Bolivar’s value off 75 percent

The Venezuelan currency’s exchange rate in the black market, the only one most Venezuelans are able to access, surpassed Thursday the psychological barrier of 50 bolivars per dollar, a new sign of the economic deterioration of the South American nation.

The quotation of the parallel dollar, which is illegal in Venezuela, closed at 53.43 bolivars per dollar Friday, according to the website, which follows black market transactions.

The new quotation of the parallel dollar represents a 75.08 percent depreciation of the bolivar compared to the level of 13.33 bolivars per unit 12 months ago.

The official exchange rate, which can only be used by a select group of entrepreneurs, remains fixed at 6.3 bolivars per dollar, though most economists believe that the overvalued level is unsustainable and predict that the Nicolás Maduro’s government will be forced to again devalue the national currency after the municipal elections in December.

The record level reached on Thursday occurred in the context of Venezuela’s acute scarcity of dollars, while the government releases volumes of foreign currency very inferior to those required for the economy to operate.

It also happened within the framework of a very expansive currency policy, affected by the injection of an enormous number of inorganic bolivars that will probably lead inflation to end the year at a rate higher than 50 percent. The government acknowledged on Thursday that annualized inflation had reached 49.4 percent in September, its higher level in 13 years.

“The market is dry of dollars, there are no offers. No one is selling dollars,” said José Guerra, professor of the school of Economy at the Central University of Venezuela, who added that the scarcity of products in the country is contributing to fuel the demand of U.S. currency.

“Venezuelans don’t know what to do with the bolivars they have. They can’t buy a car because there are no cars, can’t buy a house because there are no houses,” he said. “It’s not worth it keeping the money in a bank because the yield is very low. So people are after the dollars.”

Venezuela, whose productive element has been atrophied by years of revolutionary policies, has experienced a dramatic plunge not only in key sectors, like construction and manufacture of durable goods, but also in the production of food and basic consumer goods, prompting a growing need of dollars to import them.

The problem is aggravated, economists say, by the government’s refusal to get its finances in order, with a fiscal deficit that has already reached unsustainable levels.

Alejandro Arreaza, chief economist for the Andean region of Barclays Capital, said that the consolidated fiscal deficit reached 20 points of the Gross Domestic Product last year.

“A big part of that deficit was being covered by monetary financing,” Arreaza said. “In other words, the central bank is printing money and directly financing the government.”

“When you have this type of policy, it leads to more inflation and it becomes much more difficult to stabilize the currency given the fact that there will be a lot of pressure to get it closer to the inflation differential between the country and its primary business partners,” he explained.

The creation of inorganic money is not a practice that has gone down under Maduro, who took charge of the country after the death of president Hugo Chávez early this year.

In fact, it seems that Maduro is dumping more bolivars on the economy than his predecessor, ordering, for example, two wage increases, which generate more pressure on prices and therefore on the currency exchange.

While the situation worsens in short term, in December the economy will be subjected to a larger increase of liquidity with the traditional expenditure of profits, which means an additional compensation of a month’s salary to Venezuelan workers.

That, inevitably, will cause the national currency to continue to depreciate in the next few weeks.

“With the increase of the number of bolivars circulating, the pressures on prices increase as well, particularly on the currency exchange,” Arreaza said.

The high volumes of bolivars in circulation will probably force Maduro to again devalue the official currency exchange.

“That is a fact,” said Guerra, who foresees that the official currency exchange will reach a level higher than 10 bolivars per unit. Barclays Capital shares that same projection.

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