Merida, August 20, 2018 (venezuelanalysis.com) – Venezuelans braced themselves as a series of long-anticipated economic measures came into effect Monday, including the launch of a new paper currency called the Sovereign Bolivar.
The new currency brings with it a revaluation of all prices, wages, and pensions which will be cut by five zeros. Both the old Strong Bolivar and Sovereign Bolivar will co-exist for a period time yet to be announced by the government.
The reconversion has required a complete overhaul of administrative accounting mechanisms as well as all of the cash circulating in the banking system. Bank transfers and electronic payment systems have been suspended over the weekend and Monday was declared a bank holiday by President Nicolas Maduro to ease the changeover.
It has been claimed that the monetary reconversion is costing the Venezuelan state more than US $300 million, and has twice been postponed since the initial announcement in March. Despite such delays, President Maduro has exhorted citizens to have “confidence” in his measures.
The launch follows weeks of public information campaigns by the government, the central bank, and all private and public banks, including an online calculator which has been made available to citizens to help them navigate the new pricing system they will find in the shops beginning Tuesday. Despite such measures, many citizens have expressed confusion in interpreting new prices and their new wages or pensions.
Shops and businesses were closed on Monday as the country awaited the “necessary” reconversion, which Maduro has claimed will contribute towards overcoming the economic crisis currently gripping the Caribbean country.
The launch of the Sovereign Bolivar is also accompanied by a series of other economic measures, including the elimination of exchange controls, the opening of 300 exchange houses, and what amounts to a 97 percent devaluation as the government recognises parallel market exchange rates for the first time.
As part of the measures, Maduro has also urged fiscal discipline, looking to bring the fiscal deficit to zero as well as promising to halt the printing of money, promoting digital transactions to ease the cash flow bottleneck.
He has also declared a 3,464 percent increase in both the minimum wage and state pensions as of September, and proposes to tie them to the Petro cryptocurrency – itself pegged to the price of a barrel of oil – in a bid to shore up consumer purchasing power. The government has pledged to pay the difference in private sector salaries for a 90 day transition period.
A series of tax reforms are likewise due to come into effect this week, including an increase in VAT from 12 to 16 percent and a complete exoneration of VAT for food and medicine. Reforms of income tax are also planned, in which the higher bands are due to pay more at more frequent intervals, while a crackdown on tax evasion has additionally been promised.
Holders of the government’s national Homeland Card can also expect a special “reconversion bonus” worth US $10 or eleven and a half months minimum wage to ease the economic confusion this week.
A shift in the government policy of heavy gasoline subsidies is also in the works, with significant hikes in gasoline prices due in September for all except those holding the Homeland Card, in what could constitute an important new source of funding for struggling state oil company PDVSA.
“This plan is going to work,” assured Maduro, whilst explaining the proposals last Friday. He also recognised the “tireless work” of his team in making the reforms a reality .
It has been a week of popular support and tireless work to begin the monetary and economic restructuring of the country. We will dismantle the perverse war of neoliberal capitalism to install a virtuous, balanced, sustainable, healthy and productive [...] https://t.co/mAvgAik5xo
— Nicolás Maduro (@maduro_en) 20 de agosto de 2018
Whilst many of Maduro’s allies are tentatively withholding judgement on the effectiveness of the reforms, some have pointed to the lack of “clarity,” especially with regard to how wages and prices are to be pegged to the Petro crytopcurrency, which analysts say is itself riddled with ambiguities.
Others, Ecoanalitica Director Alejandro Grisanti, have welcomed selected elements of the package, such as the announced wage hike.
“These announcements are a radical change in the economic policies of the last 20 years. The wage increase, if brusque, was necessary and our workers could not continue to earn roughly the same as the price of a kilo of rice a month,” he has explained.
Many, however, are sceptical about the measures, with vehement objections coming from Venezuela’s right-wing opposition who have called for protests, marches, and even a national economic shutdown in response. Turnout at previous opposition activities has been poor, and it is uncertain to what extent their calls will be heeded by the wider population. Opposition leaders like former two-time presidential candidate Henrique Capriles Radonski have called the economic measures “irresponsible.”
The Trump administration, which has applied economic sanctions against Caracas, has also taken aim at the reforms, with Vice-president Mike Pence claiming that they “will only worsen the lives of the Venezuelans.”
The Venezuelan people bear the tragic cost of the Maduro regime’s rampant corruption & tyranny—recent moves will only make life worse for every Venezuelan. We call on the regime to return freedom & democracy to #Venezuela & to allow aid into the country to help those suffering. https://t.co/8tmFwaqTit
— Vice President Mike Pence (@VP) August 20, 2018