Venezuelan President Hugo Chavez speaks in Caracas on January 8. Venezuela's first devaluation of its currency since 2005 should come as a boon to the massive public sector, while adding pressure to an already soaring inflation rate, experts said Saturday.
And Venezuela's inflation rate, which topped 25 percent in 2009, is Latin America's highest.
President Hugo Chavez devalued the bolivar Friday for the first time since 2005, creating a dual exchange rate system.
The move aims to favor some sectors of the economy the government considers priorities, with the bolivar pegged at 2.6 per dollar, down from 2.15 per dollar.
The leftist leader said that the health, food imports, machinery, books and technology sectors, as well as public sector imports and remittances would benefit from the preferential rate.
Meanwhile non-essential imports were to be subject to a rate of 4.3 bolivars per dollar.
The higher exchange rate would apply to items such as automobiles, telecommunications, tobacco, beverages, chemicals, petrochemicals and electronics.
The government allowed that inflation would remain a concern.
"It would be foolish on my part to deny that this measure will have an impact on prices," said Finance Minister Ali Rodriguez.
Economist Orlando Ochoa said that was the understatement of the year, and that Venezuelan consumers would pay big for the dual rate move.
The measures really are "throwing gasoline on a fire" as far as inflation is concerned, Ochoa said.
"Prices are going to go up, but the government needs more income and it will be getting more for its exports," he said.
Indeed "it is very rare to see anywhere in the world an exchange system that so greatly favors 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" mainly in oil, he noted.
Former central bank chief Jose Guerra summed it up as: "more money for the government, and less for the people."
"Devaluation in the absence of fiscal and monetary steps just means inflation," he stressed, noting that an imported car in theory would see its price doubled, at least.
The largest oil producer in South America, Venezuela slipped into a recession in 2009 for the first time in six years due to a drop in oil prices and production. Caracas had repeatedly ruled out devaluating its currency fueling black market trading.
Sunday, January 10, 2010
DTN News: Financial News TODAY January 11, 2010 ~ Government Hopes To Cash In On Devaluation In Venezuela
DTN News: Financial News TODAY January 11, 2010 ~ Government Hopes To Cash In On Devaluation In Venezuela
*Source: DTN News / Int'l Media
(NSI News Source Info) CARACAS, Venezuela - January 11, 2010: Venezuela's first devaluation of its currency since 2005 should come as a boon to the massive public sector, while adding pressure to an already soaring inflation rate, experts said Saturday.Venezuelan President Hugo Chavez speaks in Caracas on January 8. Venezuela's first devaluation of its currency since 2005 should come as a boon to the massive public sector, while adding pressure to an already soaring inflation rate, experts said Saturday.
And Venezuela's inflation rate, which topped 25 percent in 2009, is Latin America's highest.
President Hugo Chavez devalued the bolivar Friday for the first time since 2005, creating a dual exchange rate system.
The move aims to favor some sectors of the economy the government considers priorities, with the bolivar pegged at 2.6 per dollar, down from 2.15 per dollar.
The leftist leader said that the health, food imports, machinery, books and technology sectors, as well as public sector imports and remittances would benefit from the preferential rate.
Meanwhile non-essential imports were to be subject to a rate of 4.3 bolivars per dollar.
The higher exchange rate would apply to items such as automobiles, telecommunications, tobacco, beverages, chemicals, petrochemicals and electronics.
The government allowed that inflation would remain a concern.
"It would be foolish on my part to deny that this measure will have an impact on prices," said Finance Minister Ali Rodriguez.
Economist Orlando Ochoa said that was the understatement of the year, and that Venezuelan consumers would pay big for the dual rate move.
The measures really are "throwing gasoline on a fire" as far as inflation is concerned, Ochoa said.
"Prices are going to go up, but the government needs more income and it will be getting more for its exports," he said.
Indeed "it is very rare to see anywhere in the world an exchange system that so greatly favors 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" mainly in oil, he noted.
Former central bank chief Jose Guerra summed it up as: "more money for the government, and less for the people."
"Devaluation in the absence of fiscal and monetary steps just means inflation," he stressed, noting that an imported car in theory would see its price doubled, at least.
The largest oil producer in South America, Venezuela slipped into a recession in 2009 for the first time in six years due to a drop in oil prices and production. Caracas had repeatedly ruled out devaluating its currency fueling black market trading.
Venezuelan President Hugo Chavez speaks in Caracas on January 8. Venezuela's first devaluation of its currency since 2005 should come as a boon to the massive public sector, while adding pressure to an already soaring inflation rate, experts said Saturday.
And Venezuela's inflation rate, which topped 25 percent in 2009, is Latin America's highest.
President Hugo Chavez devalued the bolivar Friday for the first time since 2005, creating a dual exchange rate system.
The move aims to favor some sectors of the economy the government considers priorities, with the bolivar pegged at 2.6 per dollar, down from 2.15 per dollar.
The leftist leader said that the health, food imports, machinery, books and technology sectors, as well as public sector imports and remittances would benefit from the preferential rate.
Meanwhile non-essential imports were to be subject to a rate of 4.3 bolivars per dollar.
The higher exchange rate would apply to items such as automobiles, telecommunications, tobacco, beverages, chemicals, petrochemicals and electronics.
The government allowed that inflation would remain a concern.
"It would be foolish on my part to deny that this measure will have an impact on prices," said Finance Minister Ali Rodriguez.
Economist Orlando Ochoa said that was the understatement of the year, and that Venezuelan consumers would pay big for the dual rate move.
The measures really are "throwing gasoline on a fire" as far as inflation is concerned, Ochoa said.
"Prices are going to go up, but the government needs more income and it will be getting more for its exports," he said.
Indeed "it is very rare to see anywhere in the world an exchange system that so greatly favors 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" mainly in oil, he noted.
Former central bank chief Jose Guerra summed it up as: "more money for the government, and less for the people."
"Devaluation in the absence of fiscal and monetary steps just means inflation," he stressed, noting that an imported car in theory would see its price doubled, at least.
The largest oil producer in South America, Venezuela slipped into a recession in 2009 for the first time in six years due to a drop in oil prices and production. Caracas had repeatedly ruled out devaluating its currency fueling black market trading.
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