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The Venezuelan Devaluation

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By captainccs
January 14, 2010

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The linked article is a pile of BS but it sounds good to someone who does not know what is happening.

The President of the Venezuelan Federation of Labor, our most important pre Chavez labor union, is in exile in Costa Rica. Democratic labor unions are not allowed, only those that hew to the party line are allowed.

The article mentions PSUV:

"The pro-revolution union current Marea Socialista, which is also a current within the United Socialist Party of Venezuela (PSUV) and is critical of the bureaucratic elements of the party, released a statement that said the devaluation of the bolivar has generated "enormous concern among the workers."

Chavez abolished the various parties that backed him and forced all his backers to join PSUV. How democratic is that? "Marea Socialista" is the voice of Chavez, not of the real labor movemeent whose head is in exile.

Multitiered exchange rates have been tried before in Venezuela. A total disaster and even more corruption is all you get from it.

There was a sound bite there about "The government will also transfer more funds to the Foundation for Training and Innovation to Support the Agrarian Revolution (CIARA) to stimulate urban and semi-urban agriculture, Chavez said." The idea is that I can grow my vegetables in my apartment and not have to go to market to buy them. How hare-brained can you get Chavez?

You will find a saner explanation of the devaluation here:

Looking beyond the devaluation in Venezuela (Or trying...)
January 10, 2010

As President Hugo Chavez seems to be having an epiphany that most of his economic policies of the last few years were wrong, I do wish someone would explain to him that taking US$ 7 billion from the international reserves simply works against him and insures that next year, he will be forced to devalue again.

Let me explain. Let us assume that oil holds up and PDVSA sells the Central Bank for example US$ 30 billion. PDVSA will get some Bs. 120 billion to spend. This means that monetary liquidity will grow by a similar amount more or less. That represents an increase of 50% in M2, i.e. even if this money does not multiply, like it will, but let's keep the argument simple. This means that by December monetary liquidity will reach Bs. 360 billion. Assume that the Central Bank will save US$ 8 billion of the US$ 30 billion, international reserves will reach US$ 36 billion.

Miguel Octavio's blog, The Devil's Excrement, is a good one to follow if interested in Venezuela.

Denny Schlesinger

The Devil's Excrement
A famous Venezuelan, Juan Pablo Perez Alfonzo, referred to oil as the devil's excrement. For countries, easy wealth appears indeed to be the sure path to failure. Venezuela might be a clear example of that.

Juan Pablo Perez Alfonzo is also known as the Father of OPEC, it was his idea. He was the Venezuelan oil minister in 1945.