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DEVALUATION? NO! Venezuela should have the courage to revalue its currency by 35.53% to Bs.F 1.43/US$

By Dr. Eudes Vera  Posted by Roy S. Carson (about the submitter)     Permalink
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VHeadline guest commentarist Dr. Eudes Vera writes: Our good friend, Manuel Martinez, an advanced progressive economist, has recently explained in an article that there is an urgent need to revaluate the Venezuelan currency because of the following two factors:

The US government has injected, during the last 3 months, about US$1,000,000,000,000 into banks, financial institutions and bankrupt companies in an attempt to overcome a grave economic crisis. Manuel asserts that these dollars are not solidly backed by a stable economy.

This country, Venezuela, does not seem to have limits when it comes to printing green bills of inorganic money...

As a consequence of the global economic crisis, the Venezuelan government is facing a huge budget deficit, which is caused by the dramatic fall of oil prices. The Venezuelan government had estimated the 2009 budget on a supposed minimum of $60 per barrel of oil. This means that Venezuela will be receiving 18 instead of $36.3 billion and this means a budget deficit of 23.26%.

Several orthodox economists have suggested devaluing the Bolivar to cover the budget deficit of the current year. We, members of the 'Civil Association in Defense of the Bolivar,' assert that the contrary must be done. In other words, the Bolivar should be revalued.

We believe that devaluing is not a efficient solution for the following reasons:

  1. It will cause inflation to go up significantly given that many items of massive consumption are imported. By increasing the value of the US Dollars, importing will obviously become more expensive. This may bring the shortage of supplies in some regions (food, medicine, auto parts, etc), and the salary increase demands from the working sectors. This will inevitable cause the country to go into an inflationary spiral of which it will hardly be able to come out in the long run.
  2. Devaluating will not make the parallel Dollar market. On the contrary, it is very likely that the US Dollar parallel price will go even higher, which could cause mega inflation.

Here, we describe a simple plan to bring budget deficit to zero and to minimize the parallel (black) currency market and inflation.

In table 1 (below) headings are shown according to the 2009 Budget Law, in which the official currency exchange rate is the current Bs.F 2.15/US$ ... note that in this law, the country's expenses for 2009 are not covered by the ordinary income. Instead financial sources are needed, which entails more internal debt for the country. It is a non-real budget given that oil income is estimated on a supposed US$60 per barrel, which is not likely this year.

Table 1
2009 Budget Law
Currency Exchange Rate at Bs.F 2.15/US$

In table 2 (below), we propose a modified budget for year 2009. Its main characteristics are:

1. Oil income is estimated based on a supposed oil at $30 per barrel

2. Total expenses of the country will be covered with the Ordinary Current Revenues, an amount identical to to that of table 1 (US$72,160,480,218)

3. The country will not have to get into more debt to balance the budget. Financial sources go down to zero.

4. Non-oil revenues will remain at Bs.F 77,237,780,278 but the currency exchange rate will be modified to Bs.F 1.43/US$ (a re=valuation of 35.53%).

So, this amount will change from US$35,924,548,967 in table 1 to US$54,042,514,592 in table 2.

Table 2
2009 Budget Law (Modified)
Currency Exchange Rate at Bs.F 1.43 / US$

Concept

Bs.F

US$

Ordinary Current Revenues

155,145,032,468

72,160,480,218

Oil Income

77,907,252,190

36,235,931,251

Non-oil income

77,237,780,278

35,924,548,967

Financial sources

12,329,141,136

5,734,484,249

Total income/financial sources

167,474,173,604

77,894,964,467

Total Expenses

167,474,173,604

77,894,964,467

  • If this modified budget plan were applied, the parallel currency market should collapse in the short term.

We recommend, however, that the currency exchange control is kept in place until the value of the parallel dollar is 10% above the new official US$ rate. It would not be necessary to increase the minimum wage either (currently at Bs.F 799.50 or $372), given that by revaluing as proposed, the minimum wage would continue to be the same at Bs.F 799.50 and would be $559 ... which represents an increase of 50.43%.

Once Venezuela has the courage to revalue its currency, it could reach agreements with other countries to use the Bolivar as a currency of international commercial exchange ... as we have previously suggested.

  • The United States of America is a sovereign country that has the ability to printing inorganic dollars at its convenience.

  • Venezuela, also as a sovereign country, is also able to decide how much its national currency is worth ... also at its convenience.

That time has come.

Concept

Bs.F

US$

Ordinary Current Revenues

103,132,049,977

72,160,480,218

Oil Income

25,8947,269,699

18,117,965,626

Non-oil Incomes

77,237,780,278

54,042,514,592

Financial Sources

Total income/financial sources

103,132,049,977

72,160,480,218

Total expenses

72,160,480,218

103,132,049,977

 

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