Venezuela devalues currency 32% against US dollar

Venezuela_bolivar

Source: CNA – Venezuela devalues currency 32% against US dollar

Notable excerpts:

Venezuela said Friday it is devaluing its currency by 32 per cent against the dollar on the orders of cancer-stricken President Hugo Chavez, in part to trim a bloated budget deficit.

The bolivar will go from 4.3 to 6.3 to the dollar at the official exchange rate.

The goal is to “minimize expenditure and maximize results.” One effect of a devaluation is to make a country’s exports cheaper and thus more enticing to buyers.

But another effect is to cut the deficit, which in Venezuela last year was estimated to be nearly 10 per cent of GDP.

The economy grew 5.5 per cent last year and inflation was 20 per cent. That was down seven points from the previous year and hit the government target, but was still the highest official inflation rate in Latin America.

Venezuela is South America’s largest oil exporter and has the world’s largest proven reserves. Its oil transactions are dollar-denominated, so the bolivar-value of those sales will now be higher, boosting state revenues on paper.

This is Venezuela’s fifth currency devaluation in a decade. But a side effect of the new one will be higher inflation, economists warned.

Chavez established currency controls in 2003 and the government sets the rate to curb capital flight. But the existence of a strong black market for the dollar shows the continuing desire for hard currency.

Out on the street, there was little enthusiasm for the devaluation. “This is bad news,” said businessman Jorge Martinez, walking past the Venezuelan central bank with his wife. “We have been number-crunching because in a month we are going to travel to Spain, and now we do not have enough money.

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