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Venezuela to give currency new name and numbers
By Simon Romero
The New York Times
CARACAS
Petroleumworld.com 03 19 07
Of all the startling measures announced by President Hugo Chávez this year, from the nationalization of major utilities to threats of imprisonment for violators of price controls, none have baffled economists quite like his venture into monetary reform.First, Mr. Chávez said the authorities would remove three zeroes from the denomination of the currency, the bolívar. Then he said the new bolívar, worth 1,000 old bolívars, would be renamed the “bolívar fuerte,” or strong bolívar.
Finally, at the behest of Mr. Chávez, the central bank said this week that it would reintroduce a 12.5-cent coin, a symbol of Venezuela’s prosperity in the 1960s and 1970s before freewheeling oil booms ended in abrupt devaluations, after three decades out of circulation.
Mr. Chávez champions these ideas, which will take effect in January, as ways to combat inflation, which in recent weeks crept up to 20 percent, the highest in Latin America. Officials blame “hoarders” for shortages of basic goods and price increases for food on the black market. Mr. Chávez says the renaming and redenominating the currency will instill confidence in it.
Gastón Parra, the president of the central bank, went on television this week to emphasize that the effect of these measures on the value of Venezuela’s currency would be neutral, neither increasing or decreasing salaries, debts nor the price of consumer goods.
Private economists, however, say the changes, combined with inflation, could heighten confusion over prices. Those economists say the inflation is a result of a surge in public spending by Mr. Chávez and increasingly jittery efforts by the wealthy to circumvent tightening controls on prices and foreign exchange.
“We’re witnessing policy in the form of window dressing, all carried out at the whim of one man whose strong point is not economics,” said Hugo Faría, an economist at the Institute of Higher Management Studies, a private business school here. “Anyone who sees a 12 ½-cent coin as a remedy for this country’s problems isn’t thinking too clearly.”
Inflation has been climbing rapidly since January when a sharp decline in the black-market value of the bolívar pushed up prices of imported goods. Since Mr. Chávez moved to nationalize major telephone and electricity companies in January, Venezuelans have rushed to take money out of the country, currency traders say. That exodus has caused the bolívar to weaken by about 20 percent to a level of 4,000 to the dollar on the black market, placing it among the world’s worst performing currencies this year.
The decisions to rename the currency and reintroduce the unusual coin, known here as the locha, a term thought to derive from an anachronistic practice of dividing monetary units into eighths, have dumbfounded many Venezuelans. More than a third of the country’s population of 26 million is under age 18, with no memory of the coin, which stopped circulating in the 1970s.
“I think that it’s cheap psychology,” said Jhonny Márquez, a manager at a transportation company. “I don’t believe the inflation will go down.”
Still, Mr. Chávez, 52, waxes nostalgic about the coin. Citing “the respect Venezuela’s economy has around the world” in a transmission of his television talk show this month in which he announced the coin’s return, Mr. Chávez said, “We’re going to end monetary instability in Venezuela.”
Mr. Chávez has said that redenominating the currency would reflect the economic strength that has been regained during his administration, ending a slide of the bolívar that began in 1983.
Other countries have renamed their currencies in an effort to increase confidence in their economies, but economists say such moves need to be accompanied by a display of strong economic fundamentals and transparent rules for investment by private industry.
In many respects, Venezuela has strong fundamentals, with more than $30 billion in foreign currency reserves and large inflows of revenue from oil exports this year, which are expected to surpass $50 billion. But economists say confidence in the economy has started to erode since the government began to aggressively assert control over the activities of foreign companies in recent months. The de facto devaluation of the bolívar in street trading illustrates the growing concern.
Economic historians here say the 12.5-cent coin was a descendant of a 2.5-cent coin introduced in the 1870s when the country’s currency was called the venozolano. The denomination was changed to 12.5 cents when the bolívar, named in honor of the Caracas-born liberation hero Simón Bolívar, was introduced.
“At least they’re not calling the new currency the venecuba,” said Antonio Alessandrini, the owner of Globus, a Caracas company that deals in rare coins, a reference to Venezuela’s alliance with Cuba. “Maybe these changes will create an uptick in our business.”
Symbolism has long been a priority for Mr. Chávez, whose presidency began in 1999. For instance, after emerging victorious from a strike that had reduced Venezuela’s oil exports in 2002 and 2003, he renamed the tankers that had dropped anchor to harden the strike. Gone were the names of Venezuelan beauty queens, replaced with names of Simón Bolívar’s servant and his lover.
Some historians see in Mr. Chávez’s newest financial measures a parallel with changes made by Cuba when Che Guevara became president of the Cuban central bank after the overthrow of the strongman Fulgencio Batista. Cuba issued currency with new iconography, including a five-peso bill with the image of Antonio Maceo, an Afro-Cuban independence leader.
Mr. Parra, of the central bank, said that iconic changes were in store for the bolívar fuerte. Officials at the central bank have defended the various monetary changes, including the reintroduction of the 12.5-cent coin, saying it would prevent consumers from having their purchases rounded up by merchants.
“Bringing memories of a past when the currency was strong may create the hope that the currency’s strong again,” said Fernando Coronil, an authority on Venezuelan history at the University of Michigan. “But if this does not match the real strength of the economy, these measures could backfire.”
By focusing on financial symbolism, economists say, Mr. Chávez is avoiding moves needed to thwart more erosion in the value of the bolívar. Public spending soared 48 percent last year to about $53 billion after the government lavished bonuses on civil servants and spent more on social welfare programs.
With oil prices at historically high levels, Venezuela’s economy is still growing at an enviable rate of about 10 percent a year, but economists say inflation is fueled in part by haphazard policies that prioritize consumption over saving. For instance, car sales are up 49.5 percent this year, according to the Cavenez automobile industry chamber.
Mr. Chávez’s reintroduction of the coin invokes a period when Venezuela enjoyed large foreign investment and remarkable price stability. A common response then to the question “how are you?” was “en la lucha por la locha,” an expression revolving around the coin, meaning roughly “struggling to make a buck.”
Mr. Chávez has no intention of limiting his attempts at monetary reform to Venezuela. “One day in Latin America we will have our own currency,” he said on his television show, and he proposed naming it after Antonio José de Sucre, a Venezuelan aristocrat and independence fighter who was a friend of Bolívar’s.
Daniel Cancel contributed reporting.
The New York Times 16 03 07
Copyright© 2007 The New York Times. All Rights Reserved.
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