By Martin Hutchinson
NEW YORK, Feb 11 (Reuters Breakingviews) - Venezuela's 32 percent devaluation of its currency is a further step toward currency ruin. President Hugo Chavez claims his socialist-inspired policies are original, but cheapening the bolivar against the dollar follows the pattern of Argentina and others before 1995. Government largess and inflation fuel further devaluations and more price increases. It's a well-worn path to hyperinflation.
In one sense Venezuela's move is overdue. Even the new official exchange rate of 6.3 bolivars to the dollar, announced on Friday, does not reflect the full decline in the currency's purchasing power - the black market rate in the last few weeks has been running nearly four times the official rate. But it's also an alarming echo of the inflationary spirals seen in other South American countries just a few decades ago.
Argentina, Brazil and Peru experienced the full-on version starting in the late 1970s and through the 1980s, when annual inflation in all three economies averaged above 500 percent. All three engaged in repeated redenominations of their currencies, with the dollar exchange rate of their banknotes losing 11 zeros in Argentina, 12-plus zeros in Brazil and nine zeros in Peru over broadly the same period.
Inflation in Venezuela, meanwhile, was officially reported at 20.1 percent in 2012, but with monthly price rises of 3.5 percent in December and 3.3 percent in January it seems to be accelerating. And the longer-term devaluation trend is in place: before last week's move, Chavez had cut the dollar value of the bolivar in half in January 2010 and undertook a 1,000-to-one re-denomination in 2008.
Venezuela's government will benefit in the short term, with income largely from oil priced in dollars and expenditures in bolivars. But ordinary people will suffer. News reports reveal shoppers in Caracas snapping up the last available appliances imported at the old rate of 4.3 bolivars to the dollar. And rightly so - with the dire results of similar policies in nearby countries easily within living memory, Venezuelans would be na??ve to assume it won't happen to them.
- Venezuela devalued its currency, the bolivar, by 32 percent to an official rate of 6.3 bolivars per dollar from 4.3 after markets closed on Feb. 8. Venezuela's consumer prices rose 3.3 percent in January, after officially recorded annual inflation of 20.1 percent in 2012.
- Argentina suffered average annual consumer price inflation of 546 percent between 1975 and 1991, according to World Bank figures. During that period it went through three currency redenominations, at 10,000-to-one in 1983, 1,000-to-one in 1985 and 10,000-to-one in 1992.
- Brazil recorded average annual inflation of 773 percent between 1981 and 1995, with currency redenominations at 1,000-to-one in 1986, 1989 and 1993 and 2,750-to-one in 1995.
- Peru experienced average annual inflation of 809 percent between 1978 and 1993 and had currency resets at 1,000-to-one in 1985 and 1 million-to-one in 1991.
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(Editing by Richard Beales and Martin Langfield) Keywords: BREAKINGVIEWS VENEZUELA/
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