Venezuela hikes wages ahead of monetary overhaul

Saturday, August 18, 2018

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CARACAS, Venezuela (AP) — Venezuelan President Nicolas Maduro raised wages for the fifth time this year and said he wanted to peg prices to the nation's fledgling cryptocurrency as part of a package of measures that economists say is likely to accelerate hyperinflation.

Maduro made the announcement in a televised address Friday night ahead of a previously announced monetary overhaul next week that will see five zeros lopped off from the nation's currency, the bolivar, in a bid to fight inflation forecast by the International Monetary Fund to top 1,000,000 per cent this year.

Maduro set the new monthly minimum wage at 1,800 sovereign bolivars, the new currency that goes into effect Monday. That's a 3,300 per cent increase over the wage of just over five million bolivars set in June with the old currency but still around US$30 at the widely used black market rate.

Adding to confusion, he said he wanted to peg wages, prices and pensions to the petro — a cryptocurrency announced in February but which has yet to start circulating. He said one petro would equal US$60, or 3,600 sovereign bolivars, with the goal of moving toward a single "floating" exchange rate in the future tied to the digital currency.

The embattled socialist leader is trying to rescue the OPEC nation's economy from the brink against a backdrop of crippling US financial sanctions, a foreign debt crisis and a plunge in oil production to levels unseen since the 1940s. Widespread shortages of food and medicine, as well as rolling blackouts that have kept the country's second-largest city largely in the dark the past week, are adding to social tensions.

Maduro has long contended that Venezuela's crisis is the product of an "economic war" waged by his enemies and the US and he took the same line Friday.

"The US government has been carrying out a war, in several ways, to stop the Republic from making international purchases and asphyxiating us internationally," Maduro said as his top advisers looked on.

Venezuelans have grown accustomed to ambitious economic announcements that fall flat and Maduro's long televised address Friday night was short on details.

But in raising wages so aggressively and announcing the crypto-pegged exchange rate he appeared to be acknowledging that the government was losing the battle to prop up the currency, economists said.

In setting a rate for the petro, Maduro was implicitly taking the country's exchange rate to six million bolivars per US dollar, on par with widely used black market exchange rates compared with the current official DICOM rate of 248,832 bolivars per dollar.

Economists said they expect more financial turmoil.

"The next few days will be very confusing both for consumers and the private sector," said Asdrubal Oliveros, director of Caracas-based think tank Ecoanalitica, which is highly critical of the government. "It's a chaotic scenario."

Maduro said the government would help small businesses and industry absorb the financial hit from the wage hike.

He also hiked the nation's sales tax four points to 16 per cent and said he would take other measures to eliminate Venezuela's fiscal deficit, which is believed to be about 20 per cent of gross domestic product. Oliveros called the goal admirable but illusory so long as the government continues to print money to finance runaway spending and hike wages.

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