Global Processing

Venezuela Could Make Exchange Rate More Flexible

April 14, 2008
According to Reuters, Venezuela could make its fixed exchange rate more flexible but will not eliminate currency controls completely, President Hugo Chavez said recently.

Left wing president Chavez, who nationalized steel and cement companies in recent weeks, said the rules about the flow of dollars were needed to prevent capital flight.

Chavez made the statements during a speech to mark six years since a coup against him collapsed and he was swept back to power.

Venezuela introduced currency controls after the coup, when Chavez''s opponents tried to overthrow him by shutting down the oil industry, the backbone of the South American nation''s economy.

This year the government has sold billions of dollars of debt to bring the black market price for the bolivar currency in line with the overvalued official exchange rate of 2.15 per dollar.

Venezuela has so far denied reports of a planned dual rate that might mean essential imports like food and medicine are bought at the current price, while luxury goods are bought with a devalued bolivar.

By selling dollar-denominated debt the government sops up excess bolivars from the economy, helping to assuage high inflation in the OPEC nation, which is flush with cash from record oil prices.

Many retailers peg their goods to the black market rate, which reached over 5 bolivars a dollar last year and helped consumer prices rise 22.5 percent, the fastest in Latin America.

Chavez also implied he had influence over the central bank, which is officially autonomous from the government in Venezuela.

Chavez was defeated in a referendum last year that would have allowed him to run for reelection and giving him direct control over the bank.