Venezuela devalues currency by 50 percent; Sucre planned as new currency

sucre alba new currency

sucre alba new currency

“Venezuela’s decision to devalue the Bolivar culminates an event that the market has been anticipating for a long time,” said Walter Molano, an analyst at BCP Securities. “It helps alleviate the country’s fiscal woes and puts it on a sounder macroeconomic footing.”

The currency devaluation that Venezula implemented allows them to sustain the nominal value of the inflated asset prices, thus avoiding negative equities and losses in the balance sheets of the Venezuelan banks. Indeed, inflation is the easiest way to exit from debts, especially when you cannot pay them.

Devaluation ups stakes in Venezuela election year
By Frank Jack Daniel and Eyanir Chinea

CARACAS, Jan 9 (Reuters) – Venezuelans rushed to the shops on Saturday, fearful of price rises after a currency devaluation that will let President Hugo Chavez boost government spending ahead of an election but feeds opposition charges of economic mismanagement.

In a bid to jump-start the recession-hit economy of South America’s top oil exporter, Chavez on Friday announced a dual system for the fixed rate bolivar.

It devalues the currency to 4.3 and 2.6 against the dollar, from a rate of 2.15 per dollar in place since 2005, giving the better rate for basic goods in an attempt to limit the impact of the measure on consumer prices.

The opposition seized on fears that prices for imported goods will double as shoppers formed lines of more than a hundred people outside some stores in the capital Caracas.

“It was a Black Friday, tinted red,” said sales executive Diana Sevillana in reference to the crimson color of Chavez’s socialist party. She stood in a line of 30 people outside an electrical goods store in a middle class neighborhood.

The socialist Chavez believes the state should have a weighty role in managing the economy. During his 11 years in office he has nationalized most heavy industry, and business and finance are tightly regulated.

BLACKOUTS, WATER SHORTAGES

Opposition parties, emboldened by public dissatisfaction at frequent blackouts and water shortages and a 2.9 percent economic contraction in 2009, hope to strip Chavez of his legislative majority in September.

The devaluation is embarrassing for Chavez, who resisted calls from economists and many government allies to make the move last year when oil prices were at their lowest and elections a long way off.

“Venezuela’s decision to devalue the Bolivar culminates an event that the market has been anticipating for a long time,” said Walter Molano, an analyst at BCP Securities. “It helps alleviate the country’s fiscal woes and puts it on a sounder macroeconomic footing.”

The measure is a relief for state oil company PDVSA, which has struggled to pay service providers and meet requirements to fund social projects since crude prices dropped sharply last year. It also makes Venezuelan businesses more competitive.

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