Nervous Venezuelans buy TVs after devaluation
1 of 3. Shoppers check electronic items in a store in Caracas January 9, 2010.
Credit: Reuters/Carlos Garcia Rawlins
CARACAS |
CARACAS (Reuters) - Shouting "buy, buy, the world is going to die," Venezuelans went on a frantic shopping spree on Saturday following a sharp currency devaluation that is expected to drive up prices.
President Hugo Chavez announced a dual system for the fixed rate bolivar Friday night while much of the country was watching a baseball game.
But Saturday, word spread quickly as people read the morning papers and listened to the radio in Caracas cafes.
Shoppers crammed into electronics stores, eager to snap up imported televisions and computers ahead of the anticipated price hikes.
"I've been lining up for two hours outside to buy a television and two speakers because by Monday everything is bound to be double the current price," said Miguel Gonzalez, a 56-year-old engineer standing in the tropical sun outside a popular store.
Opposition politicians seized the opportunity to criticize Chavez's economic management, with Caracas Mayor Antonio Ledezma saying standards of living would drop.
"If you need to buy a refrigerator for your house tomorrow, it's going to cost you twice as much as it did up till Friday, Ledezma said.
The government acknowledges prices will rise after the devaluation, but say the upward trend will be more gradual.
State run television and radio stations avoided using the word "devaluation," preferring the word "adjustment." One pro-Chavez radio station responded to critics of the measure by playing a popular Argentine song called "Imbecile."
With oil crowding out other sectors of the economy, Venezuela heavily relies on imports for consumer goods, leaving it subject to big price swings depending on the exchange rate.
Older Venezuelans are accustomed to sharp losses in the value of their money, with numerous devaluations and currency regimes over the last three decades of economic turmoil.
Inflation, the highest in the Americas, at 25 percent last year, reached 103 percent in 1996 after a previous president lifted exchange and price controls.
Chavez's high-spending policies during an oil bonanza fueled a massive consumer boom and fast growth that shuddered to a halt when oil prices plunged a year ago.
The sharp drop in oil revenues also undermined the bolivar and made a devaluation inevitable at some point.
(Additional reporting by Ana Isabel Martinez; Writing by Frank Jack Daniel; Editing by Xavier Briand)
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Many also has huge trade deficits and imbalances, US has had a trade deficit for more then 30 years every year. The dollar is overvalued and because of the petrodollar and other raw materials traded in dollar has been able to support and hold the inflated value. UK also has large deficits. They can do this because they have large economic presence in the world. Small countries do follow the business cycle in some regard and are more vulnerable to it, but it can also be a stabilizing force.
If Venezuela would have a free floating currency (that is reasonable stable) it would sway up and down all the time and go down during international downs like this one. It’s not something evil to tie the currency to the state of trade and the economy, however it becomes a shock when a fix exchange rate system like this needs to be adjusted for the imbalances.
Consumer goods is always something that strains a countries economy in the regard that it’s imported goods that need to be offset by exporting other goods. Something countries like US have giving up trying. It’s basically just consumers spending on stuff like building and renovating their homes that gives a real economic impact or help the economy. When it comes to consumers spending. US becomes poorer every time someone buys consumer goods from the retailing sector. If the dollar would adjust to market price and be disconnected from the pricing and raw materials trade the same thing would happen in the US. The yuan/RMB would become like 40% more expensive if it were not tied while you now whine that it’s overvalued against the dollar. The world would buy more of your stuff, but you would still have to buy less from the world for the trade to balance out.
I know I have a mercantalistic view, but there’s not many countries that is actually healthy with these imbalances. Thus if the currency exchange rate helps counter the impact it can help maintaining a stable economy that will come out of the business cycle strong and with a currency that regains it’s value. No country is driven by consumer demand in the sense of buying consumer products. Imports are not a right it’s a privilege we gain through trade. Consumer booms if they are unsustainable will always meet the bust. If the economy is unhealthy you will effect you eventually. Making sure the essentials like food are available is always a priority over consumer goods. However a free none fixed exchange rate is always preferable in todays world. Sweden was struck with devaluation before too, but now it’s not noticeable for the consumer with the free flowing exchange rate. Also as the dollar also lost value goods priced in dollars didn’t dramatically changed. They were even cheaper a wile. We would have been more vulnerable if it where tied to the dollar. The alternative is debt.
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