Venezuela devalues its currency by nearly half

AP | FEBRUARY 8, 2013

Venezuela’s government announced Friday that it is devaluing the country’s currency, a long-anticipated change expected to push up prices in the heavily import-reliant economy.

Officials said the fixed exchange rate is changing from 4.30 bolivars to the dollar to 6.30 bolivars to the dollar.

The devaluation had been widely expected by analysts in recent months, though experts had been unsure about whether the government would act while President Hugo Chavez remained out of sight in Cuba recovering from cancer surgery.

It was the first devaluation to be announced by Chavez’s government since 2010, and it brought down the official value of the bolivar by 46.5 percent against the dollar. By boosting the bolivar value of Venezuela’s dollar-denominated oil sales, the change is expected to help alleviate a difficult budget outlook for the government, which has turned increasingly to borrowing to meet its spending obligations.

Planning and Finance Minister Jorge Giordani said the new rate will take effect Wednesday, after the two-day holiday of Carnival. He said the old rate would still be allowed for some transactions that already were approved by the state currency agency.

Venezuela’s government has had strict currency exchange controls since 2003 and maintains a fixed, government-set exchange rate. Under the controls, people and businesses must apply to a government currency agency to receive dollars at the official rate to import goods, pay for travel or cover other obligations.

While those controls have restricted the amounts of dollars available at the official rate, an illegal black market has flourished and the value of the bolivar has recently been eroding. In black market street trading, dollars have recently been selling for more than four times the official exchange rate of 4.30 bolivars to the dollar.

The announcement came after the country’s Central Bank said annual inflation rose to 22.2 percent in January, up from 20.1 percent at the end of 2012.

The oil-exporting country, a member of OPEC, has consistently had Latin America’s highest officially acknowledged inflation rates in recent years. Spiraling prices have come amid worsening shortages of some staple foods, such as cornmeal, chicken and sugar.

Seeking to confront such shortages, the government last week announced plans to have the state oil company turn over more of its earnings in dollars to the Central Bank while reducing the amount injected into a fund used for various government programs and public works projects.

It was the fifth time that Chavez’s government has devalued the currency since establishing the currency exchange controls a decade ago in an attempt to combat capital flight.

Giordani said at a news conference that the government also decided to do away with a second-tier rate that has hovered around 5.30 bolivars to the dollar, through a bond market administered by the Central Bank. That rate had been granted to some businesses that hadn’t been able to obtain dollars at the official rate.

Central Bank President Nelson Merentes called that bond trading system, known by the acronym Sitme, “imperfect.”

“It doesn’t make much sense to keep a system that seeks the country’s debt to feed it,” Merentes said.

The government’s announcement drew strong criticism from opposition leader Henrique Capriles, who said that the government’s heavy spending was to blame for the situation and that officials were trying to slip the change past the public at the start of a long holiday weekend.

“They spent the money on campaigning, corruption, gifts abroad!” Capriles said in one of several messages on his Twitter account.

Capriles criticized Vice President Nicolas Maduro’s handling of the situation. Maduro, who was named by Chavez as his preferred successor before undergoing cancer surgery Dec. 11, has taken on more responsibilities and a higher profile during the president’s nearly two-month absence.

“They give Mr. Maduro a little more time in charge and he finishes with the country,” Capriles said. “Look at the inflation in January, and now the devaluation.”

 

A Financial Conflagration of Immense Proportions

Fiat money buckling, an inflationary depression, years of reckless spending, Greek debt unpayable, Euro zone in jeopardy, a loss of integrity in US markets, criminal charges for Goldman Sachs, side pockets a new hedge fun trick, Banks on subprime offensive, Fed works the printing presses overtime…

