Venezuelan Train Wreck
(T)Hugo Chavez is heading Venezuela right into an economic train wreck. Having artificially pegged the exchange rate in 2003, his currency is about to be forced into a massive devaluation. There already is a de facto devaluation of more than 50% on the illegal currency market, in fact.
“The pressures are there for bolivar devaluation,'' the New York-based bank said in a report by economists Tim Kearney and Emy Shayo, who didn't give a timetable for the event.
Under currency exchange restrictions introduced by Chavez, the bolivar was fixed at an official rate of 2,150 per dollar and trading outside the Foreign Exchange Administration Commission is banned.
Chavez plans to cut three zeros off the currency on Jan. 1. The currency in the so-called parallel market, in which companies and individuals obtain dollars illegally, is traded at around 4,820 bolivars per dollar.
Bear Stearns expects the nation's current account surplus to more than halve to $12.3 billion this year from $27.2 billion in 2006, partly because of a surge in capital outflows.
The drop in the currency in the parallel market “represents the overly easy monetary policy and a lack of confidence, which are unlikely to reverse at any point in the foreseeable future,'' both economists wrote.
It will be a fast and nasty collapse when Venezuela's economy hits the wall of reality.
World news | Gaius Tuesday, 11 September , 2007
By Quilly Mammoth, Tuesday, 11 September , 2007 @ 7:58 pm
“capital outflow” = regardless of penalty, smart people with money are bailing.
The bigger problem is that the recent turn around in Venezuela’s production capability due to…finally…foreign investment is now over. The infrastructure repairs and improvements made prior to (T)Hugo’s theft of foreign investment did not bring them up to a level which will allow for long term sustainability. The Arabs were smart enough to play “nic to your face”. (T)Hugo isn’t and he will get very little in assistance.
This means at some point real-soon-now that Venezuela’s oil production will drop. Bad for us…devastating for Venezuela.