Chavez's decision to devalue bolivar aims to lift oil earnings
By Jorge Rueda |
January 11, 2010, Monday
|
Print Edition
Print Edition
VENEZUELAN President Hugo Chavez's decision to devalue Venezuela's currency for the first time in nearly five years aims to stretch oil earnings further and counter a recession by increasing government spending.
The devaluation of the bolivar lessens a wide gap with the black-market exchange rate for United States dollars and will unavoidably push inflation - already the highest in Latin America at 25 percent - to even higher levels.
Opposition leaders on Saturday called the devaluation a blow to Venezuelans that will make them pay through inflation while letting the government instantly convert its oil revenue into more cash domestically to boost spending ahead of congressional elections.
"Venezuelans' standard of living has been devalued," said Caracas Mayor Antonio Ledezma, a member of the opposition.
Finance Minister Ali Rodriguez said the devaluation announced by Chavez on Friday should add to inflation by 3 percent to 5 percent this year. Some economists predicted a much bigger leap.
Dozens of Venezuelans lined up in Caracas over the weekend outside stores that sell electronics and appliances, trying to buy items that they fear soon will be considerably more expensive.
"When I heard about the dollar, I didn't think twice about it. I got some of the last cash out of my account and I came to buy my washing machine," said Iraima Rodriguez, a 31-year-old secretary. "Whenever they devalue, the prices go sky high."
The currency's official exchange rate had been 2.15 bolivars to the dollar since a devaluation in March 2005. Chavez set a new two-tiered exchange rate to lessen the impact on prices for priority imports like food, medical products and machinery for economic development. The bolivar will trade at 2.6 to the dollar for priority transactions and 4.3 to the dollar for other transactions.
The higher rate, which Chavez called the "oil dollar," doubles the paper value of Venezuela's oil earnings when converted to local currency. Oil accounts for about half the government budget, but that income has been squeezed by lower world oil prices and declines in output in the last year.
The president - a self-described Marxist and former paratroop commander - said the adjusted currency rates aim to boost local manufacturing of items such as clothing and shoes.
The devaluation of the bolivar lessens a wide gap with the black-market exchange rate for United States dollars and will unavoidably push inflation - already the highest in Latin America at 25 percent - to even higher levels.
Opposition leaders on Saturday called the devaluation a blow to Venezuelans that will make them pay through inflation while letting the government instantly convert its oil revenue into more cash domestically to boost spending ahead of congressional elections.
"Venezuelans' standard of living has been devalued," said Caracas Mayor Antonio Ledezma, a member of the opposition.
Finance Minister Ali Rodriguez said the devaluation announced by Chavez on Friday should add to inflation by 3 percent to 5 percent this year. Some economists predicted a much bigger leap.
Dozens of Venezuelans lined up in Caracas over the weekend outside stores that sell electronics and appliances, trying to buy items that they fear soon will be considerably more expensive.
"When I heard about the dollar, I didn't think twice about it. I got some of the last cash out of my account and I came to buy my washing machine," said Iraima Rodriguez, a 31-year-old secretary. "Whenever they devalue, the prices go sky high."
The currency's official exchange rate had been 2.15 bolivars to the dollar since a devaluation in March 2005. Chavez set a new two-tiered exchange rate to lessen the impact on prices for priority imports like food, medical products and machinery for economic development. The bolivar will trade at 2.6 to the dollar for priority transactions and 4.3 to the dollar for other transactions.
The higher rate, which Chavez called the "oil dollar," doubles the paper value of Venezuela's oil earnings when converted to local currency. Oil accounts for about half the government budget, but that income has been squeezed by lower world oil prices and declines in output in the last year.
The president - a self-described Marxist and former paratroop commander - said the adjusted currency rates aim to boost local manufacturing of items such as clothing and shoes.
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