RSS 2.0 FeedChavez Tries To Mask Currency Devaluation
by Brad WarbianyDown in Venezuela, the low oil prices have been particularly punishing to Hugo Chavez. Faced with a crisis where his government programs are far more expensive than his revenues, he’s taken the path expected of any tin-pot dictator or Federal Reserve Chairman — he’s going to devalue the currency (though taking pains to hide it):
Venezuelan President Hugo Chavez says he won’t adjust the oil-exporting country’s pegged exchange rate amid a plunge in prices for crude. Instead, seeking to maintain his popularity, he may devalue the currency by sleight of hand.
The government is already cutting its sales of dollars at the rate it established in 2005, forcing travelers abroad to turn to a parallel, unofficial market where U.S. currency sells at a 61 percent premium. Venezuelans need government authorization to get dollars at the official rate.
“What’s essentially going on is a surreptitious devaluation,” said Russell Dallen, head trader at Caracas Capital Markets, a unit of BBO Financial Services Inc., a Caracas-based brokerage and asset management company. “They’re pushing more people into the unofficial market, so that’s forcing a devaluation on more people.”
Chavez is desperately hoping for a turnaround in oil prices (which isn’t entirely misguided, IMHO), and he’s betting the farm on it.
Chavez and Rodriguez have said oil may be poised to rebound. In any event, Chavez says his socialist political project can survive low prices, as it did in 2001 and 2002. On New Years Eve he unveiled plans for $100 billion in projects over the next four years.
“His mouth is writing checks that the oil price doesn’t allow him to cash at the moment,” said Dallen, the trader at Caracas Capital Markets.
It wasn’t long ago that many of us claimed that Chavez’ Revolución was entirely dependent on expensive oil, and that even at expensive oil prices he’d be hard-pressed to keep it up. Oil-rich socialist regimes who spend too much on domestic affairs while neglecting development of new oil fields tend to be self-limiting. It seems Hugo’s gotten himself in a bind, though, as the global economic situation is placing wholly unexpected pressure on his plans.
Hugo is waiting for the reversal in oil, and it may come. The question will be whether he can hold out long enough to see it.
[...] the rest of the post here: Chavez Tries To Mask Currency Devaluation – Liberty Papers [...]
Pingback by Chavez Tries To Mask Currency Devaluation - Liberty Papers | FX Online Forex — January 13, 2009 @ 7:27 amPerhaps oil will turn around, but I wouldn’t bet the rancho that it will return to Chavez-happy levels.
Comment by Matt — January 13, 2009 @ 11:39 amWhat we’re really seeing is a change in habits and a change in technology. This may lower the future use of oil. Perhaps a few percentage points here and there, but like a bullet that is just a fraction of an inch of the target misses its mark by a mile down-rnage, the predictions could be dramatically altered in the future.
[...] Chavez tries to mask currency devaluation (The Liberty Papers) The government is already cutting its sales of dollars at the rate it established in 2005, forcing travelers abroad to turn to a parallel, unofficial market where U.S. currency sells at a 61 percent premium. Venezuelans need government authorization to get dollars at the official rate. [...]
Pingback by Who’s going to pay for this stuff, anyway? « Blunt Object — January 13, 2009 @ 10:06 pmI have a quibble. This is not currency devaluation as it is normally understood, since the value of the currency is whatever the black market says it is. Remember, a black market is merely the free market in some good – when the government is trying to suppress the market.
The currency devaluation happened in previous years, the government is merely reducing its attempts to pretend otherwise.
Comment by tarran — January 14, 2009 @ 12:02 am