Maduro pledges to reform Venezuela currency controls

31 Dec 2014 | Author: | No comments yet »

Maduro Vows to Fix Venezuelan Economy, Sometime in 2015.

Venezuela’s President Nicolas Maduro pauses during his speech at a press conference at Miraflores Presidential Palace in Caracas, Venezuela, Tuesday, Dec. 30, 2014.

CARACAS, Venezuela—President Nicolás Maduro said on Tuesday that the country’s three-tier currency exchange rate system, derided as a major contributor to Venezuela’s economic crisis by detractors, would be revamped sometime in the new year. Struggling to rein-in the world’s fastest inflation and revive an economy that has contracted for three straight quarters, Maduro said in a televised address that new measures are coming Jan. 3. In an almost three-hour long press conference, the socialist president blamed the severe slump on his government’s opponents, who brought the economy to a standstill during deadly protests earlier this year and are now heartened by a recent plunge in oil prices that they hope will loosen Maduro’s grip on power ahead of key congressional elections just months away. “We’ve contained the economic war, but it’s not yet been defeated,” Maduro said, valuing the government’s efforts to step in for private business and restrict smuggling. While the main government-controlled exchange sets a rate of 6.3 bolivars per U.S. dollar, the black market rate is as much as 173 per dollar. “We have created a new system and there are many things to adjust and rectify,” Maduro said. “Plans for the economic recuperation will be revealed later.” Maduro, who took office last year following the death of then-President Hugo Chavez, may be hard-pressed to spark growth.

Maduro’s comments came hours after the central bank said gross domestic product shrank 4.8 percent on an annual basis in the first two quarters of 2014 and 2.3 percent in the July-September period. Instead, the president repeated accusations that Venezuela’s economic woes were the work of Washington, among other ideological enemies of his leftist government. The leader vowed next year would see sweeping policy changes, with him personally taking over management of the economy in a newly installed “war-room” type center slated to be up and running in the presidential palace Jan. 3. “You will see me every day and in real time making decisions,” Mr. With basic goods including medicine, some food staples and toilet paper increasingly hard to find, Maduro’s approval rating fell to 24.5 percent in November, Bank of America said, citing Caracas-based pollster Datanalisis. The report came as no surprise to economists, who blame the government’s tight control of prices and foreign exchange for scaring away investment and widespread shortages of even essential items such as soap and sugar.

Maduro said. “I’m convinced that 2015 will be the year of a great transformation in Venezuela.” The president, however, has repeatedly delayed making major policy adjustments that many experts have said should include cutting lavish domestic fuel subsidies and scrapping the cumbersome exchange system. “The central theme of this announcement was the exchange,” said Caracas-based analyst and pollster Luis Vicente Leon in a Twitter post. “But the president limited himself to saying a change was coming without saying how or when or what.” Though many analysts agree changes could keep the cash-strapped country from edging toward a default of state-issued debt, Mr. But being the first GDP data released in over a year, it was a rare admission of the depth of a crisis forecast to worsen if prices for Venezuela’s oil, which have fallen by half in the past six months, remain low. Petroleum accounts for 95 percent of Venezuela’s exports and the government needs substantially higher prices to fund spending that expanded dramatically during the revolution started 15 years ago by the late Hugo Chavez.

The 52-year-old leader, who narrowly won office in a contested 2013 vote, will lead his fractious ruling party into legislative elections in late 2015. “The announcements could shed some light about the conviction and the political capacity of the administration to introduce meaningful corrections to the currently unsustainable policy mix,” said analysts for Goldman Sachs in a client report. At about $22 billion, Venezuela’s foreign reserves cover about two years of overseas debt payments for the government and state oil company Petroleos de Venezuela SA, known as PDVSA.

While Venezuela lays claim to the world’s largest oil reserves, crude’s 46 percent decline since June has accelerated expectations among analysts that the country needs different policies. But he avoided announcing more pronounced budget-saving measures economists say are needed to avoid a default on the country’s debt, such as hiking gas prices that are the cheapest in the world.

Venezuela has three official currency exchange rates that include a swap of 6.3 bolívares per dollar for priority items and weaker rates of around 11 and 50 bolívares to the dollar for other goods. Critics of the leftist government have said that ever increasing centralized control over the economy has resulted in deep distortions and pushed the economy toward collapse.

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