Venezuelan President devalues currency, ups govt. intervention

The announcement, which was made just a day before he devalued Bolivar, was highly criticized.

The President said that one of the main reasons of his decision was a “weak” U.S. dollar.

“We're going to attack the parallel market with heavy intervention. Every day our barrel of oil is worth less because of the weak dollar, because oil is priced in dollars,” he said.

Devaluation to boost economy
The Bolivar will get devalued to 4.13 (the previous rate was 2.15), and help in making a huge fiscal change. The devaluation will also strengthen the oil industry of Venezuela, which faced a 2.9 percent slump since the recession started.

Chavez said that the devaluation “will give a boost to the productive economy, will stop imports that are not strictly necessary and will stimulate exports”.

The President also set a dual exchange rate, which will squeeze more bolivars for every dollar that is received.

“With the new rates, the government will be able to sell more dollars in 2010. With this measure we're strengthening our oil dollars,” he added.

Devaluation to be tough on manufacturers
However, even though the President feels strongly about devaluation, it is a humiliating setback for the Venezuelan government. Only two years back, Chavez proposed a redenomination of the currency by making it stronger.

But now analysts feel the overvalued currency will only lead to growing dependence on imports and that too at the cost of all local manufacturers. It will also add 3 to 5 percentage points in the overall inflation for 2010.

It is being reported that the move by Chavez was made to stir growth before the legislative elections begin in September.