Venezuela Devalues

Venezuela’s government has devalued its currency, bowing to inflationary pressure in a move that analysts say could have anti-Chavez political implications. The Bolivar has been reset to VEB6.30 per USD from VEB4.30. “Inflation [22.2% headline year-on-year] is now endemic and is likely to accelerate further in 2013,” Goldman Sachs says. Headline inflation has increased 98% since the previous devaluation, in January 2010. The FX devaluation should help ease some pressure on the strained fiscal accounts while also discouraging imports and increasing the trade surplus, Jefferies says. “There is surely going to be a political cost, which may weigh against the Chavistas and hence be viewed favorably from the markets if it shifts protest votes to the opposition,” the shop says. The government has also announced changes in the management of foreign currency by exporters of non-traditional products and USD deposits in the domestic financial system. Under the new rules, exporters can retain 40% of the value of their exports, up from 30%, while locals will be able to open dollar accounts and receive transfers from abroad in local banks.The VEB trades at more than VEB18.00 per USD on the black market, Goldman says.