CARACAS: Venezuela’s move to boost its super-low gasoline price by 6,000 percent and
devalue its currency may do little to save the volatile oil-producing nation from economic disaster, critics and analysts warned on Thursday (Friday in Manila).
President Nicolas Maduro on Wednesday ramped up the cost of gasoline at the pump for the first time in two decades, from $0.01 to $0.60 per liter—still the cheapest fuel in the world.
He also eased the protected official bolivar-dollar exchange rate, hoping to increase exports and oil revenues.
Economist Michael Henderson at British-based investment consultancy Verisk Maplecroft said the bolivar was so weak already the devaluation “will do little or nothing to stave off an impending balance of payments crisis.”
The gasoline hike, he reckoned, “is a step in the right direction, but any fiscal gains will be a drop in the ocean” since the country’s deficit is so high.
Analyst Edward Glossop of research group Capital Economics said the devaluation would increase revenues by boosting the local currency value of Venezuela’s crude oil exports.
But the economist reckoned it would not be enough to offset the fall in crude prices, and also predicted a looming balance of payments crisis.
“Another round of cash loans from China could help Venezuela avoid default this year, but there’s no guarantee these will be forthcoming,” he wrote in a note.
Analysts and politicians have warned of the risk of unrest in Venezuela, where 43 people died during street protests in 2014.
Citizens are struggling with soaring inflation and shortages of basic goods such as cooking oil and toilet paper.
A gasoline price hike in 1989 sparked deadly riots.
‘Making life harder’
Venezuela has the biggest known oil reserves in the world and has been practically giving gasoline away at the pump over recent years.
But it has suffered from the plunge in world oil prices since mid-2014.
“This will make life harder for people. It is going to drive up inflation even more,” said Carlos Pena, a pump attendant at a petrol station in Caracas, after Maduro’s fuel announcement.
The country’s outlook darkened further on Thursday with new official indicators.
Venezuela’s central bank said the official inflation rate topped 180 percent in 2015 and the economy contracted 5.7 percent.
The inflation rate is one of the highest in the world and non-government economists estimate the real rate is several times higher.
The sharp 5.7 percent fall in gross domestic product made 2015 the second year of economic contraction in a row, after a 3.9 percent fall in 2014.
Maduro’s currency measures involve scrapping the current three-tier system of exchange rates. Now there is just one protected rate for essential imports and a second floating rate for general transactions.
Under the second rate the bolivar will be allowed to float freely on the open market.
Until now the alternative rate was about 200 bolivars to the dollar, but on the black market the US unit costs nearly 1,000 bolivars.
“The government does not have enough dollars to sell them at 200 bolivars, so it will not be able to meet demand at that rate,” said economist Miguel Angel Santos.
The socialist “revolution” championed by Maduro and his predecessor Hugo Chavez is under rising pressure as the crisis drags on. The opposition-controlled National Assembly legislature is trying to drive Maduro from office.
Maduro’s most high profile opponent Henry Ramos Allup, speaker of the assembly, said Maduro’s new measures were “not even more of the same, but the worst of the same.”
“Without international help we will not be able to get out of this bottomless pit,” he told the assembly Thursday. “With this government, everything will get worse.”