Adding to the running joke that is the current state of affairs in Venezuela, Caracas has introduced a new alternative exchange rate, which led to an approximately 70 percent devaluation. Bloomberg reports:
Venezuela’s government sells dollars for 6.3, 12 and 172 bolivars per dollar. The first two rates are used for imports of government-authorized priority goods including food, medicine and car parts. The third rate, introduced on Feb. 12, can be used by anyone who doesn’t receive authorization to buy dollars at the first two preferential rates. On the black market, one dollar currently fetches about 190 bolivars.
This new exchange rate, introduced amid plenty of other social, economic, and political problems, has produced considerable headaches for international companies who stand to lose billions, depending the exchange rate available to them.
It’s not just foreign tourists who follow the changing currency rules in Venezuela. International companies that operate in the country have to decide what exchange rate they use to value their Venezuelan assets and cash. Airlines have about $3.6 billion in bolivars that they want to repatriate at the exchange rates used when the tickets were sold (6.3 or 12 bolivars per dollar). If they agree to repatriate their cash at the new weaker rate, they cold lose as much as 96% of what their balance sheets show is held in the country.
Meanwhile, China and Cuba, two of Venezuela’s most important economic and political partners, are apparently distancing themselves from Caracas; the country is plagued by food shortages, growing inflation, and rampant corruption; and 2015 has brought a sharp decline in oil prices (25 percent of Venezuela’s economy comes from its energy sector). Venezuela does not remotely resemble a functioning state.