Authors:
Luis Alberto López Rafaschieri and José Alberto López Rafaschieri
www.morochos.net
The maxi-devaluation against the bolivar, decreed by Chavez earlier this year, is seen by some economists as an exchange rate adjustment that would benefit the Venezuelan exporting sector, as their prices become cheaper to buyers with dollars. This idea has its foundation in the business practices that countries like China and Japan use to protect their domestic producers.
However, while it is true that some governments intervene in the foreign exchange market as part of their trade policy, the Venezuelan case is different:
1) We do not know any government in world history that had enacted a maxi-devaluation of 100% as a way to increase its exports. Those who practice this usually intervene in the market to maintain exchange rate stability, not to involve their currencies in intense macroeconomic traumas.
2) During the 11 years that Chavez has been in power, misguided economic policies have caused a permanent devaluation of the bolivar; notwithstanding, this has not coincided with a rise in Venezuelan exports.
3) The Chavez government has not the habit of taking measures to promote private capital, whether or not it is exporter. Chavez's socialist ideals are not compatible with a strengthened private sector, so it is incongruous to assume that the government that makes something every day to devastate the independent production sector, is the same government that devalues its currency to increase domestic producers' exports.
4) Due to point number 3, Venezuela had never before been so dependent on its energy exports. 80% of Venezuela's international sales are represented by oil and oil products, commodities that needs no special incentives to encourage their consumption abroad.
Consequently, the maxi-devaluation enacted by Chavez is far from being a trade policy, as claimed by some experts. Neither in theory nor in practice, economic conditions in Venezuela suggest that a exchange rate mega-depreciation would lead to increased exports. By devaluing the Venezuelan currency, the Chavez's real benefit is to obtain more bolivars from Venezuela's oil sales.
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