approved a law
revising the 2005 law on illicit foreign currency
transactions. The new law, which will go into effect pending
presidential approval and publication in the Official
Gazette, continues to allow the bond transactions on which
the parallel foreign exchange market is based. However, it
makes it illegal to announce or publish foreign exchange
rates different than the official rate (currently 2150
bolivars (Bs) to the USD),with a fine of approximately Bs 37
million (USD 17,000 at the official rate) for violators. In
an attempt to deter price gauging, merchants who received
CADIVI dollars to import merchandise are required to post a
sign so notifying consumers. (Note: CADIVI is the BRV agency
charged with allocating hard currency at the official rate.
End note.) CADIVI allocations to individuals (e.g., for
credit card purchases or travel abroad) are declared
non-transferable, and fines are established for those who use
hard currency for anything other than the purpose stated to
CADIVI.


2. (SBU) Many local commentators have pointed out the
absurdity of forbidding publication of the parallel foreign
exchange rate. They note that despite occasional comments of
senior BRV officials to the effect that the parallel market
"does not exist," the BRV is the largest supplier of dollars
to the non-official market via auctions of dollar-denominated
bonds payable in Bs (reftel). Rather than reduce the impact
of the parallel market, which is the intent of the law,
commentators note that the revisions will simply make the
market less transparent. Financial websites based in
Venezuela have already modified their content in anticipation
of publication of the new law: VenAmCham has ceased posting
the parallel rate on its website, and Veneconomia continues
to publish the parallel rate but now calls it "bond prices."
Offshore-hosted website Dolar Parelelo continues to publish
the parallel rate.


3. (C) Comment: The revisions were no surprise to local
observers, as the ideas had been circulating for some time.
It is unclear whether they will have any substantive effect.
As described above, people will continue to find ways of
sharing information about the parallel rate. The increased
deterrent may somewhat reduce fraudulent use of CADIVI
allocations by individuals, but the impact will be limited
because the potential gains from fraud continue to be high
thanks to the difference between the official and parallel
rates. Finally, merchants are unlikely to change their
prices because of the requirement to notify the public
whether or not they received CADIVI dollars for their
imports. While the new law may have limited overall impact,
it does increase the BRV's punitive powers, giving the
government another prospective tool in its arsenal to harass
opponents and detractors. End comment.
DUDDY