Are Price Controls Coming To Venezuela, Where "Nymphomania" For Dollars Is The Next Big Thing
In typical 'crazy-talk' ways, Venezuela is 'pledging' that its currency devaluation will not increase inflation in the country and, as The FT reports, has warned it will crack down on businesses that raise prices. Hot on the heels of Argentina's ignoration of inflation and recent price controls (and advertising bans), it would appear Venezuela is next as grey market dollars are changing hands for 22 Bolivars - massively lower than the official (just devalued) 6.3 Bolivars per USD rate. An 'equilibrium' rate is believed to be around 9 Bolivars but with Chavez still MIA and Maduro running the show, the 'nymphomania' for dollars - as Venezuela's finance minister called it - continues as businesses are simply unable to find tenable USD to use for imports. Contagion is also spreading as Colombia's FinMin Cardenas fears goods being smuggled across the border - creating inflation there too.
Venezuela’s government warned that it would crack down on businesses that raise prices as it pledged that a devaluation of its currency would not increase inflation.
The black market price for dollars in the country has risen to a record high, at more than 22 bolivars. That compares to the new official exchange rate of 6.3 bolivars per dollar, with the old 4.3 rate eliminated last Friday. Economists said that at 6.3 bolivars to the dollar, Venezuela’s currency remains overvalued, with the “equilibrium” price believed to be about 9 bolivars.
Finance minister Jorge Giordani spoke of “nymphomania” for dollars in Venezuela this week. But businesses criticised his failure to announce alternative sources of foreign currency for importers after a central bank-run system known as the Sitme was scrapped last Friday. Businesses had been able to obtain dollars for 5.3 bolivars through the Sitme.
Fears are growing that businesses will find it increasingly hard to obtain dollars to import goods, possibly forcing them to resort to the more expensive black market for foreign currency, with about a third of consumption in Venezuela supplied by imports.
Mauricio Cárdenas, the finance minister in neighbouring Colombia, expressed concern that the devaluation could lead to an increase in goods being smuggled across the border. A rise in inflation in Venezuela and other distortions caused by price controls could create an incentive for some goods to be sold illegally in Colombia.
Mr Chávez cracked down on businesses after the government’s previous devaluation in January 2010, expropriating supermarkets deemed to be raising prices excessively. There are signs that Mr Maduro will be no less severe.