Venezuela devalues currency

CARACAS, Venezuela – President Hugo Chavez announced a currency devaluation Friday for the first time since 2005, setting a two-tiered exchange rate designed to help Venezuela’s oil earnings go further domestically while holding down prices of priority imports like food to counter soaring inflation.

Chavez said the bolivar will now have two government-set rates: 2.60 to the dollar for transactions deemed priorities by the government, and 4.30 to the dollar for other transactions. The devaluation dropped the currency’s value by 17 percent or 50 percent, depending on the tier.

The higher rate, which he called the “oil dollar,” will double the paper value of Venezuela’s petroleum earnings when converted to local currency. Oil accounts for about half the government budget, but that income has been squeezed by lower world oil prices in the last year.

Chavez said the priority exchange rate will be allotted for food, health care products, school supplies, machinery and equipment for economic development, among other things.

He said the new rates aim to boost the productive economy, “braking imports that are not strictly necessary and stimulating export policy.”

Imports that will fall under the less favorable rate include automobiles, telecommunications goods, computers, appliances, alcohol and tobacco.