Venezuela devalues currency and boosts minimum wage

VENEZUELA slashed five zeros from prices yesterday as part of a broad economic plan that President Nicolas Maduro says will tame hyperinflation. But critics said it was another raft of failed socialist policies that would push the chaotic country deeper into crisis.

Streets were quiet and shops were closed due to a national holiday that Mr Maduro decreed for the first day of the new pricing plan for the stricken economy, which the International Monetary Fund has estimated will have 1 million per cent inflation by year end.

The price change comes with a 3,000 per cent minimum wage hike, tax increases meant to shore up state coffers and a plan to peg salaries, prices and the country’s exchange rate to the petro, an elusive state-backed cryptocurrency.

Economists say the plan, which was announced last Friday, is likely to escalate the crisis facing the once prosperous nation that is now suffering from Soviet-style product shortages and a mass exodus of citizens fleeing for other South American countries.

Venezuelans were sceptical the plan would turn the economy around. “I can’t find a cash machine because all the banks are closed,” said Jose Moreno, 71, a retired engineer in the central city of Valencia, complaining of chronically dysfunctional public services.

“There’s no money, there’s no water, there’s no electricity – there’s nothing.”

After a decade-long oil bonanza that spawned a consumption boom in the Opec member state, many citizens now have to scour through bins to find food as monthly salaries currently amount to a few US dollars a month.

Venezuela’s main business organisation, Fedecamaras, said Mr Maduro’s economic plan was “improvised” and will cause confusion and put the country’s economic activity at “severe risk.”

The bolívar traded on the opaque black market at around 96 bolívars to the dollar yesterday, a rate reflecting the monetary overhaul and which implies a depreciation in real terms of nearly 30 per cent since last week.

The rate may not be representative of the overall market because trading volumes were thin due to the public holiday, industry experts said.

The misery inflicted on the people of Venezuela worsens by the day. Prices have been doubling every 26 days on average and the International Monetary Fund predicted that inflation could reach one million per cent this year. The government of Nicolas Maduro is trying to stop the slide by knocking five zeros from the bolívar and re-denominating the currency but this is likely to make matters worse. To try to stem social unrest, he has announced that the minimum wage will rise by 34 times its previous level from September 1.

But the population is already voting with its feet by leaving Venezuela, placing pressure on neighbouring countries to accommodate the emigrants. Brazil and Ecuador have imposed controls to halt the flood. Some economists fear the new currency will rapidly be destroyed by inflation because the root causes of the crisis are not being addressed. President Maduro, the protégé of the late Hugo Chavez, has pursued the same social policies undone by the collapse in the oil price. As with all socialist leaders, he refuses to concede that the ideology is wrong. His response to the calamity his country is facing is to pledge to “dismantle neo-liberal capitalism’s perverse war”. He blames the US in particular and everyone else in general for the dire predicament he has created.

It cannot be said too often that Venezuela was considered the model for socialists around the world, including here in the UK. Jeremy Corbyn was a great supporter of Mr Chavez, praising him for showing that “there is a different and better way of doing things. It’s called socialism”. For Venezuelans, it is an unmitigated disaster.