A raging inflationary inferno


THROWING a pitcher of water onto a forest fire is never going to put it out. Venezuela has raging inflation of 1,400 percent, which has burned up savings, destroyed value and laid waste the economy. Thus president Nicolas Maduro’s New Year announcement that the country’s minimum wage was to rise by 40 percent is less than useless.

One Venezuelan bolivar is currently worth a single US cent. Being given a stack of extra notes — the minimum monthly wage rises to almost 800,000 bolivars — is meaningless. It is not going to ease the plight of the millions of desperately poor. Even with government subsidized food tickets, the new basic wage is worth less than $8. The only impact that this desperate move will have will be to further boost inflation.

Foreign currency reserves have plunged from an historic high of $42 billion in 2008 to less than $10 billion now. As a result Maduro’s government is struggling even to pay the bills for the subsidies which won his late predecessor Hugo Chavez the adoring support of the long-disadvantaged masses.

Three days ago there was a tragic incident in which police shot dead a woman when people rioted after discovering that there would not be sufficient government-provided meat for their traditional New Year meal. The authorities blamed a breakdown in the supply chain. The Portuguese company that normally provides the meat said that they were still owed some $35 million for previous shipments.

Lack of food is no joke for Venezuelans. Credible research shows that three quarters of the 32 million population have lost 8.6 kilograms bodyweight because they do not have enough to eat.

US sanctions, first introduced by Barack Obama in 2015, were largely against named individuals in the Maduro government and cited US national security. Last August President Trump sought to increase the pressure by adding new names and also imposing strict limits on US lending to Venezuela and on purchasing the country’s debt. It remains hard to see the point of these extra measures. No US financial institution is likely to be giving credits unless the loan is guaranteed against an easily-disposable asset. But what Trump’s action achieved was to give Maduro the ready-made excuse to blame all his country’s woes on the evil capitalist Americans.

But Venezuela’s economic misery is largely home grown. The $42 billion in foreign exchange reserves ten years ago was achieved under Chavez. But that was a time of high oil prices. Chavez felt he could reward his supporters among the poor with generous subsidies and they loved him for it. This had long been a society of serious wealth disparities. But the tragedy was that Chavez also meddled with the economy, most particularly with the state oil company PDVSA. His vengeful interference with the elite who had run key economic sectors cost the country talented experts, capital and in the end international support.

Maduro lacks the vision and subtlety of his late mentor Chavez. His response to the rising crisis has been notable for its incoherence. He has clamped down on public protests.

He has sought to replace the opposition-led parliament with a “constituent assembly” made up of his own supporters. But the Venezuelan economy is being engulfed in an inflationary inferno and Maduro seems to have no idea how to dowse the flames.