Hugo Chavez policies continue financial upheaval. Will Twitter influence Venezuela's direction?

The U.S. dollar continues to be popular as the main trading currency for goods. Internet banking using non-Venezuelan banks for savings of the middle class that still exist is popular as a practical way to save what little they have.
Written by Doug Hanchard, Contributor

President Chavez continues his march to total control of the Venezuelan economy and its people. As a consequence, corporations and banks are finding very few ways to prevent a run on the currency and profits. The U.S. dollar continues to be popular as the main trading currency for goods consumers use to purchase goods. Internet banking using non-Venezuelan banks for savings of the middle class that still exist is popular as a practical way to save what little they have.  Off shore bank accounts have a whole different meaning to middle class in Venezuela and is one of the few ways to stave off further devaluing of their wealth. The government has taken over some foreign owned banks, oil companies, and even closed down retailers if they ignore pricing regulations because of Venezuela's central bank currency devaluation policy.

The Venezuelan government's announcement devaluing the Bolivar -- splitting into tiered exchange rates, one for essential products for exports and other for non-essential imports -- has further eroded savings and buying power of consumers. Analysts within and outside of Venezuela do not believe the devaluation will stop inflation in the country, already at 25% and rising. The move has its risks, according to an article written by Patrick Markey for the Globe and Mail suggesting:

Mr. Chavez gets more near-term fiscal stability, more cash as dollar-based oil revenues yield more local bolivars and a possible stimulus to an economy hit by global recession. The devaluation at the start of the year may have been a calculated move by Mr. Chavez to offset any negative fallout with voters. The measure helps Mr. Chavez unleash spending on social programs and state worker salaries in the months before September's legislature election. That vote could be a barometer test for the leftist whose popularity has been challenged by water and power shortages, inflation and crime.

In March of 2009, Chavez said in a New York Times article he would not devalue its currency, when inflation was 29% and oil was trading at 40 U.S. dollars a barrel. Things have changed as the long summer of low prices of oil did not rise fast enough to offset Chavez's massive social program spending that continued to spiral out of control. Even with oil now trading almost double what it was in the summer, Chavez continues to spend money the government does not have in currency reserves. A key policy that is hurting the local economy is the governments continued subsidizing of the price of gasoline which sells for 12 cents a GALLON, compared to $6.80 in the Netherlands, $3.00 in Cuba and $3.12 in Brazil. All figures converted to U.S. dollars at current exchange rates.

Analysts for months have noticing significant flight of capital to U.S. Dollars. Other currencies are the British Pound and Euro. By-passing the local banking institutions all together some funds do not stay deposited locally, but new accounts based in other Latin American countries or other off shore safe countries. Internet access is widespread in the country, but there are some areas where it is non-existent and is managed through third parties. Internet Cafés are popular but there is fear going to them, with many people believing the locations are being monitored by the government.  HTTPS (secured) and encrypted public access use computers are not common or not allowed by some Internet Café owners, creating further security concerns for the users.

The CIA World fact book estimates 7.2 million internet users which likely is inaccurate since the entire population is estimated to be 26.8 (CIA fact book) or 28 Million (U.S. State Department figures) people and it is estimated that over 35% of its population lives below the poverty line and lives on less than $2.00 / day. But other technologies do have wide spread use, such as wireless cellular / mobile network and WiFi public Access Points (AP's) access. Laptops are a common sight in Caracas. With mobile phones, Telefonica SA of Spain attributes over 15% of its revenues from Venezuela. Telefonica is now in the same position as other companies as the devaluation has hurt its ability to repatriate profits. Using smartphones with web browsers to do online banking is a popular personal method of doing finance management. First a user needs to get funds out of the country.

The transactions are complicated. Paid in bolívares fuertes, the first place many will go is to black market exchange provider, and then through a series of transactions with other conduits will deposit funds in accounts outside of Venezuela. Once deposited off shore, the person can then manage those funds through the internet maintaining the deposits in stable currencies such as U.S. and Euro dollars preventing further erosion of a person's short and long term savings, all of which is illegal because the person is bypassing official exchange rates and central bank currency management and repatriating those same funds at their choosing through the same methods only in reverse avoiding steep taxes charged by the central bank.

Venezuela's mobile networks are high speed GPRS and EVDO based. How much longer the currency, foreign companies and capital remain in Venezuela is an implosion waiting to happen and nobody knows when some may throw in the towel. As more and more foreign investment capital stays outside of the country, the more difficult the timing of economic recovery becomes. Weary Venezuelans are using the Internet not only  to manage their money but also to keep others informed on what other currency options they have because once outside of the country, they are not government controlled.

For now, Chavez has total political and economic control until the next series of community elections, scheduled to take place in 2010, held over from 2009 because of Chavez reformed Election law. They will likely be a barometer of the effect Chavez's policies are having on the population. Sources living in Caracas suggest the winds of change have to occur soon before the economy collapses further and those that could afford to weather current economic state of affairs, simply leave the country instead.

If the government takes complete internet security control and creates a similar firewall to China's Green Dam, then Venezuelans could experience lack of freedom in choice and be in real trouble. Chavez nationalized most of the telecommunications subsidiaries in the country or is the majority owner in 2007 and '08. The Internet might be what changes (the use of Twitter for example) the political landscape in Venezuela, for better or worse. Make no mistake, a search of Twitter and using the keyword Hugo Chavez brings up just as many, if not more threads endorsing him. Latin American cyberspace will be a busy place this year.

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