Devaluation of Bolivar

Devaluation of Bolivar: Venezuela's fervent attempt in hopes of ailing lackluster economic performances and contracting oil revenue.

http://online.wsj.com/article/SB126300282296422631.html?mod=article-outset-box

President Hugo Chávez bowed to economic reality and after nearly five years of standing firm devalued the Venezuelan bolivar in hopes of safeguarding the government's depleted oil income and curing some of the symptoms of stagflation in the economy.

Perhaps it has been months since the last thoughts of economics came upon me; concepts are rather distant, untouched, like cobwebs spindled all over the very antiquated antiques of the chamber of mind. Nonetheless, it still feels a great sense of accomplishment recalling the concepts learned in class.

"With the new exchange rates the government will be able to squeeze more bolivars for every dollar it receives from its oil sales, which plunged last year on lower prices. Venezuela's oil-dependent economy entered a recession in 2009 with a 2.9% drop in economic activity while inflation neared 27%."

Apparently, the new currency control has allowed the greater yield from per dollar sales of Venezuelan oil. Trying to figure out the demand and supply concepts, and interweaving some macro-economic government policies into the question. Well, seems like it will take a bit of time to take a hitchhike back to the old well of knowledge, just to candidly put it.

Food for thought: Currency manipulator, i suppose?

More to come.

"The devaluation is a humiliating setback for Mr. Chávez, who two years ago led with much fanfare the redenomination of the currency to bolivar "fuerte," or "strong" bolivar. The 2.15 bolivar rate, however, had become untenable as accumulated inflation for the last five years shot up to a whopping 160%.

The sale of dollars at the official exchange rate crumbled last year and became a curse for companies that relied on those dollars for their operations. Many turned to an active black market and paid as much as three times the official rate, while others scaled back output."

The devaluation may cause a short-term jump in inflation, but it will help rein in price increases after six moths, said Maikel Bello, an analyst with Ecoanalitica, a Caracas based research firm. Devaluing now will give Mr. Chávez "more room to increase public spending as way to spur economic activity," he said.