Venezuela Devalues Currency by 32%
HAVANA TIMES — The Venezuela government devalued the official exchange rate for the country’s currency, the Bolivar, on Friday by 32% as ailing President Chavez, hospitalized in Cuba, expressed his concern over the economy via other members of his cabinet.
In Venezuela controls over the exchange rate have been in effect since 2003 that forces citizens and businesses to get approval from several organizations in order to have the right to purchase US dollars for importing, travel or other reasons, noted La Nación.com.
Such controls have led to a vibrant black market for foreign currency where the Dollar to Bolivar exchange rate is several times the official rate.
Minister of Planning Jorge Giordani, said the decision was made due to an increase in inflation and speculation that required action.
Currency devaluations in Venezuela are historically met with price increases, although the government hopes to continue regulating prices on several basic consumer items.
No mention has been made in the Cuban media as to the effect, if any, of the devaluation on the several billion dollar annual exchange of Venezuelan oil for Cuban proffesional servcies.
What will be the consequences of this devaluation? Is it really the best policy for Venezuela?
In the short term, it increases revenue for the government, as it makes Venezuelan exports cheaper. That’s about it. At the same time, rather than reducing the black market, it increases the profitability to those who control smuggling.
The devaluation also adds to inflationary pressure, which will hurt the anybody holding cash, including savings accounts.
In the long run, this will add to the level of sovereign debt, as foreign creditors will demand payment in dollars, euros or yuan, but not in the increasingly worthless Bolivars.
Does all this sound like a good policy for Venezuela?