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Venezuelans Brace as Controversial Bank Notes Target Hyper Inflation

Nicolas Maduro

Posted: Monday, August 20, 2018 – 1:21 PM

(AFP) Venezuelans reacted nervously on Monday as President Nicolas Maduro rolled out his radical new plan to curb spiraling hyperinflation by slashing five zeros off the oil-rich, cash-poor country’s crippled currency.

Venezuela appeared paralyzed as most shops and businesses remained closed due to a national holiday called by Maduro on the day the new banknotes were issued.

“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.

Electronic transactions were resumed after being suspended for more than 12 hours on Sunday as Venezuela’s government bid to avoid turmoil amidst palpable uncertainty as to how the measure will affect an economic crisis that has driven more than two million people to flee the country, according to the United Nations.

Alongside the bolivar re-denomination, Maduro announced other measures to tackle widespread poverty, including a massive 3,400 percent wage hike, the fifth such move this year alone.

“That’s a crazy measure,” Henkel Garcia, director of consultancy group Econometrica, told AFP.

Inflation that the International Monetary Fund predicts will reach one million percent this year has rendered the old bolivar currency practically worthless.

“The Venezuelan people bear the tragic cost of the Maduro regime’s rampant corruption and tyranny,” tweeted US Vice President Mike Pence, adding that “recent moves will only make life worse for every Venezuelan.”

“Nicolas Maduro and his regime have driven a once-prosperous country to economic ruin and humanitarian crisis,” Pence said.

The embattled 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.

– ‘Chaotic scenario’ –

But economists say the radical overhaul could only make matters worse.

“There will be a lot of confusion in the next few days, for consumers and the private sector,” said the director of the Ecoanalitica consultancy, Asdrubal Oliveros.

“It’s a chaotic scenario.”

In the capital Caracas, residents were skeptical about the new measures.

“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!”

Three of the country’s leading opposition groups — Primero Justicia, Voluntad Popular and Causa R — have rejected the reform plan and called for a day of protest on Tuesday.

The new currency, the sovereign bolivar — to distinguish from the outgoing, and ironically named, strong bolivar — will be anchored 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 sovereign bolivars — signaling a massive devaluation.

In turn, the minimum wage will be fixed at half a petro — 1,800 sovereign bolivars, about $28.

The socialist president also announced a curb on heavily subsidized fuel in a bid to prevent oil being smuggled to other countries.

Subsidies would only be available to citizens registering their vehicles for a “fatherland card,” which the opposition has decried as a mechanism to exert social control over opponents.

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.

– Paralyzed public services –

Oliveros also warned that the new bank notes will crumble “within a few months” if hyperinflation is not brought under control.

“If you maintain the fiscal deficit and the disorganized emission of money (to cover it), then the crisis will worsen,” economist Jean Paul Leidenz told AFP.

Now in a fourth year of recession, Venezuela has been hamstrung by shortages of basic goods such as food and medicine, and paralyzed public services, including water, electricity and transport.

“Don’t pay attention to naysayers,” Information Minister Jorge Rodriguez said, pushing back against criticism of the plan. “With oil income, with taxes and income from gasoline price hikes… we’ll be able to fund our program.”

Oil production accounts for 96 percent 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.

Maduro’s predecessor Hugo Chavez stripped three zeroes off the bolivar in 2008, but that failed to prevent hyperinflation.

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© Agence France-Presse

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