Venezuela's low foreign exchange rate fuels imports
The inflation rate recorded by domestic products is 5.4 points higher than that for imported goods
While Venezuelan entrepreneurs face a 20% increase in costs, inflation in the countries where Venezuela buys food, raw materials, and a wide selection of products does not exceed 6%.
As a result, according to the Central Bank of Venezuela (BCV), from January to November this year, the wholesale price of imported products swelled 11.4% due to the fixed exchange rate. Meanwhile, the price of domestic products jumped 16.8%, a 5.4-point gap.
When imports are cheaper than domestic products, this phenomenon is technically known as overvaluation. According to a study conducted by the United Nations' Economic Commission for Latin America and the Caribbean (ECLAC), overvaluation has attained a substantial level in Venezuela.
For measuring such variable, ECLAC relied on the real effective exchange rate index, which measures variations in competiveness taking into account inflation and the foreign exchange rate of Venezuela's main trade partners. The higher the index, the better the country's competiveness; the lower the index, the lower the country's competitiveness.
From late 2010 through the second quarter of 2012, Venezuela's index fell 20 points, which means that the local currency was the most appreciated across Latin America and the Caribbean in such a period. Hence, imports are very attractive on the market.
Translated by Jhean Cabrera
President Nicolás Maduro is not only the heir to the throne, but also to an economic crisis which demanded urgent measures to rectify the course. The crisis showed up in two aspects: a 50% inflation estimate, and shortage of staples ranging between 70% and 98%. These issues might hit the President's poor popularity; considering his feeble electoral victory of 1% over his challenger.