CARACAS, Venezuela (AP) — Venezuela's currency devaluation took effect on Wednesday amid questions about how the government can get a grip on 22-percent inflation and satisfy growing demand for dollars to pay for imported goods.
Some economists predict that the devaluation won't solve problems such as a dearth of dollars for imports and shortages of some staple foods.
The country's fifth devaluation in a decade established a new government-set rate of 6.30 bolivars to the dollar, replacing the previous rate of 4.30 bolivars.
Venezuela also has a flourishing black market in which bolivars are being traded for more than three times the new official rate.
Economist Jose Guerra said he still doubts that the Central Bank and government currency agency will be able to meet heavy demand for dollars, especially now that officials have eliminated a state-run bond trading system that had provided dollars at a second-tier rate.
Vice President Nicolas Maduro, who has taken on additional authority during the past two months while President Hugo Chavez has been away in Cuba for cancer treatment, has said the government has enough dollars from oil earnings to meet all the needs of the economy.
But Planning and Finance Minister Jorge Giordani has said that dollars will go toward "priority" goods, leading some economists to conclude that the government seems to be stiffening its currency exchange controls. Venezuela's government has maintained strict currency controls since 2003.
Under the controls, people and businesses must apply to a government currency agency to receive dollars at the government-set official rate to import goods, pay for travel or cover other obligations.
Giordani said at a news conference Wednesday that a new entity being created by the government, called the Superior Body for the Optimization of the Exchange System, will be in charge of overseeing the distribution of dollars for priority imports.
The government typically has favored companies importing food, medicines and other basic goods. Government officials haven't provided details about how they plan to meet the demands of importers and other businesses for dollars that used to be provided through the government-run bond market.
Sporadic shortages of some basic foods such as sugar, flour, cornmeal and cooking oil have worsened during the past few months while the government has been making available fewer dollars at the fixed exchange rate.
Amid heavy demand for foreign currency, economists estimate the black market has recently been satifying about 12 percent of the demand for dollars in the country.
Many Venezuelans have turned to buying cars, appliances and other goods to try to protect the value of their money as the country's inflation has eroded the value of their savings.
But Ronald Balza, an economics professor at Andres Bello Catholic University in Caracas, said he doesn't expect much of an additional buying boom by consumers after the devaluation because the measure had been widely expected for months and many Venezuelans had already been buying large numbers of appliances and electronic items since late last year to try to convert their bolivars into goods that would hold their value.
The devaluation should further drive up inflation, but the effect won't be immediate because the government allowed for some previously approved dollar transactions to be completed at the previous rate for imports of food, construction supplies and other goods, Balza said in a telephone interview.
Guerra, an economics professor at Central University of Venezuela, also predicted that the devaluation is likely to push inflation to 25 percent this year, following 20 percent inflation during 2012. Industry Minister Ricardo Menendez, however, said the devaluation shouldn't increase inflation.
He said the government will step up inspections of businesses that receive dollars at the official rate to make sure they aren't engaging in price speculation.
The government has announced similar measures after previous devaluations and also maintains price controls on many foods and other items.
Guerra and other analysts say the black market has increasingly become a headache for the government because that unofficial exchange rate has become an indicator of consumer prices for many goods.
The devaluation is expected to help the government reduce its budget deficit. But Balza said the government's still faces a "complicated situation" and that the devaluation isn't sufficient to fully deal with its budget woes.
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Some economists predict that the devaluation won't solve problems such as a dearth of dollars for imports and shortages of some staple foods.
The country's fifth devaluation in a decade established a new government-set rate of 6.30 bolivars to the dollar, replacing the previous rate of 4.30 bolivars.
Venezuela also has a flourishing black market in which bolivars are being traded for more than three times the new official rate.
Economist Jose Guerra said he still doubts that the Central Bank and government currency agency will be able to meet heavy demand for dollars, especially now that officials have eliminated a state-run bond trading system that had provided dollars at a second-tier rate.
Vice President Nicolas Maduro, who has taken on additional authority during the past two months while President Hugo Chavez has been away in Cuba for cancer treatment, has said the government has enough dollars from oil earnings to meet all the needs of the economy.
But Planning and Finance Minister Jorge Giordani has said that dollars will go toward "priority" goods, leading some economists to conclude that the government seems to be stiffening its currency exchange controls. Venezuela's government has maintained strict currency controls since 2003.
Under the controls, people and businesses must apply to a government currency agency to receive dollars at the government-set official rate to import goods, pay for travel or cover other obligations.
Giordani said at a news conference Wednesday that a new entity being created by the government, called the Superior Body for the Optimization of the Exchange System, will be in charge of overseeing the distribution of dollars for priority imports.
The government typically has favored companies importing food, medicines and other basic goods. Government officials haven't provided details about how they plan to meet the demands of importers and other businesses for dollars that used to be provided through the government-run bond market.
Sporadic shortages of some basic foods such as sugar, flour, cornmeal and cooking oil have worsened during the past few months while the government has been making available fewer dollars at the fixed exchange rate.
Amid heavy demand for foreign currency, economists estimate the black market has recently been satifying about 12 percent of the demand for dollars in the country.
Many Venezuelans have turned to buying cars, appliances and other goods to try to protect the value of their money as the country's inflation has eroded the value of their savings.
But Ronald Balza, an economics professor at Andres Bello Catholic University in Caracas, said he doesn't expect much of an additional buying boom by consumers after the devaluation because the measure had been widely expected for months and many Venezuelans had already been buying large numbers of appliances and electronic items since late last year to try to convert their bolivars into goods that would hold their value.
The devaluation should further drive up inflation, but the effect won't be immediate because the government allowed for some previously approved dollar transactions to be completed at the previous rate for imports of food, construction supplies and other goods, Balza said in a telephone interview.
Guerra, an economics professor at Central University of Venezuela, also predicted that the devaluation is likely to push inflation to 25 percent this year, following 20 percent inflation during 2012. Industry Minister Ricardo Menendez, however, said the devaluation shouldn't increase inflation.
He said the government will step up inspections of businesses that receive dollars at the official rate to make sure they aren't engaging in price speculation.
The government has announced similar measures after previous devaluations and also maintains price controls on many foods and other items.
Guerra and other analysts say the black market has increasingly become a headache for the government because that unofficial exchange rate has become an indicator of consumer prices for many goods.
The devaluation is expected to help the government reduce its budget deficit. But Balza said the government's still faces a "complicated situation" and that the devaluation isn't sufficient to fully deal with its budget woes.
yahoo.com
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