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Venezuela: The law of unintended consequences strikes again
Posted by: McQ on Tuesday, August 28, 2007

Seems a guy as smart as Hugo Chavez would have figured out how this works by now. He is, after all, the guy who is sure he's smart enough to make socialism work this time.

But those markets just keep biting him in the rear.
Venezuela continues to struggle with rising prices for U.S. currency as President Hugo Chavez steps up his plans for what he describes as a new socialism through a controversial constitutional reform.

In the unofficial foreign currency market, the dollar managed to reach 4,850 bolivars on Monday, more than twice the official rate and yet another record level according to the Web site of local business publication Veneconomia.

The dollar's unofficial exchange rate against the bolivar jumped early this month, right after the finance ministry decided to postpone the Bond of the South III sale - a joint debt issue with Argentina - due to market volatility. Chavez set capital controls in 2003 and has since limited the amount of dollars people can obtain through the government, a policy that has spawned a thriving black market for dollars.

"What we have here is a structural problem, not just a matter of a failed bond issue," said Joaquin Vera, head of local brokerage Interbursa. "There's an underlying issue of a loss of confidence."

The president has proposed a sweeping constitutional reform, including areas that underpin the entire economy. His plan to add new property ownership structures makes many people fee uneasy. This has created a certain degree of uncertainty among Venezuelans, traders say.
Prohibition or restriction always creates another market when demand for something remains high.

Funny how that works. Chavez however, seems never to learn this lesson as he continues to screw with markets and see events and actions associated with them round on him. Now he has managed to foster a financial loss of confidence within the nation which sees people buying dollars, even at black market prices.
In addition, Chavez has vowed to strike three zeros from the currency in a bolivar redenomination planned for Jan. 1, another policy that makes many people here nervous.
You think?
Chavez has made clear his administration has no plan to scratch capital controls and has every intention of leaving the official rate of VEB 2,150 to the dollar unchanged next year.
But the black market price is more than twice that amount and:
Meanwhile, Venezuelans are using any trick to squirrel away as much money as they can in foreign bank accounts. Those who can afford it buy dollar- denominated debt sold by the finance ministry and resell the bonds overseas for cash.
Command economies and markets. Guess which always wins out in the end?
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Previous Comments to this Post 

Wonder if Mr. Soros is cashing in on this? Do ya think?
Written By: Abdul Hassan
URL: http://
Keep in mind that some of his regime can profit greatly from the dual exchange rate, and thus have a stake in the system plodding on until final collapse. Let me know when Zimbabwe finally implodes.
Written By: Harun
URL: http://
Well I hope for their sake they are saving up to move to America.
Written By: jows
URL: http://

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