Devaluation around the corner? Not so fast


cadivi1Over at the Foreign Policy blog (login required now), I cast doubt on the conventional wisdom that the government is going to have to devalue the Bolívar soon, before any election takes place:

Most Venezuelan economists simply assume the government has no choice but to devalue, and many are predicting this in the short term. But without any real grasp on the shape of public finances as well as lenders’ willingness to provide financing, it is not clear that the day of reckoning is around the corner. True, official dollars are scarce, which would suggest devaluation is in the works. However, this could also suggest that the government is biding its time, waiting to open its coffers when the election is announced.

In a country where few things are certain, one thing is clear: chavismo will do anything it takes to win an election. If that means postponing painful decisions until after the ballots have been counted, so be it. This will be bad for the economy but good for Maduro’s chances of holding on to power.

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  1. In Venezuela people tend to forget than Chavismo does not make decision based on logic and reasoning (and in this case need). Chavismo makes them based in populism and winning elections. It does not matter one bit if those decision drive the country into bankruptcy in the long run.

  2. I propose no opposition candidate is launched against any upcoming presidential elections. One day they will have to come to terms with economics. Chavismo must end as it started, with a massive social and political crisis.

  3. I’m really not sure if there is a strategy with respect to this or just indecision and incompetence. At this point I lean towards the latter. My guess is that while they decide what to do they will effectively print money to pay the bills. As inflation gets worse they will just pretend it isn’t there (as they have) until it becomes impossible. Then they will blame the evil companies and distributors take some sort or action – even if symbolic. Maybe at some point they just won’t pay some bills. They’ll prioritize. They can screw the domestic banks I guess. And so on and so forth. I think they still have room to “correr la arruga” some more.

  4. Nothing is going to happen this is a country in which the political opposition is acting in favor of the illegal regime; 50% of the population is so ignorant that they don’t care about the country or the future of their children, much less if they are a colony of the Cuban Empire; the other 50% is a mixture of indifferent and people too scared to do anything. This country has lost its honor, values, principles, guts, there is nothing good left but a very small percentage of its citizens!

  5. New to the commenting market, so bear with me. I think most economist do not see a devaluation around the corner, they see one as needed to be able to finance the fiscal deficit and keep inflation somewhat at bay (lets say below 30%). Needless to say none is coming until elections are held. Needless to say the longer it takes to happen will require another bout of money printing at “la exponencial” (from a 60% growth last year); so on the one hand you have the beauty of future probable 50%+ inflation or devalue after elections and have an inmediate halving of the real income per capita for the majority of the population (those less fortunate not trading USD or picking apart Cadivi, Corpoelec, PDVSA etc.). Pick your poison one or the other is coming.

  6. I don’t think they will dare to devaluate not even in the current circumstance, if this measure were so necessary, they will delay this decision as long as it takes, just as they will delay the decision to call for a presidential election. Doing it now is just a political suicide.

    Nobody is ready for a presidential election. Who in the right mind will want to become president of a chaotic area of the world, that dare to called themselves country.

  7. I went to a talk today with Moises Naim and it is his believe that they will not devalue. That they will not fulfill some obligations like petrocaribe or infrastructure construction and that dollars will be scarce. Expect a lot of shortages.


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