Venezuela: Gov’t Increases Minimum Wage, Announces Public Spending

Caracas, October 16, 2019 (venezuelanalysis.com) – The Maduro government raised the minimum wage by 275 percent on Monday.

The new minimum wage was set at 150,000 sovereign bolivars (BsS), around US $7.5 at the current exchange rate, up from 40,000 BsS. Active public and private sector workers also receive a monthly food bonus, which was likewise raised from 40,000 to 150,000 BsS.

The measure applies retroactively to the month of October. Public sector pay scales, pensions and other social bonuses have been increased by a similar factor. The government had previously adjusted salaries on May 1st, from 18,000 to 40,000 BsS.

Venezuelan wages have been severely eroded amid the country’s four year and counting free-fall, with salary increases unable to keep up with inflation and hyperinflation. In recent months, the government has opted to tackle the inflationary spiral by liberalizing exchange controls, reducing the amount of bolivars in circulation and holding back on salary increases.

Analysts credit the measures for the slowdown of inflation in 2019, but warn that a side effect has been the severe contraction of aggregate demand due to the loss of purchasing power.

Monday’s announcement was followed by pledges of increased public spending on Tuesday. Speaking in a televised address, Maduro approved resources for a series of social programs, including healthcare, education and public transport.

Several disbursements are to be made via Venezuela’s Petro cryptocurrency, with government leaders hoping it can be used for international transactions.

The resources are to be managed directly by Venezuela’s 23 governorships and the Caracas municipality. In the four states governed by the opposition, the resources will be handled by a government-appointed “protector.” In addition, every state is being assigned a gold mine to manage as a direct source of income for regional budgets without going through Caracas.

Maduro urged governors to improve production at the local level by striking alliances with popular economy or private sector actors. He urged governors to dispel any “dogmas” about government hostility towards private businessmen.

“We need to be on top of the regional economy, the engines of the economy exist at the regional level and we need to boost them,” he said.

The Venezuelan President likewise assigned 73 million and 44 million euros (€) for the repair of electricity and water supply infrastructure, respectively, in different states throughout the country. Venezuela’s public services has suffered from lack of maintenance and investment, problems which have been further compounded by US sanctions.

Finally, Maduro destined €115 million to boost production on almost 200,000 hectares of land across seven states for the upcoming sowing season as well as €150 million to support communal enterprises and cooperatives.

Another significant investment of €262 million was assigned to the CLAP subsidized food program, with the goal of raising local production to supply the program and improving distribution capabilities.

The CLAP program is heavily reliant on food imports and has been hit by successive rounds of US sanctions. Last month, Treasury Department targeted moreforeign nationals and companies it alleged were involved in corrupt practices surrounding food imports.