Monitor Interamericano

A government that devalues is a devaluated government (12/01/2010)

The Government of Venezuela has enacted new foreign exchange regulations introducing a dual exchange control system with the parallel “bond swap market” remaining as an alternative, but under closer intervention by the government. Pursuant to the new regulations the devaluation of the Bolivar Fuerte in relation to the USD is of 20% and 100% for different sectors of the economy. This policy change represents a radical departure from the "exchange rate anchor" strategy that had been used for 10 years by the Chavez government. It shows significant weaknesses in the fiscal and external accounts of the unaudited and "unauditable" regime, and it opens the door to high inflation, further private-public sector tension and perhaps new obstacles to the success of Hugo Chavez in the near to come parliamentary election. However it must be noted that the devaluation came together with a transfer of US$ 7 billion of international reserves from the Central Bank to FONDEM (the government centralized investment fund), which anticipates massive expenses in an electoral year. After the elections we will know whether the cost of inflation and other economic weaknesses of the regime out-weights the populist intentions behind this expansion of government expenditure. Off course, much of the outcome also relates to the unification of the opposition forces in turn of an electoral platform for the upcoming congressional elections. A defeat in such critical process, turning the majority of the seats in the National Assembly to the opposition will be devastating to a regime that shows the early signs of economic fatigue, together with a collapse in public services. Today the government also announced sweeping restrictions to energy consumption around the country. An preliminary analysis by LMN Consulting LLC is enclosed for further reference.

Leopoldo J Martinez

Documento completo

• A government that devalues is a devaluated government (12/01/2010)
• The time machine: Venezuela's travel to the past and the end of freedom of speech (31/07/2009)
• El triunfo de Barack Obama (10/01/2009)
• Análisis Posreferendo Constitucional en Venezuela (08/12/2007)
• Chavez y Evo (08/06/2006)
• The End of the Andean Community (31/05/2006)
• Bolivia: Comprendiendo las implicaciones del Triunfo de Evo Morales (23/12/2005)
• Understanding the Silence of Venezuela (09/12/2005)

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