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Tuesday, April 20, 2010

Don't hold your breath Mark, don't hold your breath. 

When reality keeps smacking you in the face year after year there just comes a point when you can no longer deny it. Mark Weisbrot has apparently reached such a point in acknowledging that the Chavez government simply doesn't have a plan when it comes to the economy.

In an almost confessional article entitled "Venezuela Needs and Economic Development Strategy" Dr. Weisbrot states:

The other major economic problem faced by Venezuela over the last 7 years has been its overvalued currency. In 2003 the government fixed the exchange rate at 1600 (now re-denominated as 1.6 bolivares) per dollar. It was devalued twice, to 2.15 in 2005, where it remained until January of this year.

The problem is that Venezuela's currency has grown increasingly overvalued at this fixed rate. Venezuela's inflation has been much higher than that of its trading partners (it has averaged 21 percent annually over the last 7 years). This means that, if the nominal exchange rate is held fixed, the currency appreciates in real terms. Assuming that the currency was not overvalued when it was originally fixed, it would have to have fallen to about 5.13 to the dollar by the beginning of this year, in order to keep the same real exchange rate. At the fixed exchange rate, it was probably more than 130 percent overvalued.

An overvalued exchange rate makes Venezuela's exports expensive in foreign markets and its imports artificially cheap. This makes it difficult, and perhaps impossible, for Venezuela to diversify its economy away from oil -- and in fact the country has not done so during the past 7 years.


Nothing that hasn't been said over and over here before.

He then goes on to state:

Venezuela would probably be better off with a more flexible but still managed exchange rate regime, keeping its capital controls but maintaining a competitive exchange rate so that the economy can diversify away from oil. This would at least allow for the possibility of pursuing an economic development strategy, something that -- after decades of neoliberalism -- is still pretty much absent among governments in the western hemisphere.


His frustration at the Venezuelan government not having a plan is palpable in this quote. And what can I say, I share it?

So there really is nothing to say, save if you're waiting for a plan out of the Chavez government don't hold your breath.

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