Venezuela Devaluates Bolivar Currency by 32%
Mérida, 8th February 2012 (Venezuelanalysis.com) – The Venezuelan government has devaluated the official exchange rate between the Bolivar Fuerte and the US dollar by 32%, from 4.3 BsF to 6.3 BsF to the dollar.*
The move was predicted by many economists after speculation on the Bolivar helped drive the value of Venezuela’s currency to a quarter of its official value, with the dollar selling on the black market for around 18 BsF.
The measure will improve the cash flow to the Venezuelan government as state oil company PDVSA will receive more Bolivars for oil sales, and help balance the government’s fiscal deficit, which is around 11% of GDP according to Moody’s Investors Service.
The devaluation may also drive inflation, which would hit Venezuelan salaries and consumers, while Bloomberg predicted that the economic adjustment would help resolve shortages in certain imported products such as car sales.
Simon Andres Zuñigna, a Venezuelan economist with the Radical Society of Political Economy (SER), recently wrote a paper in which he criticised a possible devaluation as strengthening commercial monopolies and private banks, which he argued benefit from such measures and would continue to speculate to push for further devaluations.
“The supposed fiscal gain that the government and PDVSA would have [from a currency devaluation] could be overturned with the increase in debt, the real cost of imports, spending on the social missions and finally with its effect on the inflation rate,” he wrote.
The government announced that requests made on dollar transactions through the government’s Exchange Control Commission (CADIVI) from three to six months before 15 January, depending on the economic sector, would still be conducted at the 4.3 rate.
The measures, approved by President Hugo Chavez, were announced by finance minister Jorge Giordani in a press conference with Venezuelan Central Bank (BCV) president Nelson Merentes.
Giordani also confirmed the elimination of the alternative STIME exchange system, which had operated on a weaker rate of 5.3 Bolivars to the dollar to help control inflation in the foreign currency bond market.
A new body will be set up, the Commission for the Optimization of the Exchange Rate System, which will oversee the granting of dollar allocations in the CADVI system and work with the presidency to improve the overall flow of dollars into the economy.
According to Giordani, a key aim of the body will be to set the priorities for dollar allocations “to guarantee the greatest social wellbeing, stimulate economic growth and lower inflation”.
The system of holding foreign currency accounts in Venezuela will also be expanded to assist those Venezuelans who receive pensions abroad, send remittances to family members, or who need to receive payments for international services rendered, among other functions.
The measures mark the first major adjustment in the official exchange rate since 2009, when the 4.3 rate was implemented for oil sales.
Currency controls were first introduced in 2003 to stop capital flight and control inflation after a boss-led general strike shut down oil company PDVSA in an attempt to ouster President Chavez, a move which had a devastating impact on the Venezuela economy.
The economy is currently experiencing an on-going cycle of economic growth, with GDP expanding 5.5% in 2012 and inflation down to around 20%.
*Most mainstream and financial press have reported the devaluation figure as 32%, as has VA.com, possibly using calculations such as this. However, others have calculated the figure at 46.5%, using a different methodology.
Published on Feb 8th 2013 at 8.22pm
- 11/02/2013: Venezuela Debates Currency Devaluation while Impact Remains Unclear
- 28/12/2012: Venezuela’s Economy Grew by 5.5 Percent in 2012
- 03/01/2011: Venezuela Adjusts Exchange Rate and Reports Positive 2011 Economic Projections
- 09/01/2010: Venezuela’s Chavez Announces Currency Devaluation, Two-Tiered Exchange Rate
- 1 of 803
- 1 of 597
- 1 of 31
- 1 of 25