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

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$