Venezuela devalues for second time this year


By Jose Orozco and Corina Rodriguez Pons
Bloomberg News
Thursday, December 30, 2010

CARACAS, Venezuela -- Venezuela devalued its currency for the second time since January, enabling the government to increase revenue at the risk of pushing up the world's highest inflation rate.

The government will weaken the exchange rate on so-called essential goods such as food and medicine by 40 percent to 4.3 bolivars per dollar on Jan. 1, unifying its two fixed foreign exchange rates in bid to pull the economy out of recession, Finance Minister Jorge Giordani said today on state television. Imports of essential goods were previously bought at a rate of 2.6 bolivars per dollar.

The devaluation will help narrow the government's budget deficit by bolstering the bolivar-based value of the state oil company’s exports, said Orlando Ochoa, an economics professor at Andres Bello Catholic University in Caracas. Inflation, which is already the highest among 78 countries tracked by Bloomberg at 27 percent, may quicken further as food prices climb, he said.

... Dispatch continues below ...


Opportunity in the gold coin market

Swiss America Trading Corp. alerts GATA supporters to an opportunistic area of the gold coin market. While the gold bullion market has been quite volatile lately and as of November 29 gold has risen only $7 per ounce over the last month, the MS64 $20 gold St. Gaudens coin has risen about 10 percent in the same time. The ratio between the price of these coins and the price of gold is rising. If you'd like to learn more about the ratio and $20 gold coins, Swiss America can e-mail you a three-year study of it as well as other information.

Swiss America also can provide a limited number of free copies of "Crashing the Dollar," a book written by Swiss America's president, Craig Smith.

For information about the ratio between the $20 gold pieces and the gold price and for a free copy of "Crashing The Dollar," please call Swiss America's Tim Murphy at 1-800-289-2646 X1041 or Fred Goldstein at X1033. Or e-mail them at and

"Devaluing has fiscal benefits but also hurts the country's economic activity," Ochoa said. "Clearly, this adjustment in the preferential exchange rate directly affects inflation for 2011."

The central government posted a deficit of 58.2 billion bolivars, or $13.5 billion at the new exchange rate, between January and November, according to a National treasury report.

Giordani, who has also served as planning minister under President Hugo Chavez, said the devaluation will help spur economic growth after two years of recession. Ochoa said that a pickup in inflation will "deepen the recession."

Chavez devalued the bolivar in January for the first time since 2005 and created a multi-tiered exchange system in an attempt to spur non-oil exports and curb the consumption of luxury imports at subsidized exchange rates. Venezuela is the largest oil producer in South America.

The devaluation will boost the tax revenue that state oil company Petroleos de Venezuela SA turns over to the government because the company had been selling some of its dollar revenue at the 2.6 exchange rate, said Milton Guzman, an economist at Caracas-based consulting company Fortuny, Guzman & Asociados. Oil accounts for about 95 percent of Venezuela’s exports, according to the central bank.

About $18 billion of this year's $30 billion of imports were also purchased at the 2.6 per dollar rate, said Juan Socias, director of Caracas-based Grupo Soluciones, a research company that studies Venezuela’s foreign exchange commission.

"With so many exchange rates in play there has been a lot of distortions" in the economy, said Guzman. "Now by selling everything at 4.3, PDVSA and the government's fiscal contributions will improve. That will translate into a greater flow of bolivars for the government."

Venezuela's oil-dependent economy contracted in 2010 for a second consecutive year as foreign currency shortages grew and crude production dropped, the central bank said in a report published on its website today. Venezuela's is the only major Latin American economy in recession.

The economy has suffered as a Chavez-led nationalization drive scared away private investment, Guzman said.

Gross domestic product shrank 1.9 percent this year, with the oil industry shrinking 2.2 percent and the non-oil sector contracting 1.8 percent, according to today's report, which cited preliminary figures. The economy contracted 3.3 percent in 2009.

Chavez ordered a crackdown on brokerages this year and the dismantling of an unregulated currency market they administered, which was used by Venezuelans to obtain dollars when they couldn't get permission from the government to buy at the official exchange rates.

Sitme, the exchange that replaced the unregulated or so-called parallel market, has traded $5.04 billion to date, an average of $36 million per day. The parallel market traded between $80 million and $100 million a day, Alberto Ramos, a Latin America economist at Goldman Sachs Group Inc. in New York said in June.

The devaluation, which investors had anticipated, will provide only temporary help for the budget, said Jaime Valdivia, head of emerging market research at Bluecrest Capital Management in New York.

"This will be a temporary measure that will alleviate some of the fiscal pressures but I don't think this changes the fundamental story of Venezuela, which is one of very high inflation, high deficits, and increasing debt problems," Valdivia said. "This doesn't really change that much."

* * *

Join GATA here:

Yukon Mining Investment e-Conference
Wednesday-Thursday, January 19-20, 2011

Vancouver Resource Investment Conference
Vancouver Convention Centre West
Vancouver, British Columbia, Canada
Sunday-Monday, January 23-24, 2011

Cheviot Asset Management Sound Money Conference
Guildhall, London
Thursday, January 27, 2011

Phoenix Investment Conference and Silver Summit
Renaissance Glendale Hotel and Spa
Glendale, Arizona
Friday-Saturday, February 18-19, 2011

Support GATA by purchasing a colorful GATA T-shirt:

Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:

Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon:

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

To contribute to GATA, please visit:


Prophecy Drills 71.17 Metres of 0.52 percent NiEq
(0.310 percent Nickel 0.466 g/t PGMs +Au and 0.223 percent copper)
from surface at Wellgreen Project in the Yukon

Prophecy Resource Corp. (TSX-V: PCY) reports that it has received additional assays results from its 100-percent-owned Wellgreen PGM Ni-Cu property in the Yukon, Canada. Diamond drill holes WS10-179 to WS10-182 were drilled during the summer of 2010 by Northern Platinum (which merged with Prophecy on September 23, 2010). WS10-183 was drilled by Prophecy in October 2010. Highlights from the newly received assays include 71.17 metres from surface of 0.52 percent NiEq (0.310 percent nickel, 0.466 g/t PGMs + Au, and 0.233 percent copper) and ended in mineralization. For more drill highlights, please visit: