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ECONOMY-VENEZUELA: Buying
Frenzy Follows Devaluation
By Humberto Márquez
CARACAS (IPS) - Tens of thousands of
shoppers in Venezuela practically stormed
businesses selling home appliances and other
consumer products after the government cut
the exchange rate of the bolivar against the
dollar by half.
On Tuesday lines continued to form outside
stores in Caracas and other cities, as
managers allowed in small groups of shoppers
at a time.
The shopping frenzy began Saturday morning,
after President Hugo Chávez announced Friday
that the exchange rate of 2.15 bolivars to
the dollar, in place since 2005, was being
adjusted to 4.3 to the dollar for most
economic transactions.
However, an exchange rate of 2.6 bolivars to
the dollar will apply to "priority" imports
like food, medicines and some "capital
goods" - machinery, tools or equipment used
to manufacture other goods and services - as
well as state expenditure abroad and
remittances to relatives, students and
pensioners overseas.
The bolivar has been known as the "fuerte"
(strong) in Venezuela since 2008, when the
government lopped three zeros off the
national currency, one of the most stable
and internationally recognised in Latin
America until 1983, when the first major
devaluation occurred.
"Everything will cost double in a few weeks.
We have to move fast, so I pulled some money
together and bought what I was thinking of
purchasing later, in the middle of the
year," bus driver José Velásquez told IPS
outside of a store in the central Caracas
neighbourhood of La Candelaria. He had just
bought a TV set, blender and microwave oven.
On the northeast side of the city, teacher
Damelys Duarte remarked to IPS - as her two
sons loaded an air conditioner into her car
- that "I was going to buy this when the
heat started (after March), but it'll be
more expensive then, or maybe air
conditioners will have run out and new ones
won't have come in."
"Some bourgeois are saying that because of
the measures that were announced, they will
have to raise prices. But we are not going
to accept that under any circumstances! I am
urging them not to do so, and I am calling
on the people not to allow it. There is no
reason for anyone to raise prices," the
president said.
"I want the National Guard (a military corps
with police functions) to hit the streets to
fight speculation," he added, warning that
"we will seize the business of anyone who
speculates, and hand it over to the workers"
- a reference to the overpricing that has
been practiced by some butcher shops and
other companies.
"We have been selling dollars cheaply for a
long time, so many sectors prefer to import,
because it's less expensive for them, rather
than making a bigger effort to produce
here," said Chávez, who also announced a one
billion dollar fund to boost exports.
Former finance minister Rodrigo Cabezas said
"the fixed exchange rate of 2.15 bolivars to
the dollar became unsustainable in the
context of four years of moderate, but
recurrent, inflation, which led to a drop in
purchasing power of the national currency
against the dollar."
Inflation dropped from 31 to 25 percent
between 2008 and 2009.
Oil revenues in Venezuela have grown
steadily since 2003, to 90 billion dollars
in 2008. But non-oil exports stood at just
five billion dollars in 2003, and fell to
three billion in 2009. GDP growth averaged
7.6 percent between 2003 and 2007, and the
poverty rate was reduced from 50 percent in
1998 to 24 percent in 2009.
Imports, meanwhile, reached a record 48
billion dollars in 2008, although they
shrank to 37 billion last year. That total
included seven billion dollars in imports of
basic food products. In fact, two out of
three kg of day-to-day food items were
purchased abroad.
José Guerra, director of the School of
Economy at the Central University in
Caracas, said "devaluation cannot bring
about an increase in exports overnight,
especially when economic policies over the
last few years have destroyed a large part
of the productive apparatus."
Guerra, a critic of Chávez, told IPS that
"this devaluation will simply mean more
money for the government and less for the
people - who, especially the poor, will
finance the state with more inflation."
Economist Orlando Ochoa said "it is rare to
see anywhere in the world an exchange system
that so greatly favours the public sector;
the state imports at 2.6 bolivars to the
dollar but is going to receive 4.3 bolivars
for every dollar in exports," thus amassing
the large difference in bolivars.
The new exchange system means that the state
oil giant PDVSA will receive 4.3 bolivars
for every export dollar delivered to the
Central Bank. But like the rest of the state
sector, dollars for its purchases abroad
will cost it 2.6 bolivars.
Not only is PDVSA in debt to suppliers and
subcontractors that have been nationalised
in recent years, but it also has large
investment commitments in Venezuela and
abroad and a collective wage agreement with
over 70,000 workers costing some eight
billion dollars.
In addition, it plays a major role in
running the Chávez administration's social
programmes or "missions", which include
literacy training, primary health care in
the slums, food for the poor at subsidised
prices, soup kitchens for low-income women
and children, free eye operations, dental
care, microbusiness loans, support for
cooperatives, scholarships at all
educational levels, and stipends for the
unemployed who take training courses.
According to Ecoanalítica, a Caracas-based
economic consulting company, the devaluation
will bring the government an additional 100
billion bolivars (23 billion dollars at the
4.3 exchange rate) over and above its normal
budgeted income of 159 billion bolivars.
Economists point out that the budget was
calculated on the premise of oil sales at 60
dollars a barrel, whereas the price of oil
on the international markets has now rallied
to between 70 and 80 dollars. Furthermore,
the Central Bank is going to hand over to
the executive branch seven billion dollars
of what it regards as surplus reserves.
Nearly all opposition leaders therefore
consider that the devaluation is not only
for revenue but also for electoral purposes,
because the government will command
resources 50 percent in excess of its
budget, that can be used practically at its
own discretion this year. Parliamentary
elections are due on Sept. 26.
The 166-seat single-chamber parliament was
left entirely in pro-government hands in
2005, when the opposition boycotted the
elections, alleging a lack of transparency,
although no international observers found
any signs of fraud. Later, a handful of
lawmakers broke with the government.
Consequences
According to Caracas-based firm Datanalisis,
the president's popularity slid from 61
percent in February to 52.8 percent in
September. Since his first election in 1998,
he has won a number of elections with over
55 percent of the vote, and he remains by
far the most popular leader in the country.
The fragmented opposition hopes to win a
significant number of seats in the late
September legislative elections.
Chávez has already started campaigning at
the head of his United Socialist Party of
Venezuela (PSUV), warning that if the
opposition gains a majority in parliament it
will repeal statutes and laws undergirding
his political project, which he calls "21st
century socialism."
On the economic front, the tens of thousands
of consumers crowding stores selling
domestic appliances left no doubt that they
expect prices to rise significantly, as has
happened in the past whenever there has been
a sudden devaluation. "It would be foolish
on my part to deny that this measure will
have an impact on prices," said Finance
Minister Alí Rodríguez, who calculates that
the devaluation will drive up the forecast
for inflation this year, which was between
20 and 22 percent, by an additional three to
five percentage points.
In contrast, Domingo Maza, a former head of
the Central Bank who has taught several
generations of economists, said that due to
the new measure, inflation in Venezuela "may
be between 50 and 60 percent" in 2010.
Maza, along with other economists and
members of the business community, says the
impact of the devaluation will depend on
whether there are continued restrictions and
delays by the government in providing hard
currency to private operators.
In recent years, the government has
permitted a secondary currency exchange
method, known as the "permuta," that uses
offshore corporations to swap debt bonds
acquired in bolivars but denominated in
dollars. The exchange rate on this parallel
market is two to three times higher than the
official rate.
Many importers and travellers resort to
these "permuta" dollars to finance their
expenses abroad, but exchange controls are
very strict and, by law, the "permuta"
exchange rate cannot be publicly mentioned
in Venezuela, on pain of a prison sentence.
Governing party lawmakers are examining the
possibility of repealing this law to enable
the Central Bank to operate in the "permuta"
market, which would ease the pressure of
demand for dollars at 2.6 and 4.3 bolivars.
Finally, the devaluation will affect the
repatriation of profits by transnational
companies with enormous incomes in bolivars.
For example, the Spanish company Telefónica
was intending to take home two billion
dollars, but is likely to be able to send
only half that amount. |
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