Raul Gallegos : Venezuela:
false hope, investors may exit
Venezuela’s devaluation bodes badly for investors. The move announced Friday to weaken the currency 32 percent to 6.3 bolivars per dollar strengthens the government. It eases an overvalued exchange rate and gives the state more solvency. But it also proves Hugo Chavez’s ministers can run Venezuela without Chavez. Investors may want to eye an exit.
The Venezuelan economy has seen worse days. Its GDP grew 5.5 percent last year, a faster clip than Latin America’s largest economy, Brazil, which rose merely 1 percent. And while Venezuela’s 20 percent inflation rate was the second highest in the region after Argentina’s, it was still its lowest level in nearly four years.
But a devaluation was overdue. Chavez’s heavy spending ahead of October’s election ensured his victory by ten percentage points, but it pushed Venezuela’s deficit to 11 percent of GDP according to Moody’s Investors Service. Meanwhile, strict capital controls have starved businesses of dollars, leading to product shortages and heavy dollar demand. By year end, a greenback in Venezuela’s black market fetched four times the official rate of 4.3 bolivars per dollar.
The Chavez administration has used devaluations before to strengthen its hand. Adjusting the exchange rate allows the government to obtain more bolivars for every dollar in oil sold. Ecoanalitica, an analysis firm, reckons the devaluation will mean an additional $13.4 billion for state coffers. This gives Chavistas more spending power to cement their popularity among the poor.
Chavez is still in Havana fighting for his life and his return looks increasingly unlikely. But the Chavistas running Venezuela have felt comfortable enough to make major economic decisions in his absence. And Chavez’s heir, Vice President Nicolas Maduro, will no doubt follow the same tired economic script if he were elected to serve in the leader’s absence.
Investors hopeful for regime change have welcomed a weaker bolivar. The price for Venezuela’s 2022 bonds rose to well above par on Friday and pushed yields down to 9 percent, their lowest return ever. Venezuela’s debt has returned nearly 40 percent since Chavez fell ill. But investors expecting a fiscal turnaround in Venezuela may be as unrealistic as Chavez’s supporters awaiting his return. They may want to quit while they’re still ahead.
Follow us and post your comments: in Twitter Facebook
Editor's Note:This commentary was originally published byt State of Americas on Feb. 11, 2013. Petroleumworld reprint this article in the interest of our readers.
All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld. All comments expressed are private comments and do not necessary reflect the view of this website. All comments are posted and published without liability to Petroleumworld.
Use Notice:This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of environmental and humanitarian significance. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml.
All works published by Petroleumworld are in accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.Petroleumworld has no affiliation whatsoever with the originator of this article nor is Petroleumworld endorsed or sponsored by the originator.
Petroleumworld encourages persons to reproduce, reprint, or broadcast Petroleumworld articles provided that any such reproduction identify the original source, http://www.petroleumworld.com or else and it is done within the fair use as provided for in section 107 of the US Copyright Law.
If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner. Internet web links to http://www.petroleumworld.com are appreciated
Petroleumworld News 02/13/2013
Follow us in Twitter
And post your comments in our Facebook site
Petroleumworld welcomes your feedback
and comments, share your thoughts on this article,
your feedback is important to us!
We invite all our readers to share with us their views and
comments about this article, write to email@example.com
Copyright© 1999-2010 Petroleumworld or respective author or news agency. All rights reserved.
We welcome the use of Petroleumworld™ stories by anyone provided it mentions Petroleumworld.com as the source. Other stories you have to get authorization by its authors
Send this story to a friend Any question or suggestions,
please write to: firstname.lastname@example.org
Best Viewed with IE 5.01+Windows NT 4.0, '95, '98, ME,
XP, Vista, W7 +/ 800x600 pixels