Bank of America forecasts devaluation in Venezuela in 2013

In its latest report on Venezuela, dated August 8, Bank of America estimated that, due to the fiscal imbalance, Venezuelan authorities may resort to currency devaluation in the first quarter of 2013.

According to Bank of America, if President Hugo Chávez is reelected, the government would increase the exchange rate to VEB 7.5 per US dollar.

Historically, currency devaluation in Venezuela leads to economic recession. Therefore, such a move would have a cost in 2013, but the economy would grow again ahead of the upcoming parliamentary election of 2015.

In a scenario where opposition presidential candidate, Henrique Capriles Radonski, wins the vote and a change of government takes place, Bank of America expects the new authorities to try to avoid a dramatic adjustment in the exchange rate. But the bank predicts that the boost from tax benefits resulting from devaluation may prevail.

According to Bank of America, Venezuela is likely to merge the exchange rates of both the Foreign Exchange Administration Commission (Cadivi) and the Transaction System for Foreign Currency Denominated Securities (Sitme). Then, it will bring incrementally the US dollar price to VEB 7 or more in 2013.

The analysis of Bank of America takes into account the contemporary history and explains that since 1980, currency devaluation in Venezuela has averaged 62% the year after the presidential election versus 9% in election years and 26% in other years.

Translated by Karina Salas