A little bit more about the devaluation
09/02/2004

Today we went from 1600 to 1920 Bs to the dollar. A swift 20% devaluation of the official rate while the unofficial rate hovered above 3200. But who's counting?

Yet there are a few interesting comments to be made.

In his Sunday peroration Chavez did not mention a single time the devaluation. I suppose considering that the last two February financial announcements were rather traumatic for his numbers, he decided not to tempt the fates directly. In effect in February 2002 the free floatation of the Bs. led to a 30% drop that preceded the events of April 2002. In February 2003 it was an admission of economic failure that ended floatation for a rigid, punitive and politically driven currency control creating lots of unpopular spot scarcities in the food supply. But this February measure failed, necessitating today’s long predicted devaluation. Surely with the prospect of facing a recall election this year he stayed away of the issue.

But the callousness in glossing over a 20 % devaluation which would bring down most governments is a clear symbol of how the country is run. No need to account for anything, I do as I say and that is that. Democracy anyone? The last year has been full of shady deals, bonds swapping, debt emissions and what not that have been barely audited, controlled or even explained. The master mind of all of this is Tobias Nobrega the finance minister become an expert at fabricating Bs. to fund all the loopy programs that Chavez wants to finance to improve his polls. It would be interesting to examine the lifestyle of Mr. Nobrega once he leaves office.

Unfortunately all the tricks of Mr. Nobrega were not enough and the recall election has not been avoided, yet. So, with an inflation rate that jumped to 2.5% in January and made the year projection at way above 30%, the government needed to put aside the fiscal albatross behind itself so as to erase the inflationary shock as fast as possible. This devaluation will allow a few more bond issues to reach market and finance the electoral campaign. A few subsidies for the Mercal state food distribution system might allow to maintain some of the basic staples at a reasonable price for Chavez supporters. And who knows, maybe even win the election. There will be always time to devaluate again and raise prices once Chavez is secure in office.

Meanwhile, dead serious, Nobrega says that this devaluation will not affect inflation. The declarations were an exclusive of Venpres, the official "news" agency. That way Mr. Nobrega needs not answer pointy questions from pesky journalists. But it gets better, some international experts would have wished a jump straight to 2500. And Nobrega says that there will not be any further devaluation this year. Famous last words?

As a curious side note, the announcement that credit card holders will be allowed up to 1000 dollars every 6 months for travel was a sure sign of the incoming devaluation. The credit card ease of restriction announced for March 1st could only come after the devaluation. Surely devaluation would happen in February. The glorious bolivarian revolution can be so predictable sometimes.

Meanwhile the country looting will keep apace. Suckers will keep supporting Chavez while the inner circle help themselves to the booty.

Good night and sleep tight.