Unable to halt the drain on foreign currency reserves and threatened by a further fall of oil prices, Venezuela today partially devalued the bolivar, establishing a three-tier exchange control system.
The measure, announced by Finance Minister Arturo Sosa, came after a week of reportedly tumultuous Cabinet meetings during which Leopoldo Bruzual, the powerful Central Bank president, argued for a 40 percent across the board devaluation instead.
Today's partial devaluation is the first in almost 20 years for the bolivar, one of Latin America's most stable currencies.
Exchange controls or some other measure was "inevitable," officials said, given the drop in oil prices, a continuing drain on foreign reserves and the country's inability to reduce its imports.
Under the announced plan, dollars needed to pay Venezuela's $2.3 billion public sector foreign debt, special imports, the needs of the state oil, iron, and aluminum industries and the requirements of students abroad will continue to be sold at the 4.30 bolivar per dollar rate (the former exchange rate). Dollars for nonessential imports will be sold at 6 bolivars while dollars destined for tourism and the purchase of luxury goods will be sold at a floating rate.
The National Bank Council, Fedecamaras, the leading private sector group, and most politicians approved exchange controls as the least harmful way to deal with the drain on the country's reserves and correct an expected balance of payments deficit. The government also froze consumer prices for 60 days.
Venezuela ran a $2 billion balance of payments deficit last year when its expected oil revenue fell short by about 17 percent, falling from a projected $18 billion to around $15 billion. Now, depending on prices and export volume, petroleum income could fall by $2 billion to $3 billion from the $16.5 billion figure that the government used to plan its 1983 budget, petroleum industry sources say.
Oil accounts for more than 90 percent of Venezuela's foreign exchange income and provides more than 60 percent of its revenue.