Thursday, June 04, 2015

The currency is worthless in Venezuela

(My new American Thinker post)

Once upon a time, circa 1980, I visited Venezuela.  The exchange rate was 4.29 Bolivares for one U.S. dollar.  The city of Caracas was alive, and the restaurants were fantastic.  I'm not saying that the country was perfect, but things were doing a lot better.

Today, we got some bad news about the Bolivar, or the national currency:
Just a month ago, $1 was worth 279 bolivars. That was already pretty dismal for Venezuela. Now $1 equals 408 bolivars, according to the unofficial exchange rate, which most Venezuelans get when they try to trade currency.
Put another way, one bolivar equals $0.002 -- less than a penny. The country's currency has lost nearly half its value since the beginning of May, according to dolartoday.com, a website that tracks the unofficial exchange rate.
It's another sign that Venezuela is arguably the world's worst economy.  Venezuela primarily relies on oil exports to support its economy, which was already under pressure before oil prices tanked in the fall and winter.
A bolivar less than an American penny?

We are watching the results of Hugo Chávez's populism financed by high oil prices. 

It was a great plan as long as oil was $140 a barrel.  It kept a corrupt and highly inefficient public sector going, a source of a lot of political jobs and votes on election day.

It's not that way anymore.  Oil at $50 is not enough to pay the freight.

What happens now?  The answer may come in October:
The government owes about $5 billion in debt payments then, and there are few convincing signs that Maduro and his government can pay the bills. Venezuela could default on its debt in October, sending the country further into economic mire.
How likely is it that Venezuela will default?  I would say very likely if oil prices stay in double-digits in the near future.

P.S. You can hear my show (CantoTalk) or follow me on Twitter.    We discussed this situation of the bolivar on Wednesday's show:


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