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| Expropriation threat: employees of the Exito hypermarket in Caracas and supporters of Hugo Chávez express support for the president’s decision to take over the chain |
Despite short-term gains for the government, the long-term outlook for the Venezuelan economy following a currency devaluation last month looks bleak. "The devaluation provides a short-term fiscal windfall but it does not solve the underlying economic model’s propensity to throw up distortions," says Stuart Culverhouse, head of research at investment banking boutique Exotix. "If serious changes aren’t made to the fiscal spending regime and monetary policy isn’t tightened then a devaluation will be necessary again in a few years to keep the country going." This was the third devaluation since 2003, when Venezuela’s president, Hugo Chávez, introduced controls to prevent capital flight.
Last month Chávez announced a move to establish a dual currency and effectively devalue the bolivar. This announcement was followed with threats that any business that tried to increase prices in response would be at the mercy of government troops. "I want the national guard on the streets with the people to fight against speculation," said Chávez during his weekly radio show on January 8.