The Americas Blog seeks to present a more accurate perspective on economic and political developments in the Western Hemisphere than is often presented in the United States. It will provide information that is often ignored, buried, and sometimes misreported in the major U.S. media.
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While most of the news from Venezuela has been focused on protests, something that is probably more important for the future of the country has taken place. The black market value of the dollar has plummeted by one-third in the past three weeks, on news that the government is introducing a new, market-based exchange rate. According to the plan, known as SICAD 2 (Sistema Cambiario Alternativo de Divisas), Venezuelans will be able to purchase dollars legally from various vendors including private brokers and banks.
In November of last year I wrote a short piece for Folha de Sao Paulo arguing that the black market dollar price was a bubble, comparable to the real estate bubble in the U.S. in 2006 (or stock market in 1999), and that the government could burst it at any time. Some people were buying dollars because they needed them for various purposes; but also some were making what they thought was a one-way bet. They thought that the dollar was a good store of value because it would continue to rise indefinitely against the domestic currency. Much of the media promoted the idea that Venezuela was headed for hyperinflation (some even erroneously call it that), and so the domestic currency (bolivar fuerte) would continue to lose value until it collapsed.
At the time I wrote about the bubble the dollar was at about 60 bolivares fuertes, but it was already well into bubble territory; it continued to rise to 88 and has now fallen to 58.3. It’s likely to fall further as the SICAD 2 system supplies dollars that were previously being sold on the black market. And if the black market dollar falls, it will bring down inflation, since this has been the main cause (see graph below) of the sharp increase in inflation since October of 2012. There should also be some relief of shortages, since it will be easier for importers to get dollars. Since PDVSA (the state oil company) can sell dollars on this market as well, this should also reduce the government budget deficit.
Of course there are other economic problems, including the pilfering of billions of dollars in foreign exchange at the official rate through the setting up of fake companies, and smuggling subsidized food and gasoline across the Colombian border. But the exchange rate system has been the central economic imbalance, and if SICAD 2 functions as planned it could go a long way towards resolving Venezuela’s current economic problems.
While most of the news from Venezuela has been focused on protests, something that is probably more important for the future of the country has taken place. The black market value of the dollar has plummeted by one-third in the past three weeks, on news that the government is introducing a new, market-based exchange rate. According to the plan, known as SICAD 2 (Sistema Cambiario Alternativo de Divisas), Venezuelans will be able to purchase dollars legally from various vendors including private brokers and banks.
In November of last year I wrote a short piece for Folha de Sao Paulo arguing that the black market dollar price was a bubble, comparable to the real estate bubble in the U.S. in 2006 (or stock market in 1999), and that the government could burst it at any time. Some people were buying dollars because they needed them for various purposes; but also some were making what they thought was a one-way bet. They thought that the dollar was a good store of value because it would continue to rise indefinitely against the domestic currency. Much of the media promoted the idea that Venezuela was headed for hyperinflation (some even erroneously call it that), and so the domestic currency (bolivar fuerte) would continue to lose value until it collapsed.
At the time I wrote about the bubble the dollar was at about 60 bolivares fuertes, but it was already well into bubble territory; it continued to rise to 88 and has now fallen to 58.3. It’s likely to fall further as the SICAD 2 system supplies dollars that were previously being sold on the black market. And if the black market dollar falls, it will bring down inflation, since this has been the main cause (see graph below) of the sharp increase in inflation since October of 2012. There should also be some relief of shortages, since it will be easier for importers to get dollars. Since PDVSA (the state oil company) can sell dollars on this market as well, this should also reduce the government budget deficit.
Of course there are other economic problems, including the pilfering of billions of dollars in foreign exchange at the official rate through the setting up of fake companies, and smuggling subsidized food and gasoline across the Colombian border. But the exchange rate system has been the central economic imbalance, and if SICAD 2 functions as planned it could go a long way towards resolving Venezuela’s current economic problems.
Earlier this week, in a highly irregular move, Panama offered its seat at the regular meeting of the OAS Permanent Council today to Venezuelan opposition lawmaker María Corina Machado. Machado, along with Leopoldo López, are the leaders of the “La Salida” — “The Exit” — campaign, which calls for street protests to oust the current government.
At the beginning of the meeting, the OAS representative from Nicaragua called for a vote on whether the meeting should be public or private. After much debate, 22 countries voted to make the meeting private, while 11 countries voted in favor of it being public. It should be noted that this is far from the first time the OAS Permanent Council has held a meeting that was closed to the media. Many of the meetings that occurred after the Honduras coup, for example, were also closed to the media.
Many within the Venezuela opposition and the media were quick to cast the vote as a move to censor Machado and prevent her message from being heard. Others have presented the vote as a barometer of support for the Venezuelan government and opposition. Brazil, which voted to make the meeting private, has quite a different explanation:
The objective of this meeting is not to turn itself into a circus for an outside audience as some representatives have shown they want to do.
Earlier this week, in a highly irregular move, Panama offered its seat at the regular meeting of the OAS Permanent Council today to Venezuelan opposition lawmaker María Corina Machado. Machado, along with Leopoldo López, are the leaders of the “La Salida” — “The Exit” — campaign, which calls for street protests to oust the current government.
At the beginning of the meeting, the OAS representative from Nicaragua called for a vote on whether the meeting should be public or private. After much debate, 22 countries voted to make the meeting private, while 11 countries voted in favor of it being public. It should be noted that this is far from the first time the OAS Permanent Council has held a meeting that was closed to the media. Many of the meetings that occurred after the Honduras coup, for example, were also closed to the media.
Many within the Venezuela opposition and the media were quick to cast the vote as a move to censor Machado and prevent her message from being heard. Others have presented the vote as a barometer of support for the Venezuelan government and opposition. Brazil, which voted to make the meeting private, has quite a different explanation:
The objective of this meeting is not to turn itself into a circus for an outside audience as some representatives have shown they want to do.
