Venezuela is likely to devalue its currency again soon after President Hugo Chavez scrapped a plan to increase the country's sales tax as analysts said the impact of a New Year devaluation had been limited. Wall Street experts had welcomed the socialist president's plan to hike the recession-hit economy's sales tax and maybe put in place a new bank tax and other moves to generate income.
Then last week, Chavez said none of that would happen because high oil prices meant the OPEC member had enough funds to cover its needs, including post-flood reconstruction costs that he estimated at $10 billion.
The tax U-turn - made with an eye on the next presidential election in December 2012 - means the currency remains overvalued and the South American nation will have to take further steps to improve its balance sheet, experts say.
"Higher oil prices and a possible decrease in Chavez's popularity blocked a deeper fiscal adjustment, in our view," Alejandro Grisanti and Alejandro Arreaza of Barclays Capital wrote in a research note, predicting another devaluation soon.
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