PARALLEL RATE CONTINUES TO RISE

UNCLAS CARACAS 000351 SENSITIVE SIPDIS HQ SOUTHCOM ALSO FOR POLAD TREASURY FOR RJARPE NSC FOR RKING COMMERCE FOR 4431/MAC/WH/JLAO E.O. 12958: N/A TAGS: ECON EFIN VE SUBJECT: PARALLEL RATE CONTINUES TO RISE REF: A. 2008 CARACAS 376 ¶B. CARACAS 137 ¶C. CARACAS 304 ¶1. (U) The parallel foreign exchange rate has jumped from 5.95 Bs/USD to 6.3 Bs/USD (as measured by the cost of buying a dollar) since the beginning of the week, representing a six percent devaluation of the bolivar on the parallel market in three days. One press report, quoting one currency trader, tied this movement to speculation the government was going to devalue its fixed official exchange rate. (Note: The parallel market is small (though likely growing in size), highly volatile, and lacking in transparency. The Government of the Bolivarian Republic of Venezuela (GBRV) is a major supplier of dollars to the parallel market (refs A and B), and one of the sources of volatility in the market is the lack of a consistent intervention strategy by the GBRV. End note) ¶2. (U) As noted in ref B, we and most local analysts believe that the parallel rate will rise over the course of 2009, though not necessarily in a linear or smooth fashion. With GBRV oil revenues almost certain to be significantly lower in 2009 than in 2008, the GBRV will have less hard currency with which to intervene in the parallel market and/or allocate for imports and other purposes at the official rate. In other words, we expect supply of dollars to the parallel market to go down and demand for dollars to go up. The recent jump in the parallel rate probably reflects these larger trends as much as it does rumors of a devaluation. It may also reflect that the GBRV, for whatever reason, has not sold dollars into the market in recent days. ¶3. (SBU) Comment: In ref C, post offered its assessment that the GBRV was unlikely to devalue in the near future, as it has other options for financing its 2009 deficit and does not care about the distortions related to an overvalued official exchange rate. If there is a devaluation, it will indicate that President Chavez is convinced oil prices will remain low (relative to recent years) into 2010 and that he has found what he believes to be a politically acceptable way to sell the devaluation to the Venezuelan public. We would also note that an official devaluation need not have a significant impact on the parallel market, as the quantity of dollars sold at the new official rate would not change greatly (i.e., the demand for dollars on the parallel market would continue to be strong). Of course, the announcement of a devaluation would have a psychological impact that could easily cause a temporary spike in the parallel market. End comment. CAULFIELD