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Venezuela overhauls currency system to protect dwindling dollar supply

Venezuela's President Nicolas Maduro speaks during his annual state-of-the-nation address to the National Assembly in Caracas, Venezuela, Wednesday, Jan. 15, 2014. (AP Photo/Fernando Llano)

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Venezuela's President Nicolas Maduro speaks during his annual state-of-the-nation address to the National Assembly in Caracas, Venezuela, Wednesday, Jan. 15, 2014. (AP Photo/Fernando Llano)

CARACAS, Venezuela - Venezuela's government is tightening a much-used loophole in rigid currency controls as part of an overhaul of its foreign exchange system to safeguard a dwindling supply of dollars.

As part of the changes announced Wednesday by Oil Minister Rafael Ramirez, Venezuelans travelling abroad will no longer be able to purchase air tickets or obtain cash at the official rate of 6.3 bolivars per dollar.

Instead, they'll now be required to make purchases at a higher rate established at weekly central bank auctions, where the greenback currently fetches about 11 bolivars. The fluctuating rate also will apply to the limited quantity of money Venezuelans can abroad to family members and to foreign companies investing in Venezuela.

Ramirez, who is also President Nicolas Maduro's top economic adviser, denied that forcing travellers to pay more for dollars signals a stealth devaluation as many economists have argued. He said that more than 80 per cent of the nation's dollars will still be sold at the official rate.

The central bank's international reserves have fallen to a 10-year low as demand for air tickets and dollars has soared in tandem with galloping 50 per cent inflation and the a plunge in bolivar's value in the black market. Foreign airlines say they have an equivalent of $3.3 billion in bolivars tied up in Venezuela by decade-old exchange controls that make it impossible to send earnings abroad.

Ramirez said that last year alone more than $8 billion leaked from the oil-dependent economy as even some non-Venezuelan travellers purchased hard currency at the "preferential" rate.

"The big debate here is whether we give dollars to travellers or we import food," Ramirez told reporters in Caracas.

The currency overhaul came as Venezuela's biggest food company warned that it may be forced to idle some assembly lines because of government delays of up to 230 days processing its request for $463 million needed to pay overseas suppliers.

Empresas Polar said in a statement on Wednesday that foreign credit lines have dried up and suppliers abroad are threatening to cut off the shipments of food, packaging and other supplies unless they receive payment soon.

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