Tuesday, 13 January 2009

Inca Kola News and Bloomberg's Venezuela Story

Inca Kola News makes a good and fair point here. If the story here is about an implicit devaluation, then the simple existence of a currency black market would have meant per se an implicit devaluation per secula secularum. That is, in the opinion of IKN (I guess) and this blog, not necessarily true. President Hugo Chavez (photo) insists on that the attacks on his fixed currency system are politically-motivated, of course, but his agenda is contaminated and his point of view biased too. Click here to read Bloomberg's story on the de facto devaluation.

I might be wrong about this, but the media tends to see a black market as an evil situation, and not as a mechanism of correction that economic agents are forced or want to create to ease market imbalances. The black market wins its strength and relevance in Venezuela's economic life because it helps fund a number of importing activities that the government deems it as irrelevant to finance, and because the government uses it as a political tool to award cronies with cheap dollars and punish foes with no access to foreign currency. On the other hand, it is an element of speculation because, in the back of high inflation and dwindling confidence on the future of the economy, the dollar automatically becomes a hedge instrument for Venezuelans (there is an interesting study by economist Emilio Herrera Smith about that.) It provides a valve of scape. It reflects growing imbalances, nothing else -- it cannot signal whether a country is already devaluing. That, and I guess that's why Otto says it vehemently, reads like a message sent from the opposing side to the government, a message from the other agenda. Now, don't believe that I am biting the hand that fed me for years. The story is nice, well written. But the problem is that evidence is forced in such way to make the message sound true. I have to agree with Otto in this one.

Here is the text from Otto's posting this morning:

Venezuelan finances for dummies

I suppose this kind of article has its uses for people who don't follow Venezuelan affairs much. On the other hand, here we are with another politically biased Bloomberg note about Venezuela finances that manages to quote only anti-gov't talking heads and even makes the gov't comments sound snide. Look....it's Bloomberg...why should you expect balance anyway?

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