Venezuela is swept by economic chaos as new crypto-currency “scam” takes effect – Bolívar devalued by 95 percent

Desdemona Despair

By Rachelle Krygier and Anthony Faiola
21 August 2018

CARACAS, Venezuela (The Washington Post) – Many Venezuelans rejected an opposition call for a national strike on Tuesday, warily going to work even as sweeping government measures aimed at curbing ­hyperinflation caused mounting confusion.

With inflation hurtling toward 1 million percent and hunger spreading nationwide, President Nicolás Maduro on Friday outlined a radical plan intended to break the cycle. Among the changes: officially devaluing the currency by about 90 percent and hiking the minimum wage by 3,000 percent.

By Tuesday, one measure in the government’s offensive — the erasing of five zeros from bolívar notes — had already started its rollout. In Caracas, the capital, both the new and old currencies were being accepted in outdoor marketplaces and stores. Under the change, the highest bolívar bill — previously 100,000 — is now 1.

In a news conference, opposition leader Andrés Velásquez estimated that 60 percent of private-sector workers participated in the strike throughout the country.

“It’s only the first step of a series of protests that will end with a call for a general strike that lasts indefinitely,” he said. […]

Under the devaluation plan, Maduro announced that 3,600 new bolívares would now equal one petro, a digital currency he created in February 2018, which U.S. Treasury Department officials have called a scam. One petro equals the price of a barrel of oil, or about $60. So one dollar, under his plan, would equal about 60 new bolívares or 6 million old ones.

That represents a 90 percent devaluation from the previous official exchange rate. But that rate was accessible only by state entities. In effect, the devaluation is meant to bring the official exchange rate closer to its value on the black market.

There were early signs that the plan had failed to stabilize the economy. Before Maduro’s announcement on Friday, for instance, a kilo of peaches — or 2.2 pounds — cost about 1.1 million bolívares. By Tuesday, prices had almost doubled, surging to 2.1 million old bolívares, or 21 new ones. The black market rate for the dollar on Friday was roughly between 7 million and 8 million bolívares — a figure that surged to about 14 million old bolívares, or 140 new ones, on Tuesday. [more]

Venezuela is swept by economic chaos as new currency plan takes effect

21 August 2018 (Financial Times) – Hyperinflationary Venezuela is a record breaker of epic proportions. The economy has shrunk by almost a half in just five years. It suffers the highest annual inflation rate ever recorded in Latin America. To try to reverse this state of affairs, President Nicolás Maduro announced an economic package over the weekend. He claimed the measures would return “economic prosperity to the country”.

There is little reason to believe him, and almost no Venezuelans do. Increasingly, they are fleeing the country. Their exodus already ranks as probably the largest forced displacement ever recorded in the western hemisphere. The world should be on watch.

Like all Mr Maduro’s previous economic programs, his latest is confused and contradictory. There will be an effective 95 per cent devaluation. A new currency will be issued, with a rise in business taxes, a 3,000 per cent increase in minimum wages, and a commitment to halt printing money. The latter practice has fuelled inflation estimated by the IMF to be nearing 1m per cent a year. Value added tax will rise, along with an end to subsidies that make domestic gasoline prices, at below a cent a gallon, the world’s cheapest. These are desperate measures from a government only just starting to face reality. They will almost certainly fail.

The programme’s cornerstone — the supposed inflation-slayer to which prices and the exchange rate will be anchored — is a Venezuelan cryptocurrency called the Petro that has no market value. In a country with the world’s largest energy reserves, there are no concrete measures to boost falling oil production. At about 1.4m barrels per day, down by a quarter this year alone, output has dropped to levels thought to be last seen in 1947. There is also no commitment to open the economy, foster private enterprise and investment, or seek financing from lenders such as the IMF to bridge a fiscal deficit estimated at 20 per cent of annual output. Most significantly, the Caracas kleptocracy that calls itself a government will remain. Venezuela’s misery, and its refugee crisis, will only worsen. [more]

The desperate plight of Maduro’s Venezuela