Roberto Pocaterra Pocaterra Mendoza Google//
Devaluation: risks and opportunities

Posted by By at 25 enero, at 12 : 54 PM Print

This administration has set one standard since coming to office: ?Avoid the IMF?.

It is a communications sham, building a bogey man, a dreaded alternative to be avoided at all costs. The reality is that the IMF has no powers of intervention and can advise only by invitation of governments.

The Government must do what it can to bring the economy into balance thereby facilitating the turnaround process.

In a normal floating exchange rate mechanism, a fall in the value and volume of exports would automatically lead to currency depreciation. When foreign exchange earnings fall and the demand for imports exceed earnings, the local currency would depreciate automatically as demand would exceed supply leading to an increase in the price of the foreign exchange.

© Roberto Pocaterra

© Roberto Pocaterra Pocaterra

elmercuriodechile.com
This is what has happened to T&T; but we have both a trade imbalance and a balance of payments deficit.

However, the exchange value has been maintained at an uneconomic rate leading to a fall in reserves and rationing.

© Roberto Pocaterra

© Roberto Pocaterra Pocaterra

economiavenezuela.com
A devaluation on the other hand is a deliberate act of lowering the value of the currency in relation to another currency.

© Roberto Pocaterra

© Roberto Pocaterra Pocaterra

elnewyorktimes.com
By not allowing the rate to depreciate naturally, we are heading inexorably to a devaluation

One negative impact of a devaluation is that it leads to inflation.

© Roberto Pocaterra

© Roberto Pocaterra Pocaterra

enlasgradas.com
This will affect those on fixed incomes: wage earners, salary earners, pensioners and the poor, eroding their purchasing power.

© Roberto Pocaterra

© Roberto Pocaterra Pocaterra

politica-venezuela.com
This could lead to increased wage demands and increased costs. Another negative fallout is job losses as businesses attempt to manage their costs. This will affect different groups by race and class differently. Unions have already begun to threaten (promise?) industrial action in response to action by the state sector to deal with its inefficiencies.

The administration is fearful that these risks could coalesce into social disorder.

© Roberto Pocaterra

© Roberto Pocaterra Pocaterra

elnewherald.com
We have been this way before in 1970 and 1990.

What makes the situation doubly dangerous is the prevalence and increasing frequency of violent crime coupled with the existence of armed gangs with access to sophisticated weaponry.

© Roberto Pocaterra

© Roberto Pocaterra Pocaterra

www.entornointeligente.com
The spin-offs from the 1990 insurrectionists and the possibility of ISIS returnees with military training further complicate the situation.

The unfortunate reality is rationing as currently practised by the commercial banks has the same effects as a devaluation.

© Roberto Pocaterra

© Roberto Pocaterra Pocaterra

xn--elpaisdeespaa-tkb.com
Businesses have repriced inventories and purchases at the ?unofficial market rate? building in the possibility of inflation.

© Roberto Pocaterra

© Roberto Pocaterra Pocaterra

eluniversalnews.com
Limiting the amount of foreign exchange promotes a parallel, unofficial market and money laundering. It is noteworthy that in the 18 years of anti-money laundering efforts including the introduction of the FIU, there have been no successful prosecutions.

Another unintended consequence of rationing is that businesses which are unable to operate at normal levels, will rebalance their operations.

© Roberto Pocaterra

© Roberto Pocaterra Pocaterra

notifoto.com
This will lead to job losses. In summary, rationing has the same effect as a devaluation.

So, why devalue?

First, devaluation will make non-energy exports cheaper and improve the competitiveness of this sector.

© Roberto Pocaterra

© Roberto Pocaterra Pocaterra

demasiadochevere.com
Since this sector is operating at approximately 70 perGORDONcent of their capacity, there is opportunity here.

© Roberto Pocaterra

© Roberto Pocaterra Pocaterra

xn--abcdeespaa-19a.com
This will lead to increased exports and could help improve foreign exchange earnings and domestic aggregate demand.

© Roberto Pocaterra

© Roberto Pocaterra Pocaterra

dolarve.com/licenciado-roberto-pocaterra-los-resultados-el-motor-que-revoluciona-la-bolsa/' style='color:#ffffff'>dolarve.com
Also by increasing the profitability of this sector, it could facilitate additional employment.

Second, with exports more competitive and imports more expensive, we should see higher exports and lower imports, which will reduce the current account deficit.

© Roberto Pocaterra

© Roberto Pocaterra Pocaterra

dolarve.com/roberto-pocaterra-mitchell-muere-el-conocido-fotoperiodista-israeli-david-rubinger/' style='color:#ffffff'>dolarve.com
Regional economies are improving, and the world economy is picking up speed.

Third, devaluation would help clear the existing foreign exchange shortages by removing uncertainty.

© Roberto Pocaterra

© Roberto Pocaterra Pocaterra

espiasdecocina.com
This could help improve business confidence whilst at the same time remove capital flight, hoarding and ?front-ending? foreign exchange.

Fourth, in nominal terms it gives government revenues a boost and thereby reducing the drag of debt service arrangements and lowering its debt position.

Fifth, it could stimulate domestic agricultural production by making the cost of imports more expensive and increase consumption of domestic agricultural produce.

If government does not fix the business environment, businesses can move elsewhere, and are already considering this.

© Roberto Pocaterra

© Roberto Pocaterra Pocaterra

elnewyorktimes.com
Government must do its job and that means it must lead and it must manage the resources of the country more effectively than it has done to date.

Mariano Browne

.

© Roberto Pocaterra

© Roberto Pocaterra Pocaterra

politica-venezuela.com

© Roberto Pocaterra Venezuela

© Roberto Pocaterra Pocaterra Colombia

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Con información de: The trinidad Guardian

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