What changes may occur in the economy after the Referendum?
Feb 19, 2009
Venezuela is close to deciding whether to accept the constitutional reform that would allow Hugo Chávez to be re-elected indefinitely as president of Venezuela. The continued deterioration of the economic situation in Venezuela that Chavez forced to rush the constitutional reform as it still has the political power necessary to do so.
The political environment that is more hectic in Venezuela. Cross-accusations flying between those who support the constitutional reform and those who oppose it. Unusually, Chavez denounced a plot against him despite the great power it shows in their country.
Since the ruling indicated that the surveys would be success stories for each other to achieve Chavez constitutional reform. The reality indicates that there is still no clear trend.
The opposition is moving at full speed, but paradoxically, the strongest of the opposition representing the students. The student movement, responsible in large measure on who suffered the first defeat Chavez at the polls in 2007, has not been idle and has been mobilizing to prevent the current Venezuelan president remain in power achieved.
The student movement has a high level of influence over the population. Según Luis Vicente León, director de la encuestadora privada Datanálisis: “Tienen un alto nivel de respeto, un alto nivel de conexión popular y son muy atractivos desde el punto de vista del envío de comunicación y mensaje, porque son aceptados por todos los estratos socioeconómicos .
Important to the power achieved by the student movement, the opposition alliance has sought to address the same one that Chavez uses everything in its power to confront the university.
Given the high rate observed in the referendum, it will be running the vote to see where they lead Venezuela.
But once the end of the referendum, the result beyond, Venezuela must deal with major emergencies that are presented in the economic sphere.
Among the major emergency, the currency issue remains at the forefront of the concerns of the Venezuelan government. Currently, every dollar is exchanged for 2.13 units bolívar strong. This parity is maintained since April 2005 and since that time Venezuela has suffered high levels of inflation (currently over 30% year) that have severely affected the competitiveness of the economy by the strong appreciation of real exchange rate.
Alberto Ramos, an analyst at Goldman Sachs, was the exchange rate issue, saying: "It is expected that very soon, possibly after the referendum on Sunday, the government adjust the exchange rate."
According to Ramos, the nominal exchange rate should reach 4 bolivars strong move to near its equilibrium level. However, there are two problems with the current situation of the Venezuelan economy. The first is that an adjustment of the magnitude required by the nominal exchange rate would produce strong inflationary pressures, which impact mainly in the segments of the population with fewer resources.
Additionally, the acceleration in inflation would cut short a time, much of the benefits of the devaluation of the Venezuelan currency. The second problem is that Venezuela is related to the dynamic that has reached the rate of inflation that prevents the execution of an adjustment in one step. The current rate of inflation requires a continuous adjustment of the exchange rate so that it can maintain a certain level of competitiveness. The problem is to make such an adjustment was gradually reduced to zero and not the opposite happen to amplify with time (the latter possibility appears more likely).
Beyond the issue of exchange rate competitiveness and despite the resistance offered by the Chavez government to change the exchange rate, Venezuela has an additional incentive to devalue its currency and is related to the performance of its fiscal targets. Is that the main source of revenue comes from the country's oil exports by PDVSA. Thus an exchange rate devaluation would increase the country's income, measured in local currency, thus enabling the coverage of the budget.
The need for currency devaluation to achieve the budget target is based on the poor outlook for the price of a barrel of oil it very difficult to achieve the expected value in the budget this year. The average market expects the value of a barrel of oil exceeds U.S. $ 45 by end of this year. Yesterday, the Texas oil traded near $ 35 a barrel.
Since the Chavez government is reviewing measures to close the tax gap without having to resort to currency devaluation. The decision not to give in to the currency devaluation is more political than logical reasoning. May be reached to postpone the exchange rate adjustment, but this will result in greater negative consequences.
While the exchange rate issue is a matter of concern to the Venezuelan government, the main problem in the current economic model, which has given clear signs of exhaustion. The Venezuelan economy is in serious danger of contraction this year. For the former manager of economic research of the Central Bank of Venezuela José Guerra, the country joined stagflation phase (mixture of recession with inflation). War an estimated contraction of GDP in Venezuela of 1.5% and 2.5% and the rate of retail inflation to reach 35%. According to Guerra, "It drains a model based on the business role of the state."
Faced with the exhaustion of state business model, a general weakening of the power of Chavez and the great risks that this implies for the stability of the economy, the president of Venezuela should take urgent steps to reduce tensions that have been exposed same. On measures to be implemented by the government anticipates War "is to implement an adjustment model is not announced."
