Venezuelan importers requiring letters of credit (L/Cs) are driving demand for US dollars in the country.

But the framework for obtaining foreign currency in Venezuelais not satisfying demand for US dollars, suggesting that some firms are not able to open the L/Cs they require for imports.

Meanwhile, smaller firms are excluded completely from auctions to buy the US currency.

Forex auction

At the end of March, Venezuela's banks received bids from companies seeking a share of US$200 million held within the framework of the Ancillary Foreign Currency Administration System (SICAD).

According to local media, the banks received bids for up to double the funds held within SICAD.

Import requirements

The majority of bidders were companies that have won public works or hydrocarbon sector bids requiring them to import raw materials, machinery or other goods or services from foreign suppliers.

The companies require L/Cs so that they can import these items whilst preserving their cash flow.

Inefficient framework

The SICAD framework is widely viewed as inefficient.

As well as providing insufficient foreign currency for larger importers, smaller firms are excluded from the US dollar bidding process altogether.

Imports down

Difficulties obtaining US dollars appear to be diminishing the amount of goods and services imported for manufacturing purposes according to official data.

It says that the sale of US dollars to purchase raw materials, machinery and spare parts was down by 27 per cent in the first two months of 2013 compared with the same period last year.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.