Venezuela Devaluates its Currency
to compete with the black market…
HAVANA TIMES — The Venezuelan government put in practice a new currency exchange rate today that represents significant de-facto devaluation; the largest in history, analysts told dpa news.
Seeking to bring down the black market price of the Bolivar, the government will now have a three tier system for selling US dollars to businesses and individuals.
The preferential official exchange rate of 6.3 Bolivars to purchase 1 USD is reserved for both state and private sectors of the economy that import essential food products and medicines. Another segment of foreign exchange seekers are allowed to purchase them at auction for 10.80 Bolivars to the USD. Now, the new market oriented exchange rate was pegged at 51.86 Bolivars to the USD.
With the scheme, the government hopes to lower the illegal parallel market, which has reached over 10 times the official exchange rate.
On the first day that the US dollars (in the form of certificates) were offered on the market to public and private businesses the dollar traded at 51.86 Bolivars. Dpa said the black market street price was running at 57 Bolivars to the dollar.
The new rate will be set by supply and demand in a market and be open to a much wider group of public and private entities.
The government said the scheme was created to “ensure access to foreign currency in the country and is the third link in a new exchange rate regime that will protect the national economy,” from capital flight.
The government said that for the three schemes there is a budget for selling 42 billion USD in the year.
Opposition leader Henrique Capriles said the new foreign exchange operations represent a “mega-devaluación”, in relation to the official exchange rate of 6.30 bolivars per dollar.
“The mega-devaluación deals a hard blow to all Venezuelans. The Government does not want this to be talked about, let’s not let them succeed ,” he wrote on his Twitter account. “If the devaluation is measured relative to the exchange rate of 6.30 bolivars per dollar, the increase is 773 percent” he said.
“Today March 24, 2014, the exchange rate went from 11 to 52 Bolivars: an increase of 400 percent. Black Monday, they ram the measure through taking advantage of the conflictive political situation (do to the anti-government protests,)” said Capriles.
Meanwhile, government authorities stressed that the new exchange rate isn’t about opening the market but instead establishing a system where different economic sectors can purchnse the foreign exchange they need to operate.
Also, Chavez, during his 14 years, benefitted from the price of oil soaring from around $23 per barrel to more than $100. Oil receipts make up more than 95% of total Venezuelan revenues so it is hard to imagine how he had nearly bankrupted Venezuela despite having almost a five-fold increase in revenues.
His passionate defenders argue that Hugo Chavez “improved the economy drastically and ameliorated poverty drastically” because GDP went up, and fewer people were living below the poverty line by the time he died last year.
The numbers are there: GDP did go up, and yes, fewer people were listed as living below the poverty line. Whose numbers?
The numbers came from the Venezuelan government.
The International Monetary Fund keeps a List of IMF Member Countries with Delays in Completion of Article IV Consultations or Mandatory Financial Stability Assessments Over 18 Months. As of the writing of this post, Venezuela hasn’t held an Article IV consultation with the IMF in 99 months.
Let me translate that into plain English: The Venezuelan government has not allowed its own numbers to be verified for almost a decade.
The official inflation rate is currently running at 59%. If one is still gullible enough to believe the official rates, which are surely lowballed, what that means is each bolivar that a Venezuelan has in his back account today will be worth 41 céntimos by this time next year. That’s assuming the inflation rate doesn’t increase further, in which case his bolivars will shrink even more. In real terms, Venezuelans are far poorer today than they were before Chavez came to power and they will be poorer still so long as Maduro and his Cuban masters run the country into the ground.
Without addressing the underlying structural flaws in the economy, this currency devaluation does nothing more than acknowledge the failed Maduro regime’s money policy and briefly slow (and ultimately accelerate) the spiraling inflation. Historians, when they speak of the fall of Chavismo, will mark this government action as a turning point for the worse.