Chavez Hits The Poor -- Hard

UPDATE: Venezuelan Stores Closed for Boosting Prices after Devaluation

A must read editorial from IBD: Chavez Hits The Poor

Latin America: For all his pious talk about sticking up for the little guy, Hugo Chavez clobbered Venezuela's poor over the weekend by devaluing their currency. When are his apologists going to learn?

Over the weekend, ordinary Venezuelans lined up in panic to buy TV sets as a hedge against inflation. Seems even small electronic devices will hold their value better than Venezuela's bolivar, which Chavez devalued as much as 50% last Friday.

The sophisticated classes had seen this coming and made arrangements. But, as usual, the TV set hedge was a last refuge for the poor.

Bellowing about speculators and blaming businesses for his own incompetence, the Venezuelan strongman Sunday declared that the bolivar currency's value would be reduced 21% to 2.6 bolivars per dollar, from 2.15 per dollar — but that only to import food, buy medicine or pay bureaucrats.

Anything else and the little guy pays 4.3 bolivars to the dollar, a more than 50% devaluation. Any merchant caught raising prices gets expropriated. And Chavez would send the army out after him.

But contrary to Chavez's claims, it's not the speculators who are going to pay. It's the very poor. And for a dictator who claims to champion them, the mask is coming off.

"I think what this is is a collapse of a strategy, not a desired policy," said Harvard University's Ricardo Hausmann, an expert on the Venezuelan economy. "It's a defeat. It is the recognition of failure." But in creating a two-tier system instead of a free float, it's also the same socialist control that means more devaluations ahead.

For starters, it's a tax. "The government has decided to recognize the massive accumulated inflation in the country and is trying to increase the purchasing power of the (dwindling) dollars it has . .. (by selling) dollars to the private sector at a higher price," explained Hausmann. "In the short run, this is like a tax on the sale of dollars."

Despite Chavez's devaluation, it didn't even keep up with free market signals. In Venezuela's black market, traders today sell dollars for 6.25 bolivars apiece. They're betting on more turmoil to come.

Venezuela has managed to rack up $800 billion in hard-dollar earnings for its oil exports in the last 10 years but owing to gross mismanagement, has devalued repeatedly as if it had no money at all. This has hurt local businesses, which depend on imports. As the devaluations pile up and the poor lose their savings, they're panicking.

It's what happens when you devalue your currency.