Thursday, October 04, 2007

Simple monetary questions

Where is the success of Chavez economic policies?

Yesterday the bolivar on the parallel market reached 5550 for one, ONE American Dollar.

Chavez reached power in February 1999 and the average exchange rate for that month was 577.

To see similar type of currency exchange variations (collapse?) we must look at failed states such as Zimbabwe. With an oil barrel for Venezuela floating between 60 and 70 USD what is Venezuela's excuse?

On February 2 1999 the ten cars most sold in Venezuela represented 43% of the sales and were all assembled in Venezuela. Now, in October 2007, Chavez is reduced to threaten to cut down preferential dollars (at 2150 for ONE US dollar) for Hummer imports. There you have it, the size of the subsidies given to rich chavistas, rich from bank deals, stocks trading and fabulous state contracts, the only real growth sector in Venezuela. That is right, when a chavista buys a Hummer (it is well know that the market for Hummers is mostly associated with people having business tied to the government as the car is an avowed status symbol in the bolibourgeoisie as even admitted by Chavez) the state subsidizes a significant chunk of the price paid.

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Added later, courtesy of AIO. The graph below shows that a country which economy depends in part on a commodity (Chile with Copper is the case of the graph below) has its currency value usually related to the price of that commodity. Thus with the sky high high oil prices, Venezuela currency should be much stronger than it is, not only in its stability but also in its value. Read comments for the AIO explanaition.



-The end-

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