Venezuela’s vanishing economy

February 2, 2015

For months Venezuelan shoppers have been enduring long lines in order to buy basic necessities like flour and diapers, but given the country’s increasingly dire economic situation, these may soon qualify as the good-old days. Years of fiscal mismanagement of the country’s vast oil resources by Venezuela’s government, combined with a 60 percent-plus inflation rate, put the country on economic footing that is tenuous at best. But it may get worse, if more companies decide doing business in Venezuela just isn’t worth it.

The worsening exchange rate of the country’s currency (the bolivar) against the dollar means that many companies are seeing less and less incentive to do business in Venezuela. The official exchange rate is 6.3 bolivars to the dollar, but the country also recognizes two other exchange rates — 12 and 50 bolivars per dollar — and the black market rate for dollars is roughly 190 bolivars. As this Reuters graphic shows, a number of S&P 500 companies are seeing the real value of their assets in Venezuela erode substantially as the country’s currency loses value.

And businesses are having trouble making those exchanges. Reuters’s Tim McLaughlin explains: “As tumbling oil prices have left Venezuela with fewer dollars, its currency board has steadily reduced approval for repatriation of dividends at the official rate — leaving companies with growing quantities of bolivars trapped by currency controls.”

Citigroup says it hasn’t been able to buy U.S. dollars from the Venezuelan government since 2008, and Clorox has stopped doing business in the country altogether.

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