Venezuela devalues amid shortages and inflation

Venezuela announced Friday that it was devaluing its currency, a step that had long been deemed necessary but coul...
Venezuela announced Friday that it was devaluing its currency, a step that had long been deemed necessary but could push the spiking inflation even higher.

The devaluation, which lowered the currency_s value against the dollar by nearly a third, was aimed at solidifying government finances and easing a tight market for dollars that has choked back imports and led to shortages of basic goods.

The move had been widely anticipated, but it had been unclear whether officials would make what could be a politically risky decision with President Hugo Ch__vez still out of the country after undergoing cancer surgery in Cuba on Dec. 11.

If Mr. Ch__vez were to die or were too ill to continue as president, a special election would have to be called, and many analysts thought that the government might try to postpone a devaluation until after that occurred.

_It is a sign of pragmatism that they carry out a devaluation even though we_re all aware there is some likelihood of a presidential election being held soon,_ said Francisco Rodr__guez, an economist with Bank of America Merrill Lynch. _This shows that they_re willing to correct basic economic distortions._

The currency, the bol__var, will be set at 6.3 to the dollar. It had been set at 4.3.

Venezuela_s finance minister, Jorge Giordani, said that Mr. Ch__vez, who has not been seen or heard in public for more than eight weeks, had approved the measures.

_Here is the president_s signature if you want to recognize it or if you still have doubts,_ Mr. Giordani said, holding up a document during a televised news conference.

The devaluation will help the government balance its books by giving it more bol__vars for the dollars it earns selling oil on the world market. Venezuela_s economy is highly dependent on oil, with petroleum sales making up about 95 percent of total exports. The country is the fourth-largest foreign oil supplier to the United States.

Government spending soared last year during the campaign to re-elect Mr. Ch__vez, leading to a large deficit, even though, at more than $100 a barrel, the price of oil is very high.

Pressure to devalue had been building for months, as the black market exchange rate rose to more than four times the official rate. The imbalance was evident in the prices of many goods. A Big Mac at McDonald_s costs 70 bol__vars, or $16.27, at the official pre-devaluation rate.

But the devaluation will also make imported goods more expensive, which will probably make inflation worse. Inflation for the 12 months ended on Jan. 31 was 22.2 percent, one of the highest rates in Latin America.

Surging inflation could cause political problems for the government. But the exchange rate had reduced the dollars available to importers, leading to shortages of goods like sugar, chicken and toilet paper. Many analysts believe that voters blame the government more for shortages than for inflation.

This article has been revised to reflect the following correction:

Correction: February 8, 2013

An earlier version of this article reported that Venezuela had devalued its currency by nearly one-half.


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