Business leaders lambast Maduro’s new banknotes
CARACAS: New banknotes stripped of five zeros entered circulation in Venezuela on Monday as part of President Nicolas Maduro’s radical plan to curb hyperinflation, but business leaders branded the move as counterproductive.
The country appeared paralysed. Most shops and businesses closed as Venezuelans reacted nervously to the issuing of the new “sovereign bolivar,” launched to replace the oil-rich, cash-strapped country’s crippled “strong bolivar.”
But Carlos Larrazabal, president of leading business association, Fedecamaras, said the measure would only “increase economic instability.”
Having been suspended for more than 12 hours on Sunday, electronic transactions resumed amid palpable uncertainty.
“We’re all in the same boat, waiting to see what will happen,” Maria Sanchez, a 39-year-old shopkeeper told AFP after withdrawing some cash.
Alongside the bolivar redenomination, Maduro announced other measures to tackle widespread poverty, including a 3,400% hike in the minimum wage, the fifth such move this year alone.
“That’s a crazy measure,” Henkel Garcia, director of consultancy group Econometrica, told AFP.
Larrazabal said it “could devastate companies’ already debilitated assets.”
Inflation that the International Monetary Fund predicts will reach one million percent this year rendered the old bolivar currency practically worthless, while the economic crisis has driven more than two million people to flee the country, according to the United Nations.
In a video broadcast on Facebook, Maduro said the launch of the new banknotes had gone smoothly, insisting “the banking system performed wonderfully.”
Maduro also issued a vague threat to companies to comply with the minimum wage increase.
“Otherwise, they will have to answer to us,” he said without explaining what punishment there might be.
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.
In the capital, Caracas, residents were sceptical about the new measures, not least since former president Hugo Chavez slashed three zeros from the bolivar 10 years ago without halting hyperinflation.
“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!”
One of Maduro’s most baffling reforms has been to anchor the new currency to the country’s widely discredited cryptocurrency, the petro.
Each petro will be worth about $60, based on the price of a barrel of Venezuelan oil. In the new currency, that will be 3,600 bolivars — signaling a massive devaluation.
In turn, the minimum wage will be fixed at half a petro — 1,800 bolivars, about $28.
Information Minister Jorge Rodriguez insisted the reform programme would be funded “with oil income, with taxes and income from gasoline price hikes.”
Maduro also announced a curb on heavily subsidised fuel in a bid to prevent oil being smuggled to other countries.
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.
The blows kept coming on Monday as US oil giant ConocoPhillips said Venezuela’s state oil company PDVSA had agreed to make a $2 billion settlement to halt the seizure of its Caribbean assets.
ConocoPhillips seized $750 million of PDVSA assets in May after winning two international arbitration cases against Venezuela for the “unlawful and uncompensated expropriation” of its heavy crude oil projects in the country by Chavez in 2007.
Earlier this month, a US court had also ruled that Canadian mining company Crystallex could seize shares in PDVSA’s US-based subsidiary Citgo as payment for a $1.2 billion debt.
Now in a fourth year of recession, Venezuela has been hamstrung by shortages of basic goods such as food and medicine, and paralysed public services, including water, electricity and transport.
Oil production accounts for 96% 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.