Over the weekend The Venezuelan President Hugo Chavez said the new foreign exchange rate should not be much above the highest current official rate of 4.30 Bolivars to the Dollar.
It is becoming very clear that Mr. Chavez forced his economic team to rush a decision to have the Venezuelan Central Bank become the settler between buyers and sellers of the precious hard currency, not taking into consideration that it will be an impossible task to maintain an equilibrium between supply and demand unless they become the suppliers of dollars in the marketplace.
In the meantime, the witch-hunt is taking place against the brokerage houses: brokers, administrators and directors are being put behind bars without an arrest warrant, only to please the Commandant who accused them of undermining the Bolivar.
In our opinion, a new black market will inevitably spring up, creating a fourth and much higher rate for the dollar with the corresponding results of higher inflation, lower private demand, more severe shortages and deeper contraction of economic activity.
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