Chaos and confusion erupted across Venezuela, and most stores were shuttered on Saturday, after president Nicolas Maduro announced that the government would enact a massive currency devaluation, implement a new minimum wage, hike taxes, and also raise gasoline prices for most citizens even as the country struggles with the greatest hyperinflation on record.
As a result of the enacted actions, the new version of the bolivar will be pegged to the value of the state cryptocurrency, the petro, which according to Bloomberg amounts to a 95% devaluation of the official rate, and will trade in line with where the black market was; the government will also raise the minimum wage more than 3,000 percent, which works out to about $30 a month. Maduro said the new currency, set to enter circulation on Monday, will be called the “sovereign bolivar” and will be based on the petro, which is valued at $60 or 3,600 sovereign bolivars, after the redenomination planned for August 20 slashes five zeroes off the national currency. The minimum wage will be set at half that, 1,800 sovereign bolivars. The government would cover the minimum wage increase at small and medium-size companies for 90 days, Maduro added. It was not clear what happens after, according to zerohedge.com
“They’ve dollarized our prices. I am petrolizing salaries and petrolizing prices,” Maduro explained in a Friday televised address. “We are going to convert the petro into the reference that pegs the entire economy’s movements.”
In other words, for the first time ever, an oil-linked cryptocurrency effectively replaces the sovereign currency. As a result the petro, which will fluctuate dramatically, will be used to set prices for goods. The package of measures combine the necessary with the baffling, Luis Vicente Leon, president of the Caracas-based pollster Datanalisis, said in a Twitter post on Friday.
“You won’t find the IMF’s claws or ill-gotten prescriptions here,” Maduro said, although after years of socialist torment, it is not clear if Venezuela’s ordinary citizens would not have opted for that alternative. Maduro also said that “no experts were involved who do not feel the clamor of the people”… Just dictators.
Maduro also said he intends to create a unified exchange rate across the country. The new petro-to-dollar-to-bolivar rate would bring the official price of one US dollar to six million (or 60 post-redenomination), which is about the same as the current black market exchange rate and about 25 times worse than the official rate.
To implement the bizarre plan, information Minister Jorge Rodriguez said Saturday the government will open 300 currency exchange kiosks in hotels, airports and shopping malls as part of a bid to supersede the country’s black market. Maduro said Friday that the central bank will increase the frequency of weekly foreign exchange auctions to three and eventually five.
Speaking to Bloomberg, Henkel Garcia, director of the Caracas consultancy Econometrica, said the announcements amounted to a head-scratcher. “This series of measures is a mix of incoherent and contradictory ideas. It is a worrying contraption that generates a lot of uncertainty about how it will be executed.”