Venezuela: No Surprise, No Relief

Consensus Forecasts

Over the past nine years, Venezuela has undergone five major devaluations and this month it has happened again. On Friday February 8, the Venezuelan government announced a devaluation of the bolivar fuerte of more than 30% against the US dollar, from 4.2947 to 6.2921, with the aim of shoring up growth and a dwindling fiscal balance. Author Daniel Volberg of Morgan Stanley critically analyses the move, arguing that while the devaluation was long overdue, it will fall far short of correcting the country’s severe macroeconomic imbalances. He highlights three key macro and political economy factors impinging on the devaluation: firstly, even after the devaluation, he believes the exchange rate to be overvalued; secondly, devaluation is unlikely to correct serious distortions (including widespread shortages of basic goods); and thirdly, the move indicates that regime and policy change in the near future seem unlikely.

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