Venezuela’s currency plummets

The Venezuelan economy, under the direction of President Hugo Chavez, is starting to unravel in the currency market.

While Venezuela earns record proceeds from oil exports, consumers face shortages of meat, flour and cooking oil. Annual inflation has risen to 16 percent, the highest in Latin America, as Chavez tripled government spending in four years.
Exxon Mobil and ConocoPhillips are pulling out after Chavez demanded that they cede control of joint venture projects.

The bolivar has tumbled 30 percent this year to 4,850 per dollar on the black market, the only place it trades freely because of government controls on foreign exchange. That compares with the official rate of 2,150 per dollar set in 2005. Chavez may have to devalue the bolivar to reduce the gap and increase oil proceeds, which make up half the government’s revenue.

“This has been the worst-managed oil boom in Venezuela’s history,” said Ricardo Hausmann, a former government planning minister who now teaches economics at Harvard University. “A devaluation is a foregone conclusion. The only question is when.”

JPMorgan Chase and Merrill Lynch expect Chavez to devalue the bolivar 14 percent in the first quarter of 2008 after he introduces a new currency Jan. 1 that will lop three zeros off all denominations.

International Herald Tribune