CARACAS: Beaten-down Venezuela on Tuesday began confronting a 95% currency devaluation and a regimen of economic controls that, after years of hunger and hyperinflation, landed like a hassle rather than a cataclysm.
Caracas returned to work after a holiday weekend that saw President Nicolas Maduro announce the devaluation and a minimum wage hike of more than 3,000%, decisions that were a tacit acceptance of the ubiquitous black-market exchange rate. They accompanied the roll-out of new banknotes that dropped five zeroes — the second time such a measure was implemented in the past decade — to simplify transactions. Many Venezuelans waited outside banks to get their hands on the new sovereign bolivares after months of living almost cashless.
Jimmy Lugo, 39, a heavy-machine operator, said as he waited to use an ATM downtown that he was paying much as 500% markups for legal tender, on which he depends for bus fare. While he doubted the latest economic package would put more food on his table, he hoped it would at least bring temporary relief as President Maduro is unlikely to leave power on his own.
“This is the only ship there is. Either it floats, or we’re all going down,” Lugo said after collecting his cash.
Yet many fear the reforms will sink a foundering nation still deeper. Inflation is running over 100,000%, food and medicine are scarce and citizens are fleeing by the thousands to neighbouring countries. Some have been met with violence.
The socialist regime is employing many familiar tactics to in its latest attempt to rein in economic chaos. The late president Hugo Chavez chopped three zeros off the currency a decade ago. The minimum wage, which has been frequently revised, will increase more than 3,000%. And authorities said they were poised to publish new price caps on 25 essentials later on Tuesday.
The Maduro administration also announced that currency auctions, used to determine the official exchange rate, would resume Wednesday with greater frequency and access. But many remain sceptical that rejiggering the system, established in 2003, would ease a dollar drought that stymied domestic production and starved the country of imports.
At about 5.31 pm local time Tuesday, a 7.3-magnitude earthquake struck the country’s northeast near the Atlantic coast, according to the United States Geological Survey. The temblor shook buildings in Caracas. The government said there were no immediate reports of injuries or damage.
The debut of the sovereign bolivar did little to slow the spiralling prices of goods or dollars, an implicit recognition that the thriving black market represents the country’s true economy. On Tuesday, DolarToday, a website that tracks black-market exchange rates, said the street value of greenback fell almost 10% to 65 bolivars on Tuesday from the 60 bolivar-rate Maduro declared last week.
Maduro is also wading into uncharted territory by linking the bolivar’s value to a cryptocurrency — believed to be the first time a government has tried such a thing. The Petro is backed by crude oil, and the government sets its value at US$60, or 3,600 sovereign bolivars. The Petro will fluctuate and be used to set prices for goods. Still, the cryptocurrency doesn’t trade on any functioning market, Francisco Rodriguez, chief economist of Torino Capital, wrote in a note to clients Monday.
“They’re going to pay us in cryptocurrency now — Petros? It’s crazy. I have no idea how it will work. We’re barely using bolivars at this point,” said Jose Bastida, a 58-year-old maintenance worker waiting outside a bank in central Caracas.
Maduro’s plan was “marked by inconsistencies and was short on specifics, suggesting that any attempt to stabilize the economy would start out facing huge credibility problems,” Rodriguez from Torino Capital wrote.
Maduro’s gambit follows years of policies that turned what had once been one of Latin America’s wealthiest countries into a basket case. Pressure is mounting, with new calls for the socialist’s overthrow after violent protests rocked the nation for much of last year. This month, Maduro cracked down anew on his opponents after an attempt to kill him using aerial drones laden with explosives.
The announcement of the measures on a Friday night was a historical rhyme for many Venezuelans. In 1983, President Luis Herrera Campins devalued the bolivar for the first time in 22 years after oil prices crashed. Citizens called the date “Black Friday.” The bolivar has been devalued nearly a dozen times since Chavez rose to power nearly two decades ago, often sparking a flurry of last-minute shopping before business owners slap new price tags on their products.
Across Caracas on Tuesday, many residents said that they were already beginning to feel a rise in prices despite Maduro’s warnings to the private sector.
Marelis Martinez, a 57-year-old administrative assistant, said prices of many essentials like cheese and eggs had already gone up by as much as a third over the weekend.
“This is all a joke; I feel like I’m being laughed at,” Martinez said. “The president can say the minimum wage is worth whatever he wants, but it still won’t be enough to cover a chicken.”