Venezuela drops overvalued exchange rate for state imports

CARACAS, Venezuela — Venezuela is abandoning the most-overvalued of its two official foreign exchange rates, which had been used for state imports of food and medicine amid a worsening economic crisis.

The move could potentially encourage businesses to import more and put more goods on store shelves and in pharmacies, but only if the government carries it out as written, said Francisco Rodriguez, a former Venezuelan official who is now chief economist at the New York-based Torino Capital.

"This is not a place where there's a good tradition of following the letter of the law," Rodriguez said Tuesday. "I don't think that one should get too optimistic."

Oil-rich Venezuela is in the fifth year of a deepening economic crisis that has brought scarcities of basic foods and medicine after nearly two decades of socialist rule and mismanagement of the world's largest crude oil reserves.

The exchange rate reforms became public Monday when published in the nation's official gazette, signaling that all transactions will now use a second official exchange rate known as Dicom. That rate still contrasts sharply with the black market exchange rate.

One U.S. dollar buys 3,345 bolivars at the Dicom rate, while Venezuelans are paying an average of nearly 250,000 bolivars per U.S. dollar on the black market.

The rate being abandoned, known as the Dipro, was set at 10 bolivars per dollar.

Venezuela has been operating with two official exchange rates, though most Venezuelans can buy dollars only on the illegal black market.

Rodriguez cautioned that the shift in exchange rates may only allow for the import of high-value goods, which are out of reach from most Venezuelans.

The government decree goes beyond eliminating the official protected rate Dipro rate, opening up access to the exchange system by relaxing government controls, so more imports could begin to flow, he said.

On Tuesday, Maduro announced new government subsidies for millions of Venezuelans. But with the slipping value of the bolivar, their value adds up to tiny sums.

The monthly minimum wage many working Venezuelans earn is now worth the equivalent of just $3. A program for 315,000 pregnant Venezuelan women would provide each about $21 at the black market exchange rate. Eight million Venezuelans who will be eligible to receive state money for the upcoming Carnival season will receive the equivalent of about $2.81.

Venezuela's inflation hit 2,616 percent last year, according to estimates by the opposition-controlled National Assembly. The International Monetary Fund estimates inflation could soar to 13,000 percent this year.