Venezuela Moves to Shore Up the Bolivar as Election Approaches

(Bloomberg) -- Venezuela’s government is doubling down on efforts to prevent the bolivar from weakening and causing a spike in inflation ahead of presidential elections this year.

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President Nicolás Maduro’s administration pumped nearly $140 million into the foreign currency market this week, almost twice as much as the week before, in two separate sales of US dollars, according to estimates by Caracas-based consulting firm Síntesis Financiera. The operations came after the value of the bolivar weakened on the black market — with the spread between the official and parallel rates hitting the widest level since January 2023.

With the elections approaching on July 28, the government is trying to keep inflation in the low single digits by stabilizing the currency and reducing government spending. Maduro remains largely unpopular after years of runaway price increases, including a period of hyperinflation that wiped out savings and destroyed purchasing power.

Seeking his third-consecutive term as president, Maduro barred his biggest rival from the race and is now competing against Edmundo González, a relatively unknown former diplomat who is running as the candidate backed by most of the opposition. The US recently reimposed economic sanctions on Venezuela’s oil industry and gas after the incumbent fell short of promises to ensure legitimate elections.

Read more: Maduro Bets He Can Crush Venezuelan Opposition in an Open Vote

In recent weeks, the government has been reluctant to let the bolivar slide — preferring to sell more dollars to keep the official rate around 36.5 bolivars. That’s resulted in the widening of spreads compared to the black market rate, said Henkel Garcia, director of Venezuelan consultancy firm Albus Data.

The black market rate this week was as much as 12% weaker than the official rate. The central bank is likely to increase dollar supply until the gap is back at 5-6.5%, according to a Síntesis Financiera report published this week.

The government “is afraid of a bit more inflation by allowing the official rate to slide instead of having this distortion, which is worse, because it feeds on itself,” said economist Tamara Herrera, head of the consultancy.

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