When it remains unclear which position will be imposed in the referendum next Sunday, there is total clarity and consensus that the economy needs urgent reforms and changes that prevent it moves towards a crisis. Will Chavez decided to do it or will remain inflexible to ignore a situation that does not stand much longer?
The political environment that is more hectic in Venezuela. Cross-accusations flying between those who support the constitutional reform and those who oppose it. Unusually, Chavez denounced a plot against him despite the great power it shows in their country.
Since the ruling indicated that the surveys would be success stories for each other to achieve Chavez constitutional reform. The reality indicates that there is still no clear trend.
The opposition is moving at full speed, but paradoxically, the strongest of the opposition representing the students. The student movement, responsible in large measure on who suffered the first defeat Chavez at the polls in 2007, has not been idle and has been mobilizing to prevent the current Venezuelan president remain in power achieved.
The student movement has a high level of influence over the population. Según Luis Vicente León, director de la encuestadora privada Datanálisis: “Tienen un alto nivel de respeto, un alto nivel de conexión popular y son muy atractivos desde el punto de vista del envío de comunicación y mensaje, porque son aceptados por todos los estratos socioeconómicos .
Important to the power achieved by the student movement, the opposition alliance has sought to address the same one that Chavez uses everything in its power to confront the university.
Given the high rate observed in the referendum, it will be running the vote to see where they lead Venezuela.
But once the end of the referendum, the result beyond, Venezuela must deal with major emergencies that are presented in the economic sphere.
Among the major emergency, the currency issue remains at the forefront of the concerns of the Venezuelan government. Currently, every dollar is exchanged for 2.13 units bolívar strong. This parity is maintained since April 2005 and since that time Venezuela has suffered high levels of inflation (currently over 30% year) that have severely affected the competitiveness of the economy by the strong appreciation of real exchange rate.
Alberto Ramos, an analyst at Goldman Sachs, was the exchange rate issue, saying: "It is expected that very soon, possibly after the referendum on Sunday, the government adjust the exchange rate."
According to Ramos, the nominal exchange rate should reach 4 bolivars strong move to near its equilibrium level. However, there are two problems with the current situation of the Venezuelan economy. The first is that an adjustment of the magnitude required by the nominal exchange rate would produce strong inflationary pressures, which impact mainly in the segments of the population with fewer resources.
Additionally, the acceleration in inflation would cut short a time, much of the benefits of the devaluation of the Venezuelan currency. The second problem is that Venezuela is related to the dynamic that has reached the rate of inflation that prevents the execution of an adjustment in one step. The current rate of inflation requires a continuous adjustment of the exchange rate so that it can maintain a certain level of competitiveness. The problem is to make such an adjustment was gradually reduced to zero and not the opposite happen to amplify with time (the latter possibility appears more likely).
Beyond the issue of exchange rate competitiveness and despite the resistance offered by the Chavez government to change the exchange rate, Venezuela has an additional incentive to devalue its currency and is related to the performance of its fiscal targets. Is that the main source of revenue comes from the country's oil exports by PDVSA. Thus an exchange rate devaluation would increase the country's income, measured in local currency, thus enabling the coverage of the budget.
The need for currency devaluation to achieve the budget target is based on the poor outlook for the price of a barrel of oil it very difficult to achieve the expected value in the budget this year. The average market expects the value of a barrel of oil exceeds U.S. $ 45 by end of this year. Yesterday, the Texas oil traded near $ 35 a barrel.
Since the Chavez government is reviewing measures to close the tax gap without having to resort to currency devaluation. The decision not to give in to the currency devaluation is more political than logical reasoning. May be reached to postpone the exchange rate adjustment, but this will result in greater negative consequences.
While the exchange rate issue is a matter of concern to the Venezuelan government, the main problem in the current economic model, which has given clear signs of exhaustion. The Venezuelan economy is in serious danger of contraction this year. For the former manager of economic research of the Central Bank of Venezuela José Guerra, the country joined stagflation phase (mixture of recession with inflation). War an estimated contraction of GDP in Venezuela of 1.5% and 2.5% and the rate of retail inflation to reach 35%. According to Guerra, "It drains a model based on the business role of the state."
Faced with the exhaustion of state business model, a general weakening of the power of Chavez and the great risks that this implies for the stability of the economy, the president of Venezuela should take urgent steps to reduce tensions that have been exposed same. On measures to be implemented by the government anticipates War "is to implement an adjustment model is not announced."
When it remains unclear which position will be imposed in the referendum next Sunday, there is total clarity and consensus that the economy needs urgent reforms and changes that prevent it moves towards a crisis. Will Chavez decided to do it or will remain inflexible to ignore a situation that does not stand much longer?
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