The saga of the Venezuelea Bolivar Fuerte
Q1: Why must a country’s currency must be devaluated? What is failing in the economy?
First, the reason would be for stimulating the exports of goods=> more money in the country => push the production, economy in general and employment rate and set premises for economic growth.
Somewhere between 92 and 94% of export income in Venezuela comes from oil, and the money obtained heavily contribute to the local manufacturing development, and agriculture. By not pushing into this direction the predictable result will be that everything continues to be imported with US dollars => increase in prices => inflation => recurring devaluations.
A steep devaluation of a country currency, would be a signal for foreigners to stop investing in the country due to speculations and uncertainty => push interest rates for loans => increase unemployment and that leads to recession= > devaluation of the currency is not, by far, the best way to improve the economy.
Q2: What benefit did the Venezuelean regime in power gain from the repeated devaluation of the bolivar?
Venezuelan government devalued its bolivar currency several times between 2005 – 2010 but in 2011 also cut the preferential rates for food,medicine, and heavy machinery that enjoyed a preferential FX rate: 1BsF = 2.60/$. The intentaion might be the stimulation of the local production instead of relaying heavily on imports. Although let out of controll the the devaluaton leads straight to years of recession.
Venezuelean regime might also devaluing the BsF to avoid to take the inflationary hit (2011) although unfair for the population that was constrainted to accept a brutal increase in all prices, especially the ones for the ordinary food and medicine.
The weeks before the devaluation, all the market was in shortages of everything and prices in a matter of a week have gone up six times. Tomatoes, were 5 BsF/ kilo at the local outdoor markets (known as the...
Please join StudyMode to read the full document