Friday, January 08, 2010

Great news or too little too late? 

I have to admit - I am stunned by the news. The Chavez administration, which has steadfastly refused to devalue the Bolivar against the dollar in spite of the absurd exchange rate totally screwing the economy finally devalued!!!!!!!

I was not expecting this at all. Everything I saw made me think they would take the existing exchange rate to the bitter end when things would go pop and the economy would implode.

Stunningly, they devalued, and in an election year.

I haven't had a chance to read much about this, to hear how they announced it, nor to get exact details on it so I don't want to say too much more right now. However, it is a dual exchange rate with a more favorable rate for key imports like food and machinery and a much lower rate for imports that really should be discouraged like cars, consumer electronics, and the like.

If this announcement had come in January 2007, when it should have come, I would be ecstatic.

At this late date I am not sure - the main idea behind devaluing is giving the government more money to invest in social programs and industry (and that money comes from private consumers having less for imported consumer goods) and make local industry more competitive so that it expands. I am definitely afraid that this is too little too late to accomplish those things but we'll look at that more closely in the days and weeks ahead.

I am also anxious to see how the government explains this to people given that for a long time they dismissed it as a stupid and bad idea.

Anyways, this certainly reminds me of the old adage - things tend to happen when you least expect them.


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