Monday, September 03, 2007


Venezuelans getting what they voted for...good and hard:

The Venezuelan economy, under the direction of President Hugo Chávez, is starting to unravel in the currency market.

While Venezuela earns record proceeds from oil exports, consumers face shortages of meat, flour and cooking oil. Annual inflation has risen to 16 percent, the highest in Latin America, as Chávez tripled government spending in four years.

Exxon Mobil and ConocoPhillips are pulling out after Chávez demanded that they cede control of joint venture projects.

The bolivar has tumbled 30 percent this year to 4,850 per dollar on the black market, the only place it trades freely because of government controls on foreign exchange. That compares with the official rate of 2,150 per dollar set in 2005.

....JPMorgan Chase and Merrill Lynch expect Chávez to devalue the bolivar 14 percent in the first quarter of 2008 after he introduces a new currency Jan. 1 that will lop three zeros off all denominations.

....Chávez, an ally of President Fidel Castro of Cuba, weakened the currency 11 percent in 2005.

Chávez imposed restrictions on foreign exchange in 2003 to halt the capital flight that has driven down the bolivar more than 70 percent since he took office in 1999.

....As the gap between the official exchange rate and the black market rate has increased, so has the incentive to exploit rules, like a regulation that allows people to spend $5,000 a year on their credit cards while traveling abroad.

Some Venezuelans travel to nearby Curaçao, where they buy $5,000 of casino poker chips with their credit cards, exchange the chips for cash and then sell the dollars on the black market back in Caracas.

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