Posts Tagged ‘economic decision’

Will the Venezuelan Government Devalue in 2012?

December 24, 2011

The guessing game has begun. Will the Venezuelan Government devalue the currency at the beginning of 2012? Clearly a devaluation is needed, Venezuela has become very expensive,  liquid reserves are quite low, imports are soaring.

If it were an economic decision, the Government would devalue. Because it is not, it is all up to Hugo the almighty and the opinion of his minister of Planning and Finance Jorge Giordani. It has been reported that there is a report sent up to Chavez suggesting the currency be devalued. The question is what will be the decision.

Up to a few weeks ago, I thought that it was unlikely that there would be a devaluation. I have changed my mind. The odds are that there will be one, I put it at 60-70% probability. Why? Because of the deterioration of the international reserves and the Government’s infinite belief that they can control inflation using intimidation. Similarly, last years devaluation was dceided by Giordani and was larger than anyone expected, so an adjustment seems likely.

How much? That’s much harder to guess. I would think about Bs. 5.5 for the official rate and about Bs. 6..75 for the SITME rate.

Only a guess. We shall see how wrong  I am…

(P.S. Chavez says GDP will close at US$ 300 billion, for that to happen the economy would have to grow 26.9% in 2011, as GDP closed at Bs. 1.016 trillion in 2010 according to the Central Bank. Divided by Bs. 4.3, that gives you US$ 236.27 billion. If there is a devaluation, then it’s smaller. I wonder why that mistake was made…)

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