Girish Gupta

HOME

BY COUNTRY

Brazil
Colombia
Cuba
Ecuador
Egypt
Guyana
Iraq
Jordan
Lebanon
Mexico
United Kingdom
Venezuela

BY MEDIUM

Text
Photo
Radio
TV/Video

BY PUBLISHER

Al Jazeera
BBC
BuzzFeed
CBC
Christian Science Monitor
CNN
Daily Mail
Datum
Ecologist
Economist Intelligence Unit
Emerging Markets
Financial Times
Foreign Policy
France 24
Fusion
GlobalPost
Guardian
Independent
La Prensa (Panama)
LatinFinance
Mancunion
Monocle
National (Abu Dhabi)
New Internationalist
New Statesman
New York Times
New Yorker
NPR
PBS
PRI
Radio France Internationale
Reuters
RTE
Sky News
Sun
Sunday Times
Telegraph
TIME
Times of London
USA Today
Vice
WLRN

ABOUT

About
CV
Contact (PGP Key)

Twitter
Facebook
LinkedIn
Finance minister nixes possible devaluation
Nov. 11, 2014

Published by Economist Intelligence Unit

Event

The finance minister, Rodolfo Marco Torres, has stated that the government has no plans to devalue Venezuela's currency or change the country's exchange mechanisms.

Analysis

Venezuela offers three rates of exchange with the US dollar. The strongest rate, of BsF6.3:US$1, is reserved for what the government deems priority goods (such as medicine and food). The second rate, known as Sicad 1, is around BsF12:US$1 and the third, Sicad II, is BsF50:US$1. However, with Venezuelans struggling to get hold of dollars at these overvalued rates, a black market has emerged, on which the local currency sells for more than BsF100:US$1.

Mr Torres said in a television interview that the government has no plans to devalue the currency, adding that 80% of foreign currency is provided at the strongest rate. He also said that the authorities continuously evaluate the country's exchange mechanisms. Venezuelans are becoming more desperate for foreign currency, as is demonstrated by the country's black-market exchange rate, which has devalued from BsF8:US$1 to the current rate in less than three years. Annual inflation is over 60%, and shortages of basic goods are widespread.

With the combination of the recent drop in oil prices and of major debt obligations falling due, Venezuela had been expected to devalue the BsF6.3:US$1 rate at the beginning of 2015, in a push to alleviate some of the country's myriad economic problems. Should Venezuela not devalue this rate, the country's economic situation will continue to worsen, which could be politically dangerous for the president, Nicolás Maduro, whose approval ratings are in the low thirties. However, devaluing also carries political risks. Mr Torres also indicated that any decision to raise petrol prices, currently the cheapest in the world, would be taken by Mr Maduro himself. A generous fuel subsidy costs the government around US$12bn annually, but any adjustments to it would be politically dangerous for Mr Maduro.

Impact on the forecast

We maintain our forecast that the official exchange rate will remain heavily overvalued. Efforts to boost foreign-exchange inflows are likely to fail and, given that the money supply is growing increasingly rapidly (it has risen by around 70% year on year in recent months), these imbalances will continue to worsen, requiring further downward exchange-rate adjustments or interest-rate increases.




More...

Crisis-hit Venezuela halts publication of another major indicator
Mar. 21, 2017


Back in Venezuela, 'world's worst skier' proud of his performance
Feb. 26, 2017


Some poor Venezuelan parents give away children amid deep crisis
Dec. 15, 2016


Desperate to dump soon-worthless cash, Venezuelans flock to banks
Dec. 13, 2016


Inflation-hit Venezuela to pull largest bill from circulation
Dec. 11, 2016


Venezuela confirms bigger bills amid world's highest inflation
Dec. 04, 2016


Venezuela PDVSA awards $3.2 bln oil service contracts, protest brews
Sept. 21, 2016


Maduro revels in support from Zimbabwe, Iran as critics decry failed summit
Sept. 18, 2016


Venezuela summit draws few leaders in blow to Maduro
Sept. 17, 2016


Near Venezuela summit, pots-and-pans protest showed domestic tumult
Sept. 17, 2016


Once 'Pearl of Caribbean' gets new shine for Venezuela summit
Sept. 16, 2016


Maduro boasts start of Venezuela summit despite 'gringo pressure'
Sept. 13, 2016


Venezuela's troubles overshadow Non-Aligned Summit
Sept. 11, 2016


Venezuela renews drilling tender after earlier collapse - sources
Aug. 26, 2016


Hungry in a Venezuelan slum, a Facebook Live video
Aug. 04, 2016








© Girish Gupta