Mérida, 11th February 2013 (Venezuelanalysis.com) – There
has been much debate in Venezuela over the causes and likely
consequences of last Friday’s currency devaluation, while the concrete
political and economic impact remains to be seen.
The Venezuelan government’s decision to devalue the Bolivar
by 32%, from 4.3 to 6.3 Bolivars to the dollar, was a measure seen as
inevitable by many economists after the Bolivar fell to under a quarter
of its official value on the black market.
Alongside the decision, the fifth devaluation since currency controls
were introduced in 2003, the government also announced the
establishment of a new body to oversee the allocation of dollars to
citizens and businesses.
Analysts in Venezuela have argued
that the political impact of the devaluation will depend on the success
of the media campaigns of both the government and the opposition, which
are attempting to communicate their interpretations of the currency
adjustment to the country.
However, economic factors will also determine the political impact of
the devaluation, such as its effect on imports and domestic production,
increases in inflation and prices, and complimentary government
measures such a rise in the minimum wage and the effectiveness of price
The opposition has launched a campaign maximising the possible
negative effects of the devaluation, partly in an attempt to erode
support for Vice President Nicolas Maduro in the event of fresh
presidential elections if Hugo Chavez is unable to continue in office on
Ramon Aveledo of the opposition MUD coalition blamed the government
for the devaluation, saying, “It’s due to the government’s
irresponsibility and worrying incoherence”.
Opposition leaders and supporters alike nicknamed the move a “red” or
“Cuban package” in an attempt to associate the devaluation with an
IMF-style neoliberal structural adjustment package.
Julio Borges, a leader of right-wing party Justice First, said of the
devaluation: “The only ones affected are the Venezuelan people, from
whose pockets the government keeps taking money”.
He pointed to a rise in inflation and prices over the last two
months, blaming this and the devaluation on high public spending. “Now
they [the government] are going to make us pay for the consequences of
their inability, waste and poor administration,” he declared.
A short-term rise in inflation is possible after the devaluation,
because imports will be more expensive, with a concomitant effect on
prices. On the other hand, since so many imported products are sold at
prices that reflect the black market exchange rate, which is unlikely to
change as a result of the devaluation, inflation might not rise much
However, while sources such as Reuters have described a “spike”
in annual inflation to 22.2% so far this year, a rise in inflation
during and after the Christmas period is not unusual in Venezuela, and
annual inflation is still below the annual rate experienced a year ago.
Meanwhile, the government has highlighted the possible benefits of
the devaluation, such as bringing in more oil revenue for social
spending, helping boost domestic production, and potentially combating
Foreign minister and former vice president Elias Jaua argued that the
adjustment was made necessary due to the activities of a “speculator
class” within Venezuela, who acquire dollars at the official exchange
rate and then use those dollars for black market sale or to sell
imported products at black market prices.
As such, Jaua defended the devaluation and the establishment of the
government’s new currency exchange body as combating speculation and
He also described the measures as part of “economic actions taken to
protect our wealth in currency exchange, avoiding that it falls into the
torrent of capitalist voracity, and to preserve our monetary resources
for the sustainment of our socialist system of social benefit that our
President Chavez has been constructing”.
Economist and pro-government legislator Jesus Faria further argued
that the devaluation would make imports more expensive and exports
cheaper, thus making domestic production more competitive.
He said that before last Friday’s devaluation there had existed “an
exchange rate lag produced by the excessive cheapening of imports and
the over-pricing of exports, which had to be corrected”.
US economist Mark Weisbrot also predicted
the devaluation would have a positive impact. “The devaluation…by
making imports more expensive [will] provide a boost to import-competing
industries. For this reason, and because it reduces the black market
premium and reduces capital flight, the move will overall be good for
the economy,” he wrote.
Accusations that the devaluation represents an IMF-style “package”
were widely dismissed outside opposition circles given that the move was
not accompanied by any measures associated with neoliberal economics,
such as privatisations, salary freezes, or the removal of subsidies.
However there have been criticisms of the move from within the
pro-Chavez camp, where some activists have argued that currency
devaluations contradict the movement’s political economy and that other
measures could have been taken to address speculation on the Bolivar.
Leftist political scientist Nicmer Evans said that the move was “not
very socialist”, because it is a measure “which affects the poorest and
the richest equally”.
“Neither devaluation nor the Value Added Tax (VAT) are socialist
measures, because they are regressive” he added on his Twitter account.