Coq o' the Roq - Venezuela and Guyanas

I see that Venezuela, or rather Hugo Chavez, announced that adjustments (a code-word for devaluation) would be made to value of the Venezuelan bolívar against the US dollar. I guess that means other currencies too, although the President's main beef is with the USA, rather than with Europe.

The first effect this will have is that imports will be more expensive - so anything imported that Venezuelans buy will also rise in price, despite the Chavez's insistence that he'll clamp down on any businesses that try to raise their prices straight away. The devaluation simply reflects a state of affairs that has existed in Venezuela for a number of years, where on the black market you could get well above the official exchange rate

It's an unusual approach, however - a two-tiered rate. A very small exchange rate increase on goods deemed essential, and a doubling of the exchange rate for non-essentials. I can't quite see how this will work, unless it's applied simply as a variable tariff on physical imports.

The commentators in the UK press say that the grander plan is to firstly dampen imports and to boost exports, and make the value of the incoming dollars higher in the local currency. So there'll be "more" money (ie twice as many bolívares)to spend on local projects. These local projects will benefit the poorer sections of society who make up Chavez's electoral support. And the general election is due on 26 September 2010...

This two-tier currency has some affinities to Cuba. There, they have one currency for locals (Cuban peso)and one currency for foreigners (Peso Convertible). The latter can only be bought with foreign exchange - eg by tourists, all of whose transactions are generally in Convertibles. Cubans who receive these have access therefore to things (goods and services) that tourists buy. Strangely, the value of the Convertibe seems to be pegged to the US dollar, but you can't use dollars to buy pesos. Euros or sterling are fine. It also has the effect of making things more expensive for tourists.

Cuba and Venezuela do a fair amount of trade with each other. In simple terms, the most obvious sign of this is: Cuba buys oil and petrol and pays for it in medical services - doctors and surgeons.

I wonder what effect this devaluation will have on the tourism industry in Venezuela? Incoming tourism is an export - tourists bring in foreign exchange. Thus, on the face of it things will be cheaper for foreign tourists, because they'll get more bolívares for their buck. But there's a reasonable chance that Chavez's next plan will be to introduce not so much a two-tier exchange rate as a two-tier retail structure, so that anything a tourist might buy has a premium price.

Of course, he'll be faced with a small dilemma: put off foreign tourists, and they don't come with their euros and dollars. But Venezuela's huge reliance on oil exports for the last 80 years isn't likely to change. That's where they're expecting to reap their benefits. Encouraging tourism has always been low on their agenda.