Published February 08, 2013
CARACAS, Venezuela – Venezuela's government announced Friday that it is devaluing the country's currency, a long-anticipated change expected to push up prices in the heavily import-reliant economy.
Officials said the fixed exchange rate is changing from 4.30 bolivars to the dollar to 6.30 bolivars to the dollar.
The devaluation had been widely expected by analysts in recent months, though experts had been unsure about whether the government would act while President Hugo Chavez remained out of sight in Cuba recovering from cancer surgery.
It was the first devaluation to be announced by Chavez's government since 2010, and it brought down the official value of the bolivar by 46.5 percent against the dollar. By boosting the bolivar value of Venezuela's dollar-denominated oil sales, the change is expected to help alleviate a difficult budget outlook for the government, which has turned increasingly to borrowing to meet its spending obligations.
Planning and Finance Minister Jorge Giordani said the new rate will take effect Wednesday, after a two-day banking holiday. He said the old rate would still be allowed for some transactions that already were approved by the state currency agency.
Venezuela's government has had strict currency exchange controls since 2003 and maintains a fixed, government-set exchange rate. Under the controls, people and businesses must apply to a government currency agency to receive dollars at the official rate to import goods, pay for travel or cover other obligations.
While those controls have restricted the amounts of dollars available at the official rate, an illegal black market has flourished and the value of the bolivar has recently been eroding. In black market street trading, dollars have recently been selling for more than four times the official exchange rate of 4.30 bolivars to the dollar.
The announcement came after the country's Central Bank said annual inflation rose to 22.2 percent in January, up from 20.1 percent at the end of 2012.
The oil-exporting country, a member of OPEC, has consistently had Latin America's highest officially acknowledged inflation rates in recent years. Spiraling prices have come amid worsening shortages of some staple foods, such as cornmeal, chicken and sugar.
Seeking to confront such shortages, the government last week announced plans to have the state oil company turn over more of its earnings in dollars to the Central Bank while reducing the amount injected into a fund used for various government programs and public works projects.
Giordani said the government had also decided to do away with a second-tier rate that has hovered around 5.30 bolivars to the dollar, through a bond market administered by the Central Bank. That rate had been granted to some businesses that hadn't been able to obtain dollars at the official rate.
It was the fifth time that Chavez's government has devalued the currency since establishing the currency exchange controls a decade ago in an attempt to combat capital flight.