It cost Maduro nothing to announce on Friday, August 17, that he would reactivate the Venezuelan economy, and make it grow again. Francisco de Quevedo said that “nobody offers as much as he will not fulfill.” Maduro offered a double lie to the long-suffering Venezuelan people. He spoke of a new economic policy and promised economic growth that his socialism, populism, and repression had already reduced to a quarter of what it was. And then came the hyperinflation. But what Maduro has announced is merely more of the same: repeat what you have already done. With more of what caused this material and moral destruction, only more material and moral destruction is to be expected.
The “theoretical” pretensions of Venezuelan socialist propaganda for such nonsense are: Marxism-Maynardism-Dioclecianism. Marxism for absurd theories of value, prices, and exploitation. Maynardist for the Keynesian nonsense of pretending that creating inflationary money will solve recessions. Diclocianist for combining price control with populist inflation. This was how the economy of the western Roman Empire destroyed the Emperor Diocletian Augustus.
First they dispensed with taxation of the PDVSA (Venezuelan state oil company) and foreign partners in the Orinoco Belt. Shortly thereafter Maduro announced the new sovereign bolivar, cutting five zeroes off the current currency. He davalued the currency by unifying the exchange rates, and maintaining state control over them. In short: the bolivar fuerte died due to its tiered exchange rates. The lowest exchange rate ended at 13.5 bolivares fuertes per dollar, equivalent to 0.000135 bolivares sovereign, the highest exchange rate ended at 284,800 bolívares fuertes per dollar, equivalent to 2.84 bolivars sovereign. The black market exchange rate dismissed these superficial government actions, and the currency soon commanded a price of 5.9 million bolivares to the dollar. Control of exchange and rationing continues under the auspices of government “auctions” and adjusting regulations.
The new official exchange rate begins by declaring an official backing by a cryptocurrency: the petro. “Anchor” the sovereign bolivar to the petro at 3,600 BsS (sovereign bolivars) per petro. Decree the “value” of the petro equivalent to that of a barrel of Venezuelan oil: USD $60. And thus 60 BsS magically turns out to be worth a dollar. Could we sell dollars to the bank at that rate? Yes. Can the bank sell to us at that rate? Never! There are registration fees and heavily rationed quotas: USD $400,000 per company, USD $500 per person. The government announces that it will not sell dollars. And, as usual, it threatens private companies which try to force the government to sell dollars at the official rate. Nothing new.
Exchange control with currency rationing. Depreciation from 2.84 to 60 (or from 0.000135 to 60). The minimum wage rose from 5,196,000 bolivares fuertes to 0.50 petros: 1,800 BsS, or 180 million BsF; from USD $1 to USD $30 monthly. Devaluation of 2,100% and salary increase of 3,400%. Exacerbated price control with parasitic and envious repression. New assault on commerce. “Agreed” prices on 25 “basic” products – or “fair” prices set by law for all goods and services, are all pseudo-prices arbitrarily imposed on the hyperinflation created by the same government that sets them. Already in the past, exacerbating price repression caused increasing scarcity, corrupt rationing, and widespread black markets. Repeating it to a greater degree will cause more of the same.
The socialist regime in power in Venezuela will now carry out another great devaluation–maintaining control of the exchange rate–and proclaim the end of the black market. Increase price control and the plundering of private capital. And “decree” that its increasing fiscal spending will not cause inflation in the midst of a repressed and weakened economy, with decreasing productivity. We have seen it again and again. Also, irrational nominal increases of wages imposed from above: initially unsustainable due to the tiny productivity of the decapitalized economy. Then, subsequently to be massively diluted by hyperinflation.
State companies have been growing in number for a long time with waves of seizures and occupations, all the while decreasing in productivity.
Here are the three major developments to expect in the future:
- More and more taxes will be withheld by the bank daily. Today, the “super rich” – in fact, “special taxpayers” are already subject to this taxation, from the largest private company in the country to small veterinary offices and simple newspaper kiosks; tomorrow everyone else, or almost everyone else.
- The offer of direct payment from the government of to cover the nominal salary increases for the payroll of small and medium private companies for three months. This seems suspicious in an economy in which the state is already the main employer. And more than 60% of employment is informal, so many could not meet the required registration requirements.
- Domestic prices of gasoline will rise to international prices. They promise subsidies – with rationing – for bearers of the politicized “patriotism” card. An indeterminate future, with a method still to be defined. In the immediate term the old price seems to subsist. Perhaps it will rise progressively, while the subsidy and rationing starts in one way or another, giving way to the respective black market, now potentially internal.
We don’t have long to wait to see increase in prices. The government is already in the middle of a campaign of repression, extortion, seizures, and imprisonment of merchants and store managers. Seven days before the announcement of the new official exchange rate, more or less fixed at around 60 BsS per dollar, the black market was already trading between 83 and 99 BsS per dollar. With another seven days to go before the USD $30 minimum wage comes into effect, and is paid out for the first time, it has already been reduced to USD $19 in value. The result we can expect is more scarcity, long lines of rationing and a hyperinflation that will not stop with the mirage of the petro. More closings, bankruptcies and seizures of companies. More unemployment, greater lack of productivity and more poverty. It is more, and more socialism, or as I said initially: more of the same, but increasingly, it will be getting worse.
Venezuela is on the verge of a great famine. Millions have emigrated in two or three years. And today thousands of Venezuelans walk desperately across the continent, fleeing from socialism where they can only expect misery and death.