海角大神

The move by Venezuelan President Hugo Ch谩vez to steeply devalue the nation鈥檚 currency has generated anxiety among citizens, who rushed to stores over the weekend to purchase goods they expect will rise in price.

But for economists and analysts, it also underlies the dire economic straits of the oil-rich nation, which already suffers the highest inflation rate in the region and will face a tough recovery ahead.

鈥淭he timing of the decision surprised many in Venezuela, mainly because this year is a crucial year politically,鈥� says Pedro Palma, founder of the economic consulting firm MetroEconomica and president of Venezuela鈥檚 National Academy of Economic Sciences. 鈥淲e were sure that the devaluation would come. But we thought the government could postpone it until after elections [in September]. The oxygen of the government is shorter than we expected.鈥�

Late Friday, President Ch谩vez announced that the currency will be devalued to 4.3 per dollar from 2.15 currently for the majority of imports. A subsidized rate of 2.6 bolivars per dollar will also be used for essential imports, such as food and medicine.

The move is a boon to the state-run oil company PDVSA, which will now receive double the amount of bolivars per barrel of oil. That in turn will help the government boost spending for popular programs in poor areas that have been threatened by declining oil revenues. The new rates will help exporters, Ch谩vez says, and he also expects it to encourage domestic production of items such as food.

鈥淭his is to boost the productive economy, to reduce imports that aren鈥檛 strictly necessary and to stimulate exports,鈥� Ch谩vez said on state television in announcing the measures. 鈥淲e need to stop being a country that only exports oil.鈥�

Clear benefits

The immediate benefits are clear.

For PDVSA, says Alejandro Grisanti, an analyst at Barclays Capital in New York, 鈥渋t improves cash flow.鈥�

In a research note today, he wrote: 鈥淎lthough the accounting and other important details are not yet clear, we believe that the announcement is enormously positive for Venezuelan assets prices, since it provides a further signal from President Ch谩vez of his willingness to pay, while improving considerably the capacity to pay. For us, it is a new demonstration of his flexibility and the capacity to adjust whenever is required.鈥�

Still, Mr. Grisanti says, the measures do not tackle the sources of economic trouble in the country, such as inflation.

Ch谩vez placed currency controls in 2003. And while this is not the first devaluation he has introduced, the exchange of 2.15 had not been touched in nearly five years, since 2005.

Politically unpopular

The shock to many citizens could hurt the president politically, even as the devaluation will boost government expenditures.

鈥淚t is very unpopular here,鈥� says Ricardo Sucre, an independent political analyst in Caracas. 鈥淧eople are worried about inflation.鈥�

Media outlets reported shoppers lining up at stores over the weekend to buy electronics and other non-essential items ahead of expected price increases.

Some economists have predicted that the inflation rate, currently at 25 percent, could shoot up to 33 percent now, with some even saying it could reach 40 percent.

No 'bourgeoisie speculation'

Ch谩vez said the moves should not spur price increases, and on his Sunday radio and television address promised to punish those who do.

鈥淭here is no reason for anybody to be raising prices,鈥� he said, calling on citizens to 鈥減ublicly denounce the speculator鈥� and promising to 鈥渢ake over any business, of any size, that plays the bourgeoisie speculation game.鈥�

Many viewed the threats, including calling out the National Guard if necessary, to be part of a blame game.

鈥淭he population is going to suffer cuts in purchasing power鈥�. That will have a political impact,鈥� says Mr. Palma. 鈥淭hat is why Ch谩vez is trying to blame the private sector鈥�. He is going to exploit that.鈥�

In 11 years in office, Ch谩vez has sought to make a more equitable society with his brand of "21st-century socialism," which has often put him at odds with the private sector. He has nationalized banks and other foreign firms. Many blame his policies for the economic woes that Venezuela, which also contends with an unofficial black market rate currently at about six bolivars to the dollar, faces today. Ch谩vez said that another reason for the devaluation is to reign in speculation on that market.

Venezuela went into recession last year, with GDP contracting 2.9 percent, which has put pressure on the still-popular president ahead of crucial National Assembly elections in September. Already his opposition has jumped on the devaluation as a measure that will hurt the poorest Venezuelans.