UNDER THE RADAR, OVER THE TOP VENEZUELA'S CURRENCY DEVALUATION

by Dr. Alessio Lidozzi

Though considered the most severe currency devaluation in the world,

it is hardly being considered at all, it seems. 

At least not publicly by the Venezuelan government.

According to a recent Bloomberg report, companies in Venezuela in are

being forced to pay an extra 61% for dollars sold at weekly government

auctions, which serve as the only legal means for them to access foreign

currency and, thus, foreign goods, without having to be subject to the

official currency exchange rate, currently listed at 6.29 bolivars on the

dollar. That is up from just over 4 bolivars on the dollar in 2013 and 2 in

2010.

For comparison’s sake, Argentina’s peso has tumbled 21% against the

dollar and war-torn Ukraine’s hryvnia fell 35%.

Former President Hugo Chavez began controlling currency in 2003

to salvage highly diminished currency reserves. Devaluation, of

course, improves the country’s finances by increasing bolivars per

dollar sold and oil exports.

Venezuela currently holds the title for world’s highest inflation rate:

63.4% as of August.

Venezuelan Inflation RatesOct. 2013 - 2014

As it stands now, there seem to be different rates for purchasers from

different sectors.

While individuals and importers of non-essential goods often pay around

50 bolivars for restricted amounts, manufacturers are able to purchase

the rationed dollars at a rate of around 12 bolivars (weakened from 10 in

June 2014).

Food and medicine importers are able to purchase for much less, around

the 6.3-bolivar rate.

The government sold $4.3 billion, $4.4 billion and $15 billion at each

rate, respectively.

This comes at a time when the Venezuelan government faces the world’s

highest inflation rate and a deep, pervasive shortage in essential goods

caused by increased government interference in the foreign-exchange

market and economy. Venezuela has about $1.8 billion in sovereign-bond

payments due this week and central bank data shows that this amount

was withdrawn from its foreign-currency reserves.

While current President Maduro publicly devalued the bolivar last year as

Chavez’s flagging health spurred a transfer of power, he has been far

quieter about the move this year. This could be due to the political

backlash he faced, which caused him to almost lose the presidential

election. He currently is trying to rehabilitate a poor 39% approval rate

after a year of protests over inflation and disappearing essential supplies

have claimed the lives of forty-three Venezuelans. It is safe to say that as

long as the economy gets worse, so will the social problems.

Investors around the world will be closely watching

Venezuela over the next few weeks to see what

becomes of these policies and their sovereign-bond

payments that are due this week.

Stay posted!

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