Wednesday, April 17, 2024

LATIN AMERICA | 20-08-2018 10:51

Confusion reigns as Venezuela braces for release of new banknotes

Divided, crisis-stricken country on edge as President Maduro unveils raft of economic reforms.

Beleaguered Venezuelans were bracing themselves this morning for the rollout of President Nicolás Maduro's radical new plan to curb the spiralling hyperinflation that has thrown their oil-rich, cash-poor nation into turmoil.

Caracas is issuing new banknotes after lopping five zeroes off the crippled bolívar, casting a pall of uncertainty over businesses and consumers across the country.

"There will be a lot of confusion in the next few days, for consumers and the private sector," said the director of the Ecoanalitica consultancy, Asdrubal Oliveros. 

"It's a chaotic scenario."

Other measures – revealed by Maduro in a speech to the nation late Friday – include a massive minimum wage hike, the fifth so far this year.

As it stands, the monthly minimum wage – devastated by inflation and the aggressive devaluation of the bolívar – is still not enough to buy a kilogramme (2.2 pounds) of meat.

The embattled Maduro, a former bus-driver and union leader, said the country needed to show "fiscal discipline" and stop the excessive money printing of recent years. But economists say the radical overhaul could only make matters worse. 

In the capital Caracas, residents were sceptical about the new measures.

"Everything will stay the same, prices will continue to rise," 39-year-old Bruno Choy, who runs a street food stand, told AFP.

Ángel Arías, a 67-year-old retiree, dubbed the new currency a "pure lie!"

Three of the country's leading opposition groups – Primero Justicia, Voluntad Popular and Causa R – have rejected the reform plan and called for a day of protest on Tuesday.

New currency, old woes

The new currency, the sovereign bolívar – to distinguish from the current, and ironically named, strong bolívar – will be anchored to the country's widely discredited cryptocurrency, the petro.

Each petro will be worth about US$60, based on the price of a barrel of Venezuelan oil. In the new currency, that will be 3,600 sovereign bolívares – signalling a massive devaluation.

In turn, the minimum wage will be fixed at half a petro (1,800 sovereign bolívares). That is about US$28 – more than 34 times the previous level of less than a dollar at the prevailing black market rate. 

Fuel subsidy cuts

Maduro also announced a curb on heavily subsidised fuel in a bid to prevent oil being smuggled to other countries.

Subsidies would only be available to citizens registering their vehicles for a "fatherland card," which the opposition has decried as a mechanism to exert social control over opponents.

Fuel subsidies have cost Venezuela US$10 billion since 2012, according to oil analyst Luis Oliveros, but without them, most people would not be able to buy fuel.

Oliveros also warned that the new bank notes will crumble "within a few months" if hyperinflation is not brought under control.

The International Monetary Fund (IMF) predicts inflation will hit a staggering one million percent this year in Venezuela – now in a fourth year of recession, hamstrung by shortages of basic goods, and paralyzed public services.

"Don't pay attention to naysayers," Information Minister Jorge Rodríguez said, pushing back against criticism of the plan. "With oil income, with taxes and income from gasoline price hikes... we'll be able to fund our programme."

Oil production accounts for 96 percent of Venezuela's revenue – but that has slumped to a 30-year low of 1.4 million barrels a day, compared to its record high of 3.2 million 10 years ago.

Maduro's predecessor Hugo Chávez stripped three zeroes off the bolívar in 2008, but that failed to prevent hyperinflation.


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