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Venezuela. once considered one of the richest countries in the world. is now suffering from skyrocketing inflation. emigration. starvation and political unrest. The national currency. the bolivar. has become almost useless.
President Nicolas Maduro blames it on what he calls an `economic war` against his country. His critics say widespread corruption and the government`s mismanagement are responsible.
The IMF predicts inflation will continue to rise by up to one million this year. To put that into perspective. Venezuelans are now paying about two million bolivars for a cup of coffee.
In an attempt to solve the problem. the government has introduced a plan to curb hyperinflation. reports Latin America editor Lucia Newman. from Caracas. There is a new currency. the `sovereign bolivar`. which removed five zeroes from banknotes. It is backed by a cryptocurrency. the petro. that is pegged to the price of oil.
The government is also raising the minimum wage by 3.000 percent. raising taxes. and increasing petrol prices for some drivers. And faced with a squeeze on the country`s cash reserves. President Maduro wants Venezuelans to pay more for what is currently the world`s cheapest gas.
The critical point here is that [Venezuela`s] oil production continues to decline. international reserves are not enough to cover any type of imports. and the government is unable to cover its debts and obtain more financing.
Carlos Cardenas. head of Latin America. Country Risk. IHS Markit
According to Carlos Cardenas. head of Latin America. Country Risk. IHS Markit. the current crisis is a culmination of a number of factors years in the making. `It has been accompanied by indiscriminate public spending via the printing of currency. the implementation of draconian price and exchange controls that were never relaxed. a policy of expropriations of companies that ended up being mismanaged and bankrupt – all of these compounded by economic mismanagement and widespread corruption.`
Additionally. US sanctions on Venezuela have had a crippling effect. `The key issue about US sanctions is they`ve operated in two ways. One. they`ve targeted top individuals of the government elite in an effort to promote regime change … the other one. and most critical for the economy. is the sanctions prevent Venezuela from restructuring its debt.` explains Cardenas.
`The country is in default because of the depletion of the foreign exchange reserves. it doesn`t have the ability to honour any payments to bondholders or any company operating in Venezuela. But it`s also unable to restructure that debt in the US financial system.`
`Regardless of the sanctions. the key issue is the authorities are still unable to present a credible economic package or programme that would take out the economy out of the current crisis – so that and.[in] combination with US sanctions. make the economic and political situation more difficult.`
Overall. the new currency will have `very little impact.` according to Cardenas. `The critical point here is that oil production continues to decline. international reserves are not enough to cover any type of imports. and the government is unable to cover its debts and obtain more financing.`
