Possible devaluation of the Venezuelan currency in 2012

Authors:
José Alberto López Rafaschieri and Luis Alberto López Rafaschieri
www.morochos.net

Every year of chavismo means for the Venezuelan currency, the bolivar, the risk of another maxi-devaluation. The two fixed exchange rates established by the government , CADIVI and SITME, are now at 4,3 and 5,3 per dollar respectively, with no probable modification to the CADIVI regime during this year due to the coming presidential elections.

But things are different for the SITME exchange. This system is used primary by corporations, and Chavez knows that the scarcity of basic products, caused in part for the severe foreign exchange restrictions,  is affecting his popularity. In a country so dependent of imports like Venezuela, if the government give more dollars to the private sector, entrepreneurs could increase the supply of milk, coffee, sugar, building materials, etc., which would alleviate the discontent in the lower classes.

For that reason, we expect the Venezuelan government to modify the SITME exchange rate to 6 or 7 per dollar this year, because at that rate, although higher is more accessible than the black market dollar, the government can offer more subsidized foreign currency to corporations, with electoral objectives, and can use the devaluation surplus in the presidential campaign via its social programs.

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