Venezuela's devaluation of its currency will further complicate its troubled commercial relationship with neighboring Colombia, where the economy is already suffering from a breakdown in cross-border trade.
President Hugo Chavez said on Friday that he was setting the bolivar currency at a weaker rate than 2.15 per dollar, where it had been fixed for several years. The move will make foreign goods more expensive for Venezuelans and discourage imports.
The impact on most Latin American economies is expected to be slight. But Colombian merchants, already stung by a trade-stifling diplomatic dispute between conservative President Alvaro Uribe and leftist Chavez, are braced for the worst.
We see no light on the horizon in terms of trade with Venezuela. Our exports were already being impacted. Now, on top of that, they're about to become super expensive, said Tulio Zuluaga, head of Colombia's Asopartes automotive export group.
Chavez clamped down months ago on commerce with Colombia in protest of a military cooperation deal signed between Washington and Bogota in October. He said the pact could set the stage for an invasion of his oil-rich country, an accusation that Colombia and the United States dismiss.
Before the devaluation, economists expected the bi-lateral trade slowdown would shave a percentage point off Colombia's gross domestic product. The central bank cut interest rates late last year citing the need to compensate for the problem.
In October alone, Colombian exports to Venezuela -- which consist mostly of food, textiles, clothing and auto parts -- fell 70 percent versus October 2008.
The country's trade surplus with Venezuela narrowed to $3.25 billion in the first 10 months of 2009 from $3.74 billion in the same 2008 period. Colombian exports to Venezuela fell 22 percent in the same period to $3.7 billion.
Venezuela's main export is oil, which goes mostly to the United States. It sells relatively few goods to Colombia, where the government expects to report a 0.5 percent economic expansion for 2009 and growth of 2.5 percent in 2010.
DUAL EXCHANGE RATE
Chavez late on Friday said the bolivar would have two levels -- a preferential rate of 2.6 per dollar for essential imports like food, health and machinery, and a 4.3 petro-dollar rate for other things.
The weaker bolivar will give Chavez more money to spend ahead of September legislative elections. But it could also increase Venezuela's already high inflation rate and close the door on the few Colombian products still entering the country.
We have the same prices that we had last year. Now those prices are no good and we can't lower them any more to compensate for a weaker bolivar, the manager of a Colombian shoe company that exports to Venezuela told local television.
Venezuelans meanwhile crammed into shopping centers over the weekend to buy imported goods before prices go up. Chavez, who has given the state a hefty role in managing the economy during his 11 years in office, said he will expropriate firms that engage in price gouging.
It was getting more difficult every day for Colombia to export to Venezuela, said Jorge Mejia, head of the Society of Colombian Agricultural Producers, or SAC. Now it will be impossible.
(Reporting by Hugh Bronstein, with additional reporting by Nelson Bocanegra and Luis Jaime Acosta; Editing by Maureen Bavdek)