CARACAS, Wednesday December 19, 2012 | Update

Serious devaluation needed in Venezuela amidst large fiscal deficit

Experts remarked that the country "cannot put up with additional isolated economic measures"

The government has implemented inconsistent fiscal, monetary and foreign exchange policies (File photo)
Wednesday December 19, 2012  12:05 PM
In 2013, the "size of the (Venezuelan) fiscal deficit will require a serious revision of the foreign exchange rate," according to a report on Venezuela's economic outlook compiled by economists José Guerra, Sary Levy, Luis Bruzco, Isaac Mencía, and Luis Oliveros.

They explained that the gap between income and expenditure stands at 17% of the gross domestic product (GDP). Likewise, Venezuela's debt is escalating rapidly, so the country will have no other choice but to devaluate its currency to obtain more bolivars per each petrodollar.

"Based on Venezuela's background, high debt and fiscal imbalance are usually corrected by implementing a serious devaluation of the local currency, and 2013 will not be an exception."

The economists believe that "although the Government may be able to keep unchanged the forex rate at VEB 4.30 per US dollar for some cases, the second preferential forex rate (for operations through the Transaction System for Foreign Currency Denominated Securities, Sitme) will have to be subject to an adjustment of at least 70%. This will certainly have an impact both on spending and inflation."

"Thus, it is very unlikely to see a 6% economic growth in 2013 in parallel with a 12% inflation rate as estimated by the Government. On the contrary, considering the fiscal and forex adjustment, in 2013 the economy may decelerate remarkably, and inflation may be above that in 2012, near 25%," the group of experts estimated.

The report points out, "Venezuela cannot put up with additional isolated economic measures. The circumstances call for immediate implementation of an economic program to cope with the fiscal deficit decidedly, to correct the serious imbalance in the forex market, to reduce the inflationary management of the national budget, to restore confidence, and encourage domestic production."

Translated by Jhean Cabrera
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