- Apr 13, 2011
- Reaction score
- Political Leaning
The opposition in Venezuela has stepped up its campaign to remove President Nicolás Maduro from office, having announced — in accordance with its numerous divisions — that it would pursue a three-pronged strategy: a constitutional amendment to shorten the president’s term of office; a recall referendum, as permitted under the constitution; and “protests.” The first tactic was struck down by Venezuela’s Supreme Court, as it would be in any country — you can’t change the legal term of a president who was already elected for a certain number of years. For the recall referendum, the process of gathering signatures is under way.The government, meanwhile, clearly needs to fix the economy if it is to regain popularity. The opposition, which has a large majority in the national legislature, has made it clear that it will not cooperate in any such efforts. On the contrary, it has acted to block the government from spending money.
But there is quite a bit that the executive branch can do to fix the economy even without the cooperation of the legislature. For some years now, I have emphasized that the exchange-rate system is the most important problem, and this is something that can be fixed rather quickly. The country currently has two official exchange rates: one at 10 bolivares fuertes (bs) per dollar (called DIPRO), and another which is currently at about 370 bs per dollar (DICOM). The latter rate is supposed to be a floating exchange rate, but this is not practical since the vast majority of the government’s dollars are given away at the official rate of 10, and so there is very little to supply the DICOM market. Then there is the black-market rate, which is currently over 1,100 bs per dollar.
This system of a fixed, overvalued exchange rate with a huge black-market premium has trapped the economy in an “inflation-depreciation” spiral. As the price of the black market dollar rises, importers who do not have access to dollars at the subsidized rate have to pay more, thus driving up inflation. As inflation rises, more people want to put their money in dollars, which pushes the black market price of the dollar up further, and the spiral continues.
Read more @: Economic policy could determine the political results in Venezuela
This is a pretty damn fair and objective look at the Venezuelan economy and what needs to happen in the country.
Some key things Venezuela needs to do to get a grasp on their economy. 1.)Unify their two exchange rates for their currency into one floating exchange rate. This would allow the govenrment more control on direct subsidies on imports which can be used for social programs and will help curtail the black market exchange rate. 2.)Needs to sell or securitize off most of its $52 billion in foreign assets. 3.)Sell some of its oil reserves it has in oil. This oil does not have to be pumped out now. 4.)Invest in more sectors other than oil. Invest in agriculture, industrial production, etc.