Daily Management Review

Bolivar Devalued and Fuel Price Hiked by 6,000 % in Venezuela to Tackle Crisis


Bolivar Devalued and Fuel Price Hiked by 6,000 % in Venezuela to Tackle Crisis
Hard hit by falling oil prices which make up 95% of foreign income, Venezuela’s president, Nicolás Maduro, has announced the first rise in petrol prices in 20 years and a sharp devaluation of the currency which he said aimed to shore up the flailing economy.
From 0.097 bolivars to 6 bolivars, or 1,300% for 91 octane, prices at the pump in Venezuela will jump as much as 6,086% for 95 octane gasoline.
While a second rate will be allowed to float, the official exchange rate used for food and medicine imports will weaken to 10 bolivars per dollar from 6.3, as of Thursday.
Although critics say they don’t go far enough to right the country’s crisis-hit economy, the socialist government’s announcement on Wednesday revealed some of the free market reforms that analysts have been clamouring for in the oil-dependent nation.
“This is a necessary measure, a necessary action to balance things, I take responsibility for it,” said Maduro in a five-hour televised speech in which he announced the measures.
Hugo Chávez , Maduro’s predecessor managed to get a broad following when he set the country on a socialist path 17 years ago and this line is being toed by Maduro who said the new fuel prices would help support social programmes such as housing, health services and education.
In 1989, sparked by a rise in fuel prices, there was a wave of violence known as the “Caracazo” that left hundreds dead. Maduro said he hoped the measures “will be understood by the people on the streets”. Effective from 1 March, Maduro also announced a 20% increase to the country’s minimum wage.
Allowing Venezuelan’s to fill their tanks with high-octane gasoline for the equivalent of the price of three beers, despite the rises, Venezuela’s petrol will still be the cheapest in the world.
Spending cuts and a rise in fuel and electricity prices to avoid further economic meltdown, Wall Street analysts previously said Venezuela needed a sharp currency devaluation. The changes announced by Maduro had not gone far enough said the local analysts.
The measures were akin to putting “truffle salt on a rotten steak”, said analyst Luis Vicente León.
The inflation in 2015 was 140% and Leon said on twitter that the government would have to constantly adjust the fuel prices so the impact would not be “pulverized” by inflation.
“We’ll have to wait and see the implementation but it doesn’t seem to be enough,” he tweeted.
After the supreme court overturned the opposition-controlled legislature’s decision to grant him special powers, Maduro revealed the measures by decree.
Even moderates have turned more radical due to the showdown with the opposition , for the first time in 17 years, that has held a majority in the National Assembly since January.
Support was lend by Henrique Capriles, who is the leader of the moderate wing of the opposition and two-time opposition presidential candidate, to a possible referendum on recalling Maduro on Wednesday.
“The constitutional time has come ... let’s go for recall,” he said in a tweet after Maduros’ speech.