By Benedict Mander
Financial Times, London
Sunday, February 10, 2013
http://www.ft.com/intl/cms/s/0/12e9f32e-739e-11e2-9e92-00144feabdc0.html
CARACAS, Venezuela -- Panic buyers thronged Venezuelan shops over the
carnival weekend after the government of Hugo Chavez announced a surprise
devaluation that analysts said was overdue but would only partly right the
listing economy.
Domestic appliances such as fridges and cookers were in particularly
high demand as Venezuelans snapped up goods imported at the now-defunct
exchange rate of 4.3 bolívars per dollar. From now
on they will be imported at 6.3 bolívars per
dollar.
Opposition politicians seized on what is Venezuela's fifth devaluation
since strict currency controls were introduced in 2003, criticising
the socialist government for springing an International Monetary Fund-style
adjustment package on the country and quietly announcing it on Friday while
people headed for the beach over the holiday.
Although Chavez was re-elected last October after consistently warning during
his campaign that an opposition government would implement a "neoliberal
package," officials say he ordered the devaluation -- from his hospital
bed in Cuba, where he is recovering after a cancer operation two months ago.
The move represents the biggest challenge yet for the country's vice
president, Nicolas Maduro, who has been in charge
since Mr Chavez left for Cuba and who many expect
to succeed the socialist leader if he remains too ill to continue in power. Mr Maduro defended the
devaluation as an effort to strengthen the economy by optimising
revenues while protecting the currency from "speculative attacks."
Critics say that although the exchange rate adjustment was essential
to correct growing distortions in the economy, it did not go far enough, as
the currency remains overvalued. It will therefore fail to solve the
fundamental problem that the demand for dollars will remain far greater than
the amount the government is likely to supply, they argue.
"Either the government burns up huge quantities" of its
foreign currency reserves "handing out cheap dollars or there will be
shortages," said Luis Vicente Leon, a pollster and economist at Datanalisis.
Local economists estimate that the "equilibrium" exchange
rate, at which foreign currency is no longer relatively cheap for
Venezuelans, is about nine bolívars to the dollar.
"The big winner ends up being the state," said Asdrúbal Oliveros, an economist
at the Caracas-based consultancy Ecoanalitica. The
move will relieve pressure on a fiscal deficit variously estimated between 7
and 15 per cent of gross domestic product by increasing the state's net
revenues by almost 4 per cent of GDP, or $13 billion at the new exchange
rate, according to Mr Oliveros.
The devaluation also cuts the dollar value of domestic debt from $42.9
billion to $29.3 billion, leading analysts to expect an increase in prices of
Venezuela's foreign debt.
But while the government gains, most Venezuelans lose out, with Ecoanalitica estimating an 8 per cent fall in consumers'
purchasing power. Until the government next decrees an increase in minimum
wages, the relative value of workers' salaries will fall.
"Those most affected, apart from consumers, are the multinational
companies that couldn't repatriate capital, and they will end up losing from
one day to the next 46.5 per cent of their funds accumulated in bolívars," said Mr Oliveros.
Shares in companies with Venezuelan operations, including
Colgate-Palmolive and Avon, fell on the announcement.
Mr Oliveros
added that the devaluation was also likely to spur inflation, which at more
than 20 per cent is one of the highest in the world, since more than a third
of the goods consumed by Venezuelans are imported, while around half of
locally produced goods rely on imports for their production.
Although, in theory, exporting companies benefit from a more
competitive exchange rate, Venezuela exports very little apart from oil,
which accounts for around 94 per cent of export revenues.
Moreover, economists point out that domestic industry is unlikely to
benefit much from the devaluation because of hostile relations between the
government and the private sector, with expropriations often not compensated,
as well as a web of economic controls.
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