CARACAS, March 19 (Reuters) - Venezuela’s bolivar has depreciated rapidly this week on worries about socialist President Hugo Chavez’s growing power and uncertainty ahead of economic measures that could include a currency devaluation.
The bolivar dropped 4.8 percent to 6.3 per dollar on Wednesday, traders said, its sharpest fall in months.
The currency has gradually lost value in recent weeks. Worries about the economic situation in the OPEC nation amid falling oil revenue were exacerbated when Chavez renewed aggression against the private sector and took control of ports and roads from state government.
“Supply is very restricted and we are seeing demand driven by the radicalization of Chavez, which is scaring people, said one trader.
South America’s top oil exporter, Venezuela has begun to feel the impact of a rapid drop in oil revenues after years of big spending fueled by rocketing fuel prices. The government has slowed the release of dollars into the economy this year to try to protect its foreign reserves.
More than half of government spending is funded by oil. Since winning a referendum in February that allows him to run for reelection as often as he likes, Chavez has renewed a push to increase state control of farming and food processing.
He has expropriated land, taken control of rice mills and threatened to nationalize Venezuela’s largest private employer, while stepping up pressure on opposition politicians.
On Thursday, the public prosecutors office said it was seeking the arrest of top opposition leader Manuel Rosales.
Chavez promises to this week unveil a set of economic measures that are the government’s response to lower oil income.
The measures could include moving the official bolivar peg or price hikes for public services. Last month Chavez said he had no plans to devalue in the “short term.”
Economists say Venezuela needs to devalue the bolivar rate to help offset lost revenues. Speculation the economic package might include a devaluation encourages Venezuelans to turn to the parallel market to protect their assets.
However, many analysts say the government could hold off from a devaluation for some time, issuing debt and perhaps selling dollars on the weakening parallel market to help cover spending.
Chavez imposed exchange controls in 2003 during a political and economic crisis. Access to cheap dollars at the official rate has been restricted in recent months, increasing demand for unregulated dollars to pay for imports.
The government is tight-lipped about what the economic package might contain but on Sunday Chavez hinted he could raise the price of gasoline, water and electricity, all of which are heavily subsidized.
Reporting by Ana Isabel Martinez, Writing by Frank Jack Daniel