14 January 2008 00:00 [Source: ICB]
In Caracas, it pays to do business in the dark.
A stranger enters the cafe, searching for a lone figure who promised to seek a table in the corner. The stranger approaches and the pair share a quick cup of coffee before heading outside to a secluded corner for the handoff.
The stranger quickly hands over a check for a few thousand US dollars and in return is given wads of local bills, which the stranger stuffs into his shirt as instructed by the lone figure.
The stranger walks away padded with millions of Venezuelan bolivares.Exchanging foreign currency into bolivares is a dodgy affair since President Hugo Chavez instituted a series of stiff exchange controls in 2003 to stem capital flight. By capping the official exchange rate at bolivares (Bs)2,150 to the dollar, and mandating that the government must approve the buying and selling of foreign currency, Chavez also inadvertently created a thriving "parallel" market for cash.
But for private businesses that desperately need dollars to make capital investments and can't count on meeting a stranger in a dark corner, the legal process for getting cash is so cumbersome that it's become nearly impossible. The consequences have been disastrous for the local plastics industry, causing industry-wide stoppages and exacerbating a serious shortage of resins.
Demand for just about everything is surging in oil-rich Venezuela. But unexpected glitches and years of deferred maintenance have curtailed production at Pequiven, the state petrochemical producer, creating a deficit of thermoplastic resins.
Some local businesses have tried to import resins privately, but are often thwarted by currency regulations that are nearly impossible to fulfill. The government requires private businesses to present mountains of paperwork proving that the transaction is necessary and will occur, which in practice means asking foreign suppliers for months of credit while all the papers are shuffled.
Even with all the paperwork submitted, the government can take months to dispense the dollars, leaving a taste so bitter that foreign sellers simply decide not to do business with private Venezuelan firms.
Luckily for the stranger, the black market rate is around Bs5,500 for a single greenback - suddenly putting that big-screen Sony plasma TV on sale for Bs4m, just within reach. In Caracas, sometimes it pays to do business with strangers in dark corners.
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