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Venezuela prepares to devalue currency, amid fears it may worsen economic crisis Venezuela devalues currency and raises minimum wage by 3,000%
(about 5 hours later)
Economic reforms including the introduction of new notes that lop five zeros off Venezeula’s fast-depreciating currency are set to come into force as the country battles hyperinflation. Venezuela moved to shore up its crumbling economy on Monday, devaluing its currency and preparing to hoist the minimum wage by more than 3,000% in what the country’s president, Nicolás Maduro, declared a visionary bid to tame rampant hyperinflation.
Banks will close on Monday as they prepare to release the new “sovereign bolívar” amid warnings from International Monetary Fund economists that Venezuela’s inflation rate could exceed 1m% this year. More than 500,000 Venezuelans have fled overseas this year amid chronic shortages of food and medicine, soaring crime and warnings from the International Monetary Fund (IMF) that inflation could hit 1m% this year.
Later reforms include a rise of more than 3,000% for the minimum wage and an increase in the price of petrol, currently the world’s cheapest, to international levels in an attempt to curb cross-border fuel smuggling. But on Friday Maduro unveiled a dramatic raft of measures designed to end a depression he blames on an “economic war” being waged by imperialist foes of the Bolivarian revolution he inherited after Hugo Chávez’s 2013 death.
Queues at a Caracas street market at the weekend were longer than normal as people stocked up due to uncertainty about what will come this week. Many were frustrated by card-readers that were slow to register or that failed altogether, forcing some to leave their goods and walk away empty-handed. “I want the country to recover and I have the formula. Trust me,” Maduro said in a televised address from the presidential palace, adding, ominously, that “no experts were involved” in the elaboration of that plan.
“You have to be patient,” a shop worker selling grains told a growing line of customers. Many other stores remained closed, uncertain what prices to set for their goods. Maduro began to implement his blueprint – known as the “programme for recovery, growth and economic prosperity” – on Monday, claiming it would represent an inflection point for his once wealthy nation.
Opposition leaders have called for a nationwide strike and mass protests against Nicolás Maduro’s ruling party on Tuesday, something they have failed to achieve in over a year. “We are going to begin a process of recovery in the coming days, weeks and months,” Venezuela’s 55-year-old leader vowed on Sunday in a live Facebook broadcast. “It is a revolutionary formula … unique in the world!”
Economists say the package of measures is likely to accelerate hyperinflation rather than address core economic troubles such as oil production plunging to levels last seen in 1947. The recovery package includes measures such as raising taxes, increasing petrol prices for some drivers, and introducing a rebranded currency – the sovereign bolívar – which will have five fewer zeros than its inflation-stricken predecessor, the bolívar.
“The bolívar’s redenomination will be like going under the knife of one of Caracas’s famed plastic surgeons,” Johns Hopkins University economist Steve Hanke wrote on forbes.com . “Appearances change, but, in reality, nothing changes. That’s what’s in store for the bolívar: a facelift.” “Venezuela is going to experience an economic miracle,” Maduro boasted.
Venezuela was once among Latin America’s most prosperous nations, holding the world’s largest proven oil reserves, but is now in economic and political crisis. Economists and opposition figures, who are calling a nationwide strike for Tuesday in protest, are sceptical the plan will fix an economy so broken that a Venezuelan version of Who Wants to be a Millionaire had to be scrapped because the prize had become so worthless.
Inflation has made it difficult to find paper money. The largest note under the outgoing cash system was the 100,000-bolívar note, equal to less than 2p on the commonly used black market exchange rate. Last month, a cup of coffee cost more than 2m bolívars. A recent survey found that about 90% of Venezuelans now live in poverty while more than 60% admitted to waking up hungry because they lacked the means to buy food.
The new paper bills will have two coins and paper denominations ranging from 2 up to 500. The lowest note represents the buying power of 200,000 current bolívars while the highest stands in for 50 million. Henrique Capriles, a prominent opposition leader, denounced Maduro’s move as a Venezuelan “Black Friday” that would go down as one of the darkest days for the country’s already reeling economy.
The old and new currencies will remain in circulation together during a transitional period. “The government has decided to thrust us into one final disaster,” Capriles wrote in an online essay in which he accused Maduro of plunging the oil-rich nation into “the greatest tragedy in its history”.
The government made a similar move in 2008, when then-president Hugo Chávez issued a new currency, the “strong bolívar”, that eliminated three zeros to combat soaring inflation. Another opposition leader, Andrés Velásquez, said: “The measures announced on Friday are not any economic recovery plan for the country. On the contrary, they represent more hunger, more ruin, more poverty, more suffering, more pain, more inflation, more deterioration of the economy.”
Adding to the confusion, Maduro has said he wants to peg wages, prices and pensions to the petro — a cryptocurrency announced in February. He said one petro would equal $60, with the goal of moving toward a single floating exchange rate in the future, tied to the digital currency. Henkel García, director of the Caracas-based consultancy Econometrica, told Bloomberg Maduro’s plan was “a head-scratcher”. “This series of measures is a mix of incoherent and contradictory ideas … It is a worrying contraption that generates a lot of uncertainty about how it will be executed,” he said.
During Sunday’s Facebook broadcast, Maduro claimed he was ushering in a period of “definite and necessary economic change”. He alleged the recent botched attempt to assassinate him with explosive-laden drones was intended to thwart this bright new economic dawn. “I’m alive … and I am ready to give my whole life for the recovery and economic prosperity and growth of this country,” he said.
“Everything will work out. I have such great faith. I love Venezuela profoundly and I know when you turn love into politics miracles can happen.”
The estimated 2.3m Venezuelan citizens who have abandoned their country since 2015 – mostly for Brazil, Chile, Colombia, Ecuador and Peru - have no such optimism.
“The situation is critical and it will get worse,” predicted Marisela Guédez, a 38-year-old civil servant who fled through Colombia into the Ecuadorian border town of Tulcán last week, having sold her hair for 100,000 pesos (about £26) in order to pay for the journey.
“I never, ever thought about leaving Venezuela – not once,” added the homeless mother-of-five, who had left her children behind in Caracas. “Venezuela was such a rich country.”
Reinaldo Rivera, a 33-year-old from Maracaibo who had moved to the same border town, said skipping the country with his wife and 18-month-old son had been the only way of keeping them all alive.
“In Venezuela you work for a month and it only allows you to eat for two days,” he said. “It was almost a question of life or death ... I said: ‘Either we get out of Venezuela or we die of hunger.’”
On a recent afternoon Maria Consuelo Garcia López, a Dominican nun who helps run a soup-kitchen for economic exiles near Ecuador’s border with Colombia, served lunch to hundreds of famished and penniless Venezuelans who had taken the same decision.
“How could we just cross our arms and do nothing?” she said. “These people arrive with nothing but their suffering.”
Oliver Stuenkel, an international relations specialist from Brazil’s Fundação Getulio Vargas, predicted the exodus was likely to accelerate further a result of this week’s economic changes. “Maduro’s economic reforms - particularly the dramatic increase of the minimum wage - are likely to have a terrible effect on employment, increasing the number of those leaving Venezuela,” he tweeted.
Those migrants are likely to face growing obstacles. In recent months Chile, Colombia, Ecuador and Peru have all made life more difficult for Venezuelans wishing to enter their territory.
On Monday the northern Brazilian state of Roraima called on the country’s supreme court to halt the entry of Venezuelan immigrants following anti-immigrant riots on the weekend that saw about 1,200 Venezuelans forced back over the border.
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Nicolás MaduroNicolás Maduro
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