Maduro orders 96 percent devaluation in hyperinflation-stricken Venezuela

Galtero Lara
Agosto 20, 2018

The United States on Friday said it supported the creation of an independent commission to investigate explosions in Caracas during a speech by Venezuelan President Nicolas Maduro earlier this month, criticizing his government's response as arbitrary.

Mr Maduro said on Friday that one petro would equal US$60 (S$82) and have the equivalent of 360 million bolivars.

In one of the biggest economic overhauls of Maduro's five-year government, the former bus driver and union leader also said he would hike the minimum wage by over 3,000 percent, boost the corporate tax rate, and increase highly-subsidized gas prices in coming weeks.

Facing the entry into force of the new Venezuelan currency, called sovereign bolivar, the authorities are working on the final details to begin the distribution to the population of the new currency, characterized by the reduction of five figures, with respect to the previous denomination. All the more so in a context where the elimination of excessive money printing is not credible.

It ended the government's monopoly over foreign currencies, which had created a black market where the dollar could change hands for 30 times its official rate.

The government, though, has ploughed on, with Maduro insisting the bolivar would be anchored to the country's widely discredited petro cryptocurrency, along with new salary and pricing systems.

As it stands, the monthly minimum wage-devastated by inflation and the aggressive devaluation of the bolivar-is still not enough to buy a kilo of meat.

Electronic transactions are set to be suspended from Sunday to facilitate the introduction of the new notes, known as the sovereign bolivar to distinguish from the current, and ironically named, strong bolivar.

The International Monetary Fund has predicted that inflation in Venezuela would hit one million per cent this year.

The fiscal deficit is nearly 20 percent of GDP while Venezuela struggles with an external debt of $150 billion.

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But there's a good reason the redenomination hasn't generated renewed hope or investor confidence: Venezuela has done this before.

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

Oliveros warned that the new bank notes will face the same fate as the last ones "within a few months" if hyperinflation is not brought under control.

But he said that will not work because of the government's fiscal indiscipline and a lack of financing.

Venezuelan President Nicolas Maduro (C) speaks in front of a computer used to mine crypto currency Ethereum at the International Science and Technology Fair (FITEC) in Caracas on December 3, 2017.

"Anchoring the bolivar to the petro is anchoring it to nothing", said economist Luis Vicente Leon, director at polling organization Datanalisis.

Maduro's government is desperately grasping at straws to try to fix the country's economic meltdown.

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

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

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