CARACAS, VENEZUELA — Uncertainty reigned in Venezuela Saturday after President Nicolas Maduro unveiled a major economic reform plan aimed at halting the spiraling hyperinflation that has thrown the oil-rich, cash-poor South American country into chaos.
Ahead of a major currency overhaul Monday, August 20, when Caracas will start issuing new banknotes after slashing five zeroes off the crippled bolivar, Maduro detailed other measures he hopes will pull Venezuela out of crisis.
Those measures include a massive minimum wage hike, the fifth so far this year.
But analysts say the radical overhaul could only serve to make matters worse.
“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.”
The embattled Maduro, a former bus driver and union leader, said the country needed to show “fiscal discipline” and stop the excessive money printing that has been regular practice in recent years.
The new currency, the sovereign bolivar — to distinguish from the current, and ironically named, strong bolivar — will be anchored to the country’s widely discredited cryptocurrency, the petro.
Each petro will be worth about $60, based on the price of a barrel of Venezuela’s oil. In the new currency, that will be 3,600 sovereign bolivars, signaling a massive devaluation.
In turn, the minimum wage will be fixed at half a petro (1,800 sovereign bolivars), starting Monday. That is about $28, more than 34 times the previous level of less than a dollar at the prevailing black market rate.
Maduro also said the country would have one fluctuating official exchange rate, also anchored to the petro, without saying what the starting level would be.
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.
In the capital Caracas, residents were skeptical 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.
Angel Arias, a 67-year-old retiree, dubbed the new currency a “pure lie!”
1 million percent inflation
The International Monetary Fund predicts inflation will hit a staggering 1 million percent this year in Venezuela, now in a fourth year of recession, hamstrung by shortages of basic goods and crippled by paralyzed public services.
Maduro blames the country’s financial woes on opposition plots and American sanctions, but admits that the government will “learn as we go along” when it comes to the currency redenomination.
His government pushed back Saturday against criticism of the economic reform plan.
“Don’t pay attention to naysayers,” Information Minister Jorge Rodriguez said. “With oil income, with taxes and income from gasoline price hikes … we’ll be able to fund our program.”
Electronic transactions are set to be suspended from Sunday to facilitate the introduction of the new notes.
Economy in turmoil
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.
The fiscal deficit is almost 20 percent of GDP while Venezuela struggles with an external debt of $150 billion.
Venezuela launched the petro in a bid for liquidity to try to circumvent US sanctions that have all but stamped out international financing.
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.
Also, Cryptocurrency rating site ICOindex.com has branded the petro a scam, and the U.S. has banned its nationals from trading in it.