Venezuelan President Nicolas Maduro announced a series of major economic changes over the weekend in another desperate attempt to prop up the country’s flailing economy.
The key changes, which were to take effect Monday:
- Devalue Venezuela’s currency, the bolívar, by a whopping 95%. The new currency will be renamed the “sovereign bolívar.”
- Instead of an exchange rate of 250,000 bolívars per US dollar, it will increase to about 6 million.
- According to Bloomberg,the new bolívar will be pegged to the government’s cryptocurrency, the petro.
- The sovereign bolívar will move in line with changes in the petro, which is linked to movements in oil prices.
- The petro is valued by the Venezuelan government at about $60, or 3,600 sovereign bolívars.
- To make things more complicated, the new sovereign dollar will also be redenominated, which will remove about five zeros from its unit measurement.
- At the same time, Maduro also announced a huge 3,000% increase to the minimum wage.
- So, in the new redenominated currency, a person on the minimum wage will receive about 1,800 sovereign bolívars a month, instead of 1.8 million.
- The new minimum wage will be the equivalent of about $30 a month.
The government will also end some gasoline subsidies and raise the value added tax (similar to the GST in Australia) by about 4% — moves it says will save about $10 billion a year.
The weekend announcements are the latest round of unorthodox measures used by Venezuelan authorities to stabilize the economy and put a lid on rampant inflation.
Last month, a report from the International Monetary Fund said Venezuela’s economy was expected to contract by about 18% in 2018, while inflation is forecast to reach 1 million percent.
According to Bloomberg, the latest measures are unlikely to provide a quick fix for the economy, and there are risks that inflation will climb even faster.
Reports indicate that Venezuelan shop owners are concerned about how the new minimum wage will affect their ability to pay workers.
More than 400,000 Venezuelans have left to neighbouring Ecuador this year as the country tinkers on the brink of economic collapse.
In addition, Brazil has sent troops to its border with Venezuela to monitor the flow of refugees after local residents attacked Venezuelan migrants who were entering the country.