CARACAS, Monday February 11, 2013 | Update

Pdvsa concedes it raised debt to sustain dollar sales system

Venezuela's state-run oil company sold some USD 14 billion in bonds to the central bank in 32 months

The Transaction System for Foreign Currency Denominated Securities was created to meet US dollar demand and tackle "speculation" (File photo)
Monday February 11, 2013  11:37 AM
In June 2010, the Venezuelan Government eliminated the swap market and ordered the Central Bank of Venezuela (BCV) to create a system to sell US dollar-denominated bonds in order to put an end to "speculation."  Thirty-two months after its creation, the Transaction System for Foreign Currency Denominated Securities (Sitme) was eliminated. Authorities claimed the system failed to meet its goals. While operational, however, the Sitme forced Venezuelan state-owned oil company Pdvsa to increase its debt.

When the Sitme began, BCV chairman Nelson Merentes explained it would be used to meet US dollar demand and tackle "speculation." Merentes also stressed that the system had been created in a way that it could feed back itself; therefore, it may last 50-100 years." The goal was partially accomplished only.

The system fed on bond sales by banks, particularly state-run banks, and Pdvsa. However, based on official data, the largest number of US dollar bonds was issued by the oil company.

By the end of 2012, Pdvsa balance statements showed that from the second half of 2010 through 2012, the industry issued some USD 14 billion in bonds to the BCV. This way, Pdvsa paid a large number of liabilities to the central bank (the BCV grants financial assistance to the oil company) and the latter obtained US dollars to meet the private sector's US dollar demand. The need for keeping up with the system not only led to a rise in Pdvsa's debt, but also hit the company's capability to meet its obligations in the future.

In August 2012, Oil and Mining Minister Rafael Ramírez admitted the State issued debt at high rates to maintain the Sitme. In an interview, he said, "We conducted an operation at a high interest rate. We are creating the conditions for keeping the dollar price under control through Sitme. This has been a successful policy that has helped us keep inflation below the target."

On January 28, however, Ramírez hinted the elimination of the system. "Sitme has been used for non-productive purposes," he said, adding that Pdvsa would no longer issue US dollar-denominated bonds. "It makes no economic sense for us to issue debt in dollars; that was for the Sitme. The Sitme forces us to issue bonds at a rate that greatly raise the price borrowing in international markets. The last operation was at 12.5%; that makes no sense. Pdvsa will go to the local market, as there is liquidity."

Translated by Jhean Cabrera
The end of a cycle

Hundreds of thousands of demonstrators took to the streets of Brazil on March 13 to demand the ouster of embattled President Dilma Rousseff, carrying banners expressing anger at bribery scandals and economic woes. A banner read "We don't want a new Venezuela in Brazil."

fotter Estampas
fotter Estampas