Venezuela fledgling currency system spawns $859 million mystery

Tue Oct 1, 2013 5:59pm EDT
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By Brian Ellsworth and Eyanir Chinea

CARACAS (Reuters) - Venezuela's efforts to put hard currency in the hands of dollar-starved businesses, to ease embarrassing shortages of consumer goods, are instead drawing complaints from trade groups who say they have no idea where the money has gone.

The central bank says it allocated $859 million through a new foreign exchange mechanism meant to complement a decade-long currency control system by ensuring importers are able to bring in products ranging from chicken to newsprint.

But business groups representing industries which the government said received U.S. dollars insist that only a fraction of their affiliates got approval for greenbacks, and those that did got only a small portion of what they sought.

The confusion comes as state officials are recognizing that the currency controls have been exploited for billions of dollars via fictitious imports by shell companies.

"The auction was a disaster for us," said Frisned Pinate, president of Canidra, the country's principal auto parts association, adding that fewer than 10 of the 250 affiliates were approved for dollars through the system known as Sicad.

"This is not an auction, this is simply a lottery. They don't sell to the highest bidder. It's more like 'It worked out for me because I had a winning ticket.'"

The new mechanism, called Sicad, was launched in March to complement the currency controls created by late socialist leader Hugo Chavez that have been a cornerstone of Venezuelan economic policy since 2003, despite growing signs of corruption and inefficiency.

Originally created to stop capital flight and inflation, the controls offer huge profits for those who play the system by buying dollars at a preferential rate and reselling them at almost seven times that on an illegal black market.   Continued...

A man walks past big samples of Venezuelan bank notes at the Central Bank headquarters in Caracas August 22, 2013. REUTERS/Carlos Garcia Rawlins