Venezuela devalues ahead of poll

Chavez is being challenged

Venezuela populist president, Hugo Chavez, has devalued the country's currency ahead of a possible referendum on his administration.

The move, a 16% cut which values the bolivar at 1,920 to the US dollar, came as a surprise to observers.

The cut means Venezuela's oil revenues - paid in dollars - will grow, boosting the government's coffers.

But it will also make imports dearer, which could raise inflation and offset the impact of more government spending.

The decision comes shortly before the National Electoral Council is to rule on whether President Chavez' opponents have collected enough signatures to trigger a referendum on his rule later this year.

Gains and losses

President Chavez, a former paratrooper first elected in 1998, fixed the previous rate of 1,600 bolivars to the dollar a year ago following general strikes, called by his political opponents, which hurt the economy.

The new rate not only means the world's fifth biggest oil exporter will make extra money from its oil sales, currently at high levels thanks to the soaring $33-a-barrel price of crude.

It also means any money the government borrows in the shape of bonds also brings in more local currency, enabling President Chavez to boost spending on social programmes.

The result could mean an apparent gain in economic growth of 4%, some observers believe.

But opponents charge that the result will be inflation well above the government's predictions of 26% for this year.

They also say tight foreign exchange controls and other economic manoeuvres are creating a massive black market, while businesses suffer from rising cost of imported inputs.