x
0
SCOTTRADE ACCOUNT IT'S TIME. It's time for an easier way to invest. Open a Scottrade Account
Apply Now

Venezuela’s Latest Economic Woes

EconomyMar 27, 2014 06:30AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

By Patricia Rey Mallén - There is no rest for Venezuela. After two months of nearly non-stop protests, accusations between government and opposition and no solution in sight, the country’s economy has started to show severe signs of deterioration.

First, the local currency, the bolivar, has depreciated greatly: Its exchange rate against the American dollar decreased nearly 90 percent, according to official calculations. When calculated with the Sicad I rate, an alternative value fixed by a government-controlled auction, the drop was barely 77 percent.

The bolivar already sported the dubious honor of being Latin America’s most devalued currency in 2013, and it is not faring well this year either. In a desperate attempt to control it, the government introduced a new free-floating exchange rate, the Sicad II, which offers dollars for eight times the official price.

The current official exchange rate is 51.8 bolivars per $1, but that rate doubles in the black market.

The measure aims at making the system more flexible, and controlling inflation, which in 2013 reached a 57 percent annual rate. This year is following suit, with a 57.30 percent inflation rate in February.

Even if Sicad II works, it will just be a temporary fix for a fundamental problem: It lacks foreign currency reserve, a significant problem for Venezuela, a country that is dependent on imports. The government has also announced that the public offer of dollars will only be 8 percent of the foreign currency annual budget, though the demand was much higher than that in the last two years. 

Foreign currency woes certainly aren't the only financial problems facing Venezuela. Oil production, a key part of the country’s economy and its main export, has declined abruptly. Despite promises by Venezuela’s oil minister, Rafael Ramírez, to reach a goal of 6 million barrels per day by 2019, the truth is that production in 2012 reached only 2.9 million, down from 3.2 million in 2005. Most of that production is saved for international allies like Cuba and Nicaragua, rendering it unable to play up the country’s competitiveness.

Public budget deficit reached 18 percent of the GDP in 2013.

All of these factors have contributed to a severe drop in the country’s attractiveness to foreign investment. Fitch Ratings cut the country’s credit grade by a third to B, five steps below investment grade, putting Venezuela at the level where Lebanon, Ecuador and Rwanda are.

Analysts predict Venezuela will drop its economic significance in Latin America this year, which will enable Chile to grab the fifth-largest economy title.

Venezuela’s Latest Economic Woes
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

 
Are you sure you want to delete this chart?
 
 
Replace the attached chart with a new chart ?
Post 1000
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
 
Replace the attached chart with a new chart ?
Post 1000
Please wait a minute before you try to comment again.
 
 
 
Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Add Chart to Comment
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.