Venezuelan Bolivar Tumbles on Speculation Government to Devalue

By Andrea Jaramillo and Matthew Walter

March 18 (Bloomberg) -- Venezuela’s bolivar plunged the most this year as speculation mounted that the government will devalue the currency after a tumble in oil exports.

The bolivar declined 5.3 percent to 6.30 per dollar in the unregulated market, from 5.97 yesterday, traders said. The government pegs the currency at an official exchange rate of 2.15 per dollar under restrictions imposed by President Hugo Chavez in 2003. Venezuelans turn to the unregulated market when they can’t get dollars at the official rate.

“Rumors the government will devalue are making people nervous, leading them to buy dollars to protect the value of their money,” said Nelson Corrie, head trader at Caracas-based brokerage Interacciones Mercado de Capitales.

The 66 percent tumble in crude oil from a July record has eroded export revenue in Venezuela. The country gets more than 90 percent of its exports from crude. The slide in oil has pushed the bolivar down from 4.35 per dollar in the parallel market six months ago.

Finance Minister Ali Rodriguez said as recently as March 8 that the government doesn’t have any plans to devalue its pegged exchange rate because it may accelerate inflation.

“The government has been intervening, and now nobody is providing dollars,” said Miguel Octavio, head of research at BBo Financial Services Inc. in Caracas. “If the price of oil stays where it is, does the government have the money to keep intervening? I don’t think so. Every day there is more demand for dollars in the parallel market.”

‘Unpopular’

An official at the finance ministry denied speculation the government has been selling dollars in the market.

The weakening bolivar may drive up Venezuelan inflation above 50 percent this year, Octavio said.

The government will likely increase a financial tax to boost government revenue before devaluing, Interacciones Mercado’s Corrie said.

“Devaluating is the last thing the government will do because it would make basic goods more expensive, affecting people directly,” he said. “That would be very unpopular and although the government will eventually have to devalue, Chavez will likely hold off on it as long as he can.”

Economists such as Asdrubal Oliveros, a director at Caracas- based economic consultant Ecoanalitica, expect the government to reduce sales of dollars at the official exchange rate. Instead, importers will increasingly have to turn to the parallel, unofficial market.

To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net; Matthew Walter in Caracas at mwalter4@bloomberg.net