Venezuelan President Hugo Chavez devalued Venezuela’s bolivar currency on Friday, attempting to resuscitate local production but running the risk of worsening inflation in the South American oil-exporter’s flagging economy.
Facing a recession and galloping prices in the 11th year of his presidency, Chavez had long been pressured by business for an adjustment of the over-valued exchange rate, but was not expected to make the move so close to an election.
Venezuela votes for a new National Assembly in September.
The move will likely boost the state’s bolivar revenues from oil and help local exporters, but add pressure on prices, which soared 25 percent last year, the highest in the Americas.
The bolivar had been fixed at 2.15 to the dollar since 2005 as part of Chavez’s strict controls of Venezuela’s economy in line with his “21st century socialism” policies.
However, Chavez, in a live address on state TV, said the bolivar would now have two levels — a preferential rate of 2.6 per dollar for essential imports like food, health and machinery and a 4.3 “petro-dollar” rate for other things.
“This has several objectives, to revive the productive economy, strengthen the Venezuelan economy, slow imports that are not strictly necessary and at the same time ... stimulate production for exports,” he said. “Venezuela has to be a country which exports more than just oil.”
Asked how the devaluation would impact inflation, Venezuelan Finance Minister Ali Rodriguez told state TV it could add “3 to 5” percent to the annual rate. It was not clear if he meant percentage points.
Local economists said the main risk from the devaluation was further price pressures.
“Among the disadvantages is the inflationary effect,” said Pavel Gomez, of local business institute IESA.
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