While the Venezuelan government is elaborating the 2005 budget and projecting the macroeconomic values for next year, no decision has been taken on a new and expected devaluation of our currency.

Nevertheless, if oil prices remain high for a long period, the hike on the currency exchange rate could wait, depending on the government needs for financing and on the use made of the abundant resources from oil exports.

Several officials have denied versions on the press about a devaluation of nearly 20% for 2005, which would raise the exchange rate to 2,300 bolívares (Bs.) per dollar. Some even talk about a revaluation of the bolívar if the national income remains so high.

The director of the National Budget Office (Onapre), general Alfredo Pardo, said recently that “so far, any rate mentioned is speculative, since there is nothing official yet; it(the issue) hasn’t been dealt with”

The official said that there is still no final decision on this matter, “because it will depend on what the macroeconomic figures indicate; but until now, this topic has not been discussed, as some media have informed”.

The Ministry of Finance, the Ministry of Planning and Development, as well as Onapre, are elaborating the plans for the income and expense scenarios for next year. Pardo expects the definite figures to be ready by late August in order present the budget before the National Assembly next September.

Nonetheless, currency devaluation has been the most denied, and yet the most commonly used practice throughout different administrations for many years, as a recurrent governmental formula to compensate the repetitive structural fiscal deficits.

The minister of Finance, Tobías Nóbrega has firmly asserted -since currency exchange control was decreed on February 2003- that it is necessary to adjust the type of change in the context of several variables; but that meanwhile, the sky high oil prices are giving Venezuela a favorable margin.

¿Sweet Expectation?

However, the average Venezuelan expects the “official” currency to undergo a new devaluation in the first months of 2005. When the current exchange rate control began, the fixed rate was 1,600 Bs. per dollar. This year it rose to 1,920 Bs.; a devaluation of 16.6%. But the adjustments to the exchange rate would not be so serious if they had no incidence on the dollar in the black market; an obligatory reference for many of the transactions in Venezuela.

After a high degree of volatility and reaching peak values of 3,400-3,500 Bs., the rate is nearing 2,700-2,800 Bs. per dollar.

But in the meantime, and for the rest of the year, it seems that there will not be any other adjustment, and thus the government would be keeping its promise of maintaining a single official rate at the levels fixed last February. Nobrega said that the plan for the rest of 2004, was to modify, on a gradual basis, the currency exchange control mechanism in order to make it more flexible, and thus increase the access to foreign currency, by making the procedures of approval and delivery more fluent. And for truth’s sake, procedures have been faster.

Venezuela has been highly favored by soaring oil prices, nearing 44$ per barrel. As for Venezuelan oil export products -including crude, condensed and refined products- their prices hiked to 37.10$ per barrel in the first week of August, raising the year average to 31.06$ per barrel; 11$ above the governments estimated average for 2004.

The vice-minister of hydrocarbons, Luis Vierma, said a few days ago that if the current world oil market scenario keeps up, the average price for Venezuelan oil products will be 40$ by yearend.

Growth at all costs

The current high prices will yield the country between 5 and 6 billion $ in extra oil income; but according to the government, a good part of it is being invested in social programs.

This oil boom has also allowed the government to sum up unprecedented amounts in international reserves, despite the fact that it has made several debt operations that have affected them. By August 9th, reserves were 20,814 million $, besides the 705 million from the Investment Fund for Macroeconomic Stabilization (FIEM), for a total of 21,519 million; reaching their peak in May, with 24,700 million $, including 703 million from FIEM.

But the sustainment of the reserves and of the exchange rate is also susceptible not only to oil prices, but also to how these funds are used by the government, after it allocated them to the so-called missions and other plans launched amid the referendum campaign.

In any case, and apart from the political ups and downs, the country expects the so much boasted economic growth estimated for this year and the next, to deliver well being for the whole of the people, most of whom are struck by poverty. One of the directors of the Venezuelan Central Bank(BCV), Domingo Masa Zavala, said recently that economic reactivation will keep up throughout the next semester, regardless of the result of the presidential recall referendum and that for the next six months the national economy could grow between 10% and 12%.

Zavala said that unemployment would also decrease between 2% and 3% during the second half of the year. In the first quarter of the year, the official rate of unemployment was 17.3%, in an employable population of 12 million.

Published in Quantum No 27

Maitane Larrañaga