Venezuela’s temporary government announced plans to allocate $300M worth of U.S. sales of Venezuelan crude to increase dollar supply and stabilize the Bolivar.
Weeks of foreign exchange tension preceded this agreement.
The move is intended to reduce the burden of imports for companies as well as end black market activities.
The influx of funds represents the first flow of funds sourced from the oil agreement facilitated by the U.S. following the arrest of former President Nicolas Maduro.
Dollar Sales Set for Private Banks
The $300 million will go to four banks, and each will receive approximately $75 million.
The banks will then exchange the dollars to firms according to central bank regulations. This avoids involving the central bank, which is under sanctions.
Interim President Delcy Rodriguez stated that it will have a stabilizing effect on the exchange market, thereby safeguarding the salaries of the country’s workforce.
She was speaking at a function in Caracas on January 20.
Money comes from the $500 million U.S. oil sale, as part of the broader deal.
It is held in accounts protected by the January 9 Executive Order, by the government in Washington.
How Plan Tackles Bolivar Volatility
The bolivar weakened by 83% against the US dollar in the past year. Trades in unofficial markets widened, as a shortage of US dollars pushed prices far beyond the official exchange rate.
With the added dollars from the banks, the government aims to have faster access to importers. This would reduce speculation and differences in exchange rates.
It appears that the initial effect of this news is to slow down advances in the parallel rate. It appears that the parallel rate stopped rising with this news.
Ties to U.S. Oil Policy Changes
The cash comes from the U.S. tapping on Venezuelan oil since the overthrow of Maduro.
Trump needs to sell as high as 50 million barrels and keep control over the sales still happening.
90% of exports of the Venezuela economy come from oil. Sanctions and low output had cut revenues.
The deal provides hard currency when options are scarce.
Short Lift Amid Deep Issues
Economists say: “The $300 million plan will provide quick solutions but will ignore fundamental solutions. Inflation will remain high, production low, and our reliance on oil will remain heavy.”
Economist Ricardo Hausmann said, “Peace and prosperity will come from democracy, not oil.” Reforms had to happen to realize long-term gains.
Stable dollars, trust in policy, and major shifts all matter, say experts. Otherwise, the benefits will be short-lived.
Next Steps in Oil and Economy
More US sales are planned with funds in control accounts. Venezuela eyes energy law reforms to attract investment.
A health plan will utilize some revenues. Deadlines loom for debt talks and output boosts.
