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Abu Dhabi, UAETuesday 25 September 2018

Venezuela's new bolivar derided as Maduro insists all is working 'wonderfully'

Country tips further into chaos with analysts criticising president's 'crazy' 3,400% wage rise and businesses forecasting worse to come

President Nicolas Maduro's fiscal strategy has left many baffled and feaful. EPA
President Nicolas Maduro's fiscal strategy has left many baffled and feaful. EPA

New banknotes stripped of five zeros entered circulation in Venezuela on Monday as part of President Nicolas Maduro's radical plan to curb hyperinflation, but business leaders branded the move as counterproductive.

The country appeared paralysed. Most shops and businesses closed as Venezuelans reacted nervously to the issuing of the new "sovereign bolivar", launched to replace the oil-rich, cash-strapped country's crippled "strong bolivar".

But Carlos Larrazabal, president of leading business association, Fedecamaras, said the measure would only "increase economic instability".

Having been suspended for more than 12 hours on Sunday, electronic transactions resumed amid palpable uncertainty.

"We're all in the same boat, waiting to see what will happen," Maria Sanchez, a 39-year-old shopkeeper said after withdrawing some cash.

People wait for free soup outside a church in Caracas, Venezuela, on Saturday, Aug. 18, 2018. Venezuelan shops shuttered and lines formed at gas stations on Saturday as confusion reigned following measures announced by President Nicolas Maduro aimed at fighting an historic economic crisis in the oil-exporting nation. Photographer: Carlos Becerra/Bloomberg
People wait for free soup in Caracas, Venezuela. EPA

Alongside the bolivar redenomination, Mr Maduro announced other measures to tackle widespread poverty, including a 3,400 per cent hike in the minimum wage, the fifth such move this year alone.

"That's a crazy measure," said Henkel Garcia, director of consultancy group Econometrica.

Mr Larrazabal said it "could devastate companies' already debilitated assets".

Inflation that the International Monetary Fund predicts will reach 1 million per cent this year rendered the old bolivar currency practically worthless, while the economic crisis has driven more than two million people to flee the country, according to the United Nations.

In a video broadcast Monday night on Facebook, Mr Maduro said the launch of the new bank notes had gone smoothly, insisting "the banking system performed wonderfully".

He also issued a vague threat to companies to comply with the minimum wage increase. "Otherwise, they will have to answer to us," he said without explaining what punishment there might be.

On the border with Brazil, the flow of fleeing people continued despite some 1,200 being driven back over the weekend in anti-migrant violence that got so bad President Michel Temer sent troops to the area to restore order.

"The Venezuelan people bear the tragic cost of the Mr Maduro regime's rampant corruption and tyranny," tweeted US Vice President Mike Pence, adding that "recent moves will only make life worse for every Venezuelan".

"Nicolas Maduro and his regime have driven a once-prosperous country to economic ruin and humanitarian crisis," Mr Pence said.

The embattled Mr Maduro, a former bus driver and union leader, said the country needed to show "fiscal discipline" and stop the excessive money printing of recent years.

In the capital, Caracas, residents were sceptical about the new measures, not least since former president Hugo Chavez slashed three zeros from the bolivar 10 years ago without halting hyperinflation.

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Read more:

Venezuela devalues currency by 95 per cent ahead of new bolivar launch

Hyperinflation in Venezuela - in pictures

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"Everything will stay the same, prices will continue to rise," said 39-year-old Bruno Choy, who runs a street food stand.

Angel Arias, a 67-year-old retiree, dubbed the new currency a "pure lie!"

Three of the country's leading opposition groups - Primero Justicia, Voluntad Popular and Causa R - have called for a general strike and day of protests on Tuesday.

Government loyalist and president of the controversial regime-dominated legislature, Diosdado Cabello responded on Monday by announcing a "counter-march".

One of Mr Maduro's most baffling reforms has been to anchor the new currency to the country's widely discredited cryptocurrency, the petro.

Each petro will be worth about $60, based on the price of a barrel of Venezuelan oil. In the new currency, that will be 3,600 bolivars - signalling a huge devaluation.

In turn, the minimum wage will be fixed at half a petro - 1,800 bolivars, about $28.

epa06957103 View of images from late Venezuelan President Hugo Chavez (L), current President Nicolas Maduro (R) and Petro's crypto-currency logo (C) hang on a building in Caracas, Venezuela, 18 August 2018. There is unease and confusion among the population as new measures of President Nicolas Maduro’s economic plans will go into effect on 20 August. The ‘Bolivar Soberano’ currency will be the new official currency and the crypto-currency Petro will be a valid secondary currency. EPA/MIGUEL GUTIERREZ
late Venezuelan President Hugo Chavez (L), current President Nicolas Maduro (R) and petro's crypto-currency logo on a building in Caracas, Venezuela. EPA

Information Minister Jorge Rodriguez insisted the reform programme would be funded "with oil income, with taxes and income from gasoline price hikes".

Mr Maduro also announced a curb on heavily subsidised fuel in a bid to prevent oil being smuggled to other countries.

Fuel subsidies have cost Venezuela $10 billion since 2012, according to oil analyst Luis Oliveros, but without them, most people would not be able to buy fuel.

The blows kept coming on Monday as US oil giant ConocoPhillips said Venezuela's state oil company PDVSA had agreed to make a $2 bn settlement to halt the seizure of its Caribbean assets.

ConocoPhillips seized $750 million of PDVSA assets in May after winning two international arbitration cases against Venezuela for the "unlawful and uncompensated expropriation" of its heavy crude oil projects in the country by Chavez in 2007.

Earlier this month, a US court had also ruled that Canadian mining company Crystallex could seize shares in PDVSA's US-based subsidiary Citgo as payment for a $1.2bn debt.

Now in a fourth year of recession, Venezuela has been hamstrung by shortages of basic goods such as food and medicine, and paralysed public services, including water, electricity and transport.

Oil production accounts for 96 per cent of Venezuela's revenue - but that has slumped to a 30-year low of 1.4 million barrels a day, compared to its record high of 3.2 million 10 years ago.

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