Bloomberg By Eduardo Thomson and Fabiola Zerpa 8/19/2018
Venezuelan President Nicolas Maduro carried out one of the greatest currency devaluations in history over the weekend -- a 95 percent plunge that will test the capacity of an already beleaguered population to stomach even more pain.
One likely outcome is that inflation, which already was forecast to reach 1 million percent this year, will get fresh fuel from the measures. Prices are currently rising at an annualized rate of 108,000 percent, according to Bloomberg’s Café con Leche index. A massive exodus of Venezuelans fleeing the crisis to neighboring countries will likely increase and with it, tensions and restrictions like the ones seen over the past few days.
The official rate for the currency will go from about 285,000 per dollar to 6 million, a shock that officials tried to partly offset by raising the minimum wage 3,500 percent to the equivalent of just $30 a month. While Maduro boasted in Friday night’s announcement that the International Monetary Fund wasn’t involved in the policies, aspects of the moves bore a resemblance to a classic orthodox economic adjustment, albeit with some confusing twists.
Maduro’s new strategy for managing the economy is a desperate response after years of disastrous policies that undercut growth, sent prices soaring and turned what had once been one of Latin America’s wealthiest countries into a dysfunctional nation that’s spawned a refugee crisis. Pressure is mounting on him to right the ship as calls for his overthrow grow six years after he took over for the late Hugo Chavez. Earlier this month, Maduro started a fresh crackdown on his opponents after a failed attempt to assassinate him using an aerial drone.
The economic shock measures demonstrate the “government’s willingness to do what it takes to stay in power,†Raul Gallegos, an associate director at Control Risks, said from Bogota. “Maduro looks vulnerable, clearly something could happen.â€
The streets of Caracas looked mostly empty on Monday morning as Venezuelans continued to digest the news and the impact it will have on their savings. Many shops including supermarkets were closed and some businesses that opened were waiting for more details to adjust prices.
The devaluation comes at the same time the government is redenominating the currency by lopping off five zeros and introducing new bills and a name change. So instead of the new minimum wage being 180 million strong bolivars, it will be 1,800 sovereign bolivars. Banks were closed and busy trying to adopt ATMs and online platforms to the new currency rules.
More:
https://www.bloomberg.com/news/articles/2018-08-19/venezuela-s-95-devaluation-adds-to-turmoil-after-drone-attack
