Published February 09, 2013
CARACAS – Opposition leaders derided another currency devaluation by President Hugo Chavez's government as evidence of economic incompetence, while some anxious Venezuelans hit the shops on Saturday in fear of price increases.
Although Chavez has not been seen in public since cancer surgery two months ago in Cuba, ministers said he personally ordered the fifth devaluation of the bolivar in a decade of socialist economics - this time by 32 percent.
Seen as an imperative by economists but widely unpopular among Venezuelans, the measure is the biggest test yet for Vice President Nicolas Maduro, who has been in charge of the government since Chavez's December 11 operation.
"The Maduro-Cabello duo are finishing off our Venezuela, we must not allow it!" said opposition leader Henrique Capriles, accusing Maduro and Congress head Diosdado Cabello of squandering revenue from high oil prices.
"They spent the money on (election) campaigning, corruption and gifts abroad. What a lying government!" he tweeted. Should Chavez not recover, Capriles, who lost last year's presidential election, would likely face off with Maduro in a new vote.
The devaluation, which takes effect on Wednesday, was announced before a four-day weekend for Venezuela's Carnival holiday to minimize political or market repercussions. It had been widely forecast by economists as a way of redressing distortions including a black market rate for dollars at four times the old official level of 4.3 bolivars.
Raising the rate to 6.3 bolivars will boost state finances by providing more local currency for each dollar of oil export revenue. But it also hikes prices for imports crucial to the oil-dependent economy, potentially fueling inflation, although the state will seek to brake that through price controls.
Many people ran to shops on Saturday in fear of quick price rises, although the rush was lighter than past devaluations, perhaps because so many Venezuelans were heading out on holidays.
Inflation has already spiked in the past two months to an annual rate of 22.2 percent. Further price hikes risk hurting Maduro and other senior officials' popularity at a sensitive time given Chavez's condition and a possible new vote.
WALL STREET PRAISE
Maduro, who is Chavez's preferred successor should his cancer force him out of office, said the devaluation was needed to optimize revenues, including the funding of flagship social programs that are popular among Venezuela's poor.
He said the devaluation was also a response to attacks on the bolivar by capitalist "speculators," adding that more economic measures would be announced in the days ahead, in line with Chavez's instructions to ministers who visited Havana.
"Our commander-president has decided them with full consciousness and clarity ... to guarantee economic growth and diversification this year," Maduro said. "We will push ahead with the perfect plan for the people's victory."
Critics flooded Twitter with mocking references to a "red package," or socialist version, of an old-style International Monetary Fund economic package hated by leftists.
"The devaluation is not due to the crisis of global capitalism. It's due to the government's irresponsibility and worrying incoherence," said Ramon Aveledo, head of the opposition Democratic Unity coalition.
On Wall Street, analysts praised the move as necessary - albeit overdue, given the impact on state finances of heavy spending during Chavez's re-election campaign last year and the soaring black market rate for the dollar.
Some calculated it would generate extra revenue equivalent to more than 3 percent of GDP, and help close a fiscal deficit variously estimated between 7 and 15 percent of GDP last year.
"It is a positive development," said Goldman Sachs' Alberto Ramos. "Clearly, the economic and financial cost of waiting outweighed the political cost of the unpopular move to devalue."
VENEZUELANS DEBATE MEASURE
The illegal rate for dollars jumped again, according to websites, immediately after the announcement. Publishing that rate is illegal in Venezuela. Some analysts predicted the government would be obliged to devalue again soon.
On the streets of Caracas, ideological sparring and complicated economic calculations gave way to anxiety at the prospect of yet more price rises in an economy that for decades has suffered one of the world's highest inflation rates.
Already packing stores due to shortages of some goods, some shoppers began buying even more before prices rose.
"I'm sure everything will go up on Wednesday, so we have to take advantage now," said Alicia Leon, 67, packing a trolley with vegetables, fruit and other food at a supermarket in Caracas' bustling Chacao neighborhood.
Downtown in the emblematic Bolivar Square named for Venezuela's independence hero, and the president's idol, Simon Bolivar, 55-year-old Chavez supporter Omaira Fermin said she trusted the government to help the people.
"Salaries will rise thanks to President Chavez," she said. "There's a global financial crisis. Of course, Venezuela can't be immune to that. The problem is capitalism."
Officials have been at pains to stress that Chavez is still driving policy from his hospital in Cuba, despite Venezuelans having heard nothing from him since his December operation.
They say he is improving after his fourth surgery for a cancer first diagnosed in his pelvic area in mid-2011. But there is no word on any homecoming date yet. Many Venezuelans suspect he will not be able to return to active rule.
Devaluations generally make a nation's exporters more competitive by lowering the cost of production.
But critics say the move is unlikely to contribute to a significant expansion of domestic industry because of the government's battle with the private sector, extensive price controls and sometimes uncompensated expropriations.
The central bank president, finance minister, energy minister and other senior officials met on Saturday to inaugurate Venezuela's new currency authority that will supervise the changes starting on Wednesday.
"We have hard work ahead," Finance Minister Jorge Giordani said at the event, shown live on TV.
Venezuela's heavily traded bonds are likely to rise on the devaluation, given the healthier picture for state coffers, which depend on oil exports for 90 percent of revenue.
(Additional reporting by Girish Gupta, Mario Naranjo and Deisy Buitrago; Editing by Daniel Wallis and Peter Cooney)