Of all the startling measures announced by Venezuela President Hugo Chavez this year, from the nationalization of major utilities to threats of imprisonment for violators of price-controls, none have baffled economists like his venture into monetary reform.
First, Chavez said the authorities would remove three zeroes from the denomination of the currency, the bolivar (1 bolivar=Rs0.021). Then he said the new bolivar, worth 1,000 old bolivars, would be renamed the “bolivar fuerte”, or strong bolivar.
The central bank said last week that it would reintroduce a 12.5-cent coin, a symbol of Venezuela’s prosperity in the 1960s and 1970s before freewheeling oil booms ended in abrupt devaluations, after three decades out of circulation. Chavez champions these ideas, which will take effect in January, as ways to combat inflation, which in recent weeks crept up to 20%, the highest in Latin America.
Officials blame “hoarders” for shortages of basic goods and price increases for food on the black market. Chavez says that the renaming and redenominating of the currency will instill confidence in it.
Gaston Parra, the president of the central bank, went on television last week to emphasize that the effect of these measures on the value of Venezuela’s currency would be neutral, neither increasing or decreasing salaries, debts, nor the price of consumer goods.
Private economists, however, say that the changes, combined with inflation, could heighten confusion over prices. Those economists say that the inflation is a result of a surge in public spending by Chavez and increasingly jittery efforts by the wealthy to circumvent tightening price and foreign-exchange controls.
”We’re witnessing policy in the form of window dressing, all carried out at the whim of one man whose strong point is not economics,” said Hugo Faria, an economist at the Institute of Higher Management Studies, a private business school here. “Anyone who sees a 12.5-cent coin as a remedy for this country’s problems isn’t thinking too clearly.”
Inflation has been climbing rapidly since January when a sharp decline in the black-market value of the bolivar pushed up prices of imported goods.
Since Chavez moved to nationalize major telephone and electricity companies in January, Venezuelans have rushed to take money out of the country, currency traders say. That exodus has caused the bolivar to weaken by about 20% to a level of 4,000 to the dollar in the black market, placing it among the world’s worst performing currencies.
The decisions to rename the currency and reintroduce the unusual coin, known here as the locha, a term thought to derive from an anachronistic practice of dividing monetary units into eighths, have dumbfounded many Venezuelans. More than a third of the country’s population of 2.6 crore is under age 18, with no memory of the coin, which stopped circulating in the 1970s.
Symbolism has long been a priority for Chavez, whose presidency began in 1999. After emerging victorious from a strike that had reduced Venezuela’s oil exports in 2002 and 2003, he renamed the tankers that had dropped anchor to harden the strike. Gone were the names of Venezuelan beauty queens, replaced with names of Simon Bolivar’s servant and his lover.