International Forecaster

America and the world face a financial conflagration of immense proportions. The world of fiat money and massive credit is bucklingfinancial crisis under the pressure of unpayable debt. Each day the safe haven of gold and silver related assets become more attractive. We ask where else do you go for safety? A conflagration is a fire out of control and that is exactly the conditions the world faces today. The inflationary depression has smoldered for 14 months and it will soon accelerate.
For the last 15 years the world has lived far beyond its means especially the US, UK and Europe and as we all know that cannot continue indefinitely. The federal government continues to hire when it should be firing. Having lost 80% of our industrial base we struggle in a service economy that cannot service 300 million plus people, never mind supply exports to offset the cost of imports that we no longer manufacture. We now supply indefinite unemployment benefits, which in reality cannot go on forever. The fiscal debt spirals ever higher and the Fed creates money and credit with no end in sight, which devalues the dollar. Taxation on individuals and businesses continues relentlessly higher. This is the way of corporatist fascism. This is now the way of America.
Officially the destruction of America began on August 15, 1971 when the US abandoned the gold standard. The Council on Foreign Relations said years ago, that 2012 would be the year for the implementation of world government.
In Europe we see the manifestations of years of reckless spending in Greece., a nation that will have to be bailed out by the IMF and other European countries, especially by Germany that holds much of the worthless bonds issued by Greece. Greek bonds are now yielding 17%. Such a premium will not save the economy. The debt service is unpayable. Greece should leave the euro zone; reissue the drachma and default, now. Their position is untenable. We said this on Athens International, French International, BBC worldwide and Deutsch Welle radio a few weeks ago. The Greeks certainly are not blameless, but 80% of the blame lies with the bankers. The outcome is Inevitable, whether it’s now or 1-1/2 years from now. These problems affect all euro zone nations and all will suffer accordingly. For the time being most of the damage to the euro is over, but in time the euro will break up, probably in the next two years. As a result official EU unemployment will hit 14%.
We do not believe the powers that be want Greece to bite the dust just yet, as we pointed out previously. We believe they envision a simultaneous collapse of many nations and multilateral devaluation and debt default. This is their style. This way they believe they can control things and cover up one of the biggest transfers of wealth and power in history. The elitists expect to then usher in world government, as they create another world war.
Those who recognize what the elitist plays are can safeguard their assets and perhaps become very wealthy in that process. Those who ignore the signs and warnings are doomed to lose most everything. Political solutions won’t work now and they won’t work later.
The life of the euro zone and the EU, which consistently have been wrong, at least for now, are trying to make us believe all is well. All is not well. We are told over and over again the crisis won’t spread and it will spread and is spreading. Borrowing costs are already rising in Portugal, Spain, and Germany and throughout Europe.
The euro zone is in jeopardy as Greek contagion affects Portugal and Spain. Sovereign debt is the new subprime paper. We could perhaps see a domino effect as bond yields use in the weaker countries and eventually spread to the stronger European countries, and to the UK and US. The problem will eventually affect the entire world if it rolls out that way. Such a situation could cause a crisis of confidence, which would most certainly drive gold and silver prices higher. Bond markets would already have been affected and world stock markets would be falling. We are perhaps seeing that already with a topping in the US and European equities suffering their largest losses this year. In Europe, Greek bond losses are onerous. A bailout of Greece will probably come and their debt rescheduled. If the bailout doesn’t come watch out. The fallout of a Greek default, the exit from the euro, and the reintroduction of the drachma could force the other 18 nations in trouble to the edge if not into insolvency. These ideas are what we expressed this week in an interview with Greece’s largest newspaper. In addition we could see the dumping of PIIGS bonds and stocks. This could cause major losses and freeze markets. It could also lead to the demise of the euro zone and deeply damage the EU. Another unexpected outcome could be the withdrawal of Britain from the EU followed by the imposition of tariffs on goods and services by the UK, which would be followed by the US.
Another aspect to the Greek problem is that rating cuts are going to force Greek banks to post more collateral, which would force them into a liquidity trap and that could spread the contagion through the global financial system. If more collateral is not forthcoming the banks’ bonds would be downgraded. This also could cause Greek banks to sell assets, putting more pressure on an already weak system. Is it no wonder that gold and silver prices are rising?
In spite of all this the euro zone has the fiscal capacity to backstop banks within the region and to support the PIIGS. The question is will they? Germany seems to be in no hurry to do so. Greece needs loans or to float bonds in the amount of $350 billion over the next five years, which is a tall order. The present approach is to solve this year’s problems of some $80 billion, but bondholders are looking out five years. They are saying to themselves what is going to happen next year and up to five years from now. One good thing is if the Greeks stay in the euro zone they cannot monetize debt away and ruin bond values. Seventy percent of Greeks oppose dealing with the IMF, or accepting loans from the EU. We ask then what do they propose? This is why many investors are throwing their hands in the air and opting to buy gold throughout Europe. No matter which way Greece takes gold is really the only good hedge against a devaluing euro. Gold is not only a hedge against the euro, but also against commodity inflation. A recovery, if it did take place in Europe, would cause higher inflation as well. Causing conflict on the inflation issue is the ECB’s opinion that there is no inflation, when even officially there is. Germany had best not press Greece too hard, because if Greece leaves the euro it would rock global markets. We believe a deal will be done and that will temporarily solve the problem, perhaps for 1 or 1-1/2 years. That is when all the financial derelicts will be taken down together.
We in switching gears must look at the sovereign debt problems of many nations, the US as well. We see a fierce loss of integrity in US markets, due to the play unfolding in the US House and Senate via inquiry and actions by the SEC against Goldman Sachs and others. The US is not Greece, but it has many similar problems. These terrible events unfolding have to eventually reflect lower dollar values as well as a lower market, higher interest rates and higher gold and silver prices. It is apparent and transparent that Goldman has been charged civilly by the SEC in order to protect the firm and its employees from criminal charges, to divert attention away from the passage of a new financial regulatory bill that would make the Fed a despotic power and to make the administration and the Democrats look good going into the November election. Then there is the ongoing mortgage fallout and all the Fed and Treasury giveaways. Making matters worse is the refusal to answer important questions by the Fed for spurious reasons. Then worse yet the SEC told Goldman they were going to be charged two weeks before the announcement was made.  Sixty percent of the toxic waste was sold in Europe, mostly to Germans and they are not happy about that. We cannot understand why the Germans did not sue 2-1/2 years ago, and still haven’t.   More…