Home' Trinidad and Tobago Guardian : July 30th 2015 Contents JULY 30 • 2015 www.guardian.co.tt BUSINESS GUARDIAN
REGIONAL | BG19
This month, Venezuela s cur-
rency, the bolívar, passed a
melancholy milestone: Its
value on the black market
is now a hundredth of what
it is supposed to be at the
main official exchange rate.
The government insists there are 6.3 bolí-
vares to the dollar, but it will cost you 630
to buy one from a willing seller.
As the country s stock of hard currency
shrinks and the central bank prints money
to plug a huge budget deficit, the bolívar s
collapse is accelerating. It is worth a thou-
sandth of what it was in 1999, when Hugo
Chávez, Venezuela s late president, came to
The country may be on the verge of
hyperinflation. Most economists estimate
the inflation rate is already 120 per cent a
year (the central bank stopped publishing
price data, so no one is sure). Some expect
it to reach 200 percent by the end of 2015.
The government uses a labyrinthine sys-
tem of price and exchange controls to shield
Venezuelans from soaring prices. But these
make matters worse. Price ceilings have
devastated local production; factories are
operating at half-capacity; and more than
two-thirds of food is imported. Affordable
goods are in short supply.
With a dollar s-worth of bolívares, you
can in theory buy 73 pounds of maize flour,
the national staple. But only if you can find
a supermarket that has some and you are
willing to stand in line for hours (repeatedly,
since flour is rationed). For the same price,
consumers could fill the tank of the family
car 140 times with subsidised gas. That
amount of fuel is worth $5,000 across the
border with Colombia. Enterprising
Venezuelans smuggle it across.
Venezuelans check prices on the Twitter
account of DolarToday, a Miami-based outfit
which publishes updates based on transac-
tions in the Colombian border town of
Cúcuta. This is where Colombians go to
exchange pesos for bolívares, often to buy
cheap fuel and other price-controlled goods
in Venezuela for smuggling across the bor-
Transactions are few. The dollar rate is
calculated indirectly, from the value of the
Colombian peso. The result is erratic, but
more realistic than the three official rates.
Although it is illegal, many Venezuelan retail-
ers mark prices based on deals struck in the
The government of Nicolás Maduro,
Chávez s heir, calls the Web site a conspiracy
to sabotage the economy and has tried
repeatedly to block it. This month, Elías
Jaua, the influential "minister of communes,"
said the government would ask the United
States to arrest and extradite the "fugitive
bankers" he says are behind it.
Venezuela s banking and stockbrokers
associations condemned the "manipulation"
of the exchange rate and called on Venezue-
lans to ignore all unofficial rates - and pre-
sumably also the law of gravity.
The "spiral of inflation and poverty" will
not be resolved by asking Venezuelans to
undertake "an act of faith," writes Angel
Alayón, an economist and blogger. That will
happen only when Maduro reforms the
economy by reducing the deficit, overhauling
the state-owned oil company and eventually
dismantling exchange controls.
With parliamentary elections due in
December, and the government trailing in
the polls, Maduro is likely to balk at the
short-term pain such measures would cause.
He is caught between a left-wing faction,
which claims the economy needs still more
controls, and a military-based mafia that
profits from arbitrage under the current
rigged system. Poor Venezuela.
Financial institutions in Jamaica will for the first time, from
next month, have to report specified financial account infor-
mation on American citizens who have accounts in that
Caribbean island to US authorities.
This follows the passage of amendments to the Revenue
Administration Act earlier this week, which gives legislative
effect to an agreement signed by the US and Jamaican author-
ities in May 2014 as part of the Foreign Accounts Tax Com-
pliance Act (FATCA).
Piloting the amendment Bill received support from both
sides, Minister of Finance and Planning Dr Peter Phillips told
Parliament it would facilitate the introduction of an international
tax compliant regime and give effect to greater transparency
of information for tax purposes, adding that it contemplates
the advent of new international standards and instruments.
"The Foreign Accounts Tax Compliance Act (FATCA) of the
United States (US) represents one such instrument and the
agreement to give effect to this, which was signed by the Gov-
ernment of Jamaica and the US, has to be incorporated into
our domestic legislation," he explained.
Under the amendments, effective August 17, financial insti-
tutions in Jamaica will be required to make the relevant financial
reports to Tax Administration Jamaica (TAJ) on financial
accounts held by US taxpayers, including entities in which
the US taxpayer holds a significant ownership interest.
However, for all subsequent years, the reporting date will
be May 31 of each year.
The TAJ will also have to submit the relevant information
received from local financial institutions to the Internal Revenue
Service (IRS) in the US.
FATCA, which was enacted in 2010 by the US Government
as part of provisions under the Hiring Incentives to Restore
Employment Act, is an important development in the US
efforts to combat tax evasion by US tax payers with investments
in offshore accounts.
Currently, Jamaica has some 11 double taxation agreements,
nine tax information exchange agreements and one multilateral
double taxation agreement within Caricom.
Jamaica approves exchange of financial info with US under FATCA
In Venezuela, fears
The Mexican peso s virtue as the most-traded currency
in emerging markets is also its biggest curse.
The peso s US$135 billion in daily trading makes the
market so much deeper than for other developing coun-
tries that investors use the currency as a general proxy
for risk. Bought a Brazilian corporate bond? Sell pesos
to hedge any losses. Stuck with a load of Treasuries?
Buy pesos to blunt the pain if a risk-on environment
sparks a rout. Correlations are high enough that the
hedges often work, according to JPMorgan Chase & Co.
Greece s debt crisis, China s stock market crash and
speculation that the US Federal Reserve will soon start
raising interest rates have spurred a wave of global
volatility that s now hitting the peso by proxy. On the
Chicago Mercantile Exchange, futures trades designed
to profit from the currency s decline have climbed to a
"People use hedges via the peso like Kleenex, if they
think they are about to sneeze, they grab one," said Ale-
jandro Silva, a partner at Chicago-based Silva Capital
Management, which has about US$180 million under
management. "It s a currency so liquid, so large that
when big problems like Greece happen and a money
manager needs to place a hedge for its portfolio, the
easiest thing to do is buy dollars with their pesos."
On the CME, net futures contracts betting on a decline
in the peso have grown 28 per cent this year to 81,424
as of July 21. A year ago, roughly the same number of
trades were staked on an increase.
This means that the peso s being hurt at a time
when investors already are becoming disillusioned
with Mexico s prospects for an oil-fueled surge in
At the start of 2015, the peso was forecast by analysts
to strengthen 9.3 per cent this year versus the dollar,
the most in the world. Instead, it has tumbled 9.4 per
cent to a record low of 16.2669 per dollar.
There wasn t much news in Mexico, but the peso
fell 1.2 per cent. That was largely because of the goings
on in Brazil, but that country s currency wasn t trading,
according to Christian Lawrence, a trader at Rabobank
in New York.
"The Mexican peso was hammered despite nothing
standout in Mexico, but there were headlines relating
to stress in Brazil," Lawrence wrote in an e-mail.
Investors are using the peso as a hedge against falling
oil prices as well as increased volatility in the US stock
market, according to Siobhan Morden, head of Latin
America fixed income for Jefferies Group LLC.
James Lord, a global emerging-market macro strate-
gist at Morgan Stanley, says the peso is cheaper to
borrow than the rand and the lira. That makes it attrac-
tive for investors who want to make "short" bets where
the currency is borrowed and then sold in the hopes
that it can be bought back later at a lower price.
love to short the
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