Drastic new measures for stricken Venezuelan economy

A raft of new measures comes into effect in Venezuela on Monday, in the latest attempt to deal with the country's growing economic crisis.

President Nicolas Maduro announced on Friday that a major currency overhaul would take place on Monday, with Caracas set to issue new banknotes after chopping five zeroes off the beleaguered bolivar, which has been subject to spiraling hyperinflation.

The other measures announced by Maduro (pictured above), a former union leader who came to power five years ago following the death of Hugo Chavez, include a massive hike of the country's minimum wage as well as new official exchange rate arrangements.

Read more: Inflation-wracked Venezuela forced to end cheap oil and gas

The reform plans are the latest attempt to halt the oil-rich country's ongoing economic collapse, caused by years of populist policies which have ultimately destabilized the country's economy.

A chaotic scenario

Analysts were initially skeptical about the possible benefits of the latest measures.

 "There will be a lot of confusion in the next few days, for consumers and the private sector," Asdrubal Oliveros, director of the Ecoanalitica consultancy, told AFP. "It's a chaotic scenario."

In Friday's speech to the nation, Maduro said the country needed to show "fiscal discipline" following years of excessive money printing.

The new currency, which comes into use on Monday, is known as the sovereign bolivar (to distinguish from the current currency, the so-called 'strong' bolivar) and it will be anchored to the country's widely discredited cryptocurrency, the petro.

In the new arrangements, one petro will be worth $60 (€53), based on the price of the country's oil. That will be equal to 3,600 sovereign bolivars.

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As for the minimum wage hike, which also comes into place on Monday, the new monthly rate will be fixed at 1,800 sovereign bolivars. That works out at more than 34 times the previous rate, based on the black market valuation of a US dollar in the country.

Due to devastating inflation and the persistent devaluation of the bolivar, the existing monthly minimum wage rate is barely enough to buy a kilo of meat in the capital city.

Optimism and money in short supply

The International Monetary Fund (IMF) predicts that inflation in Venezuela will hit a staggering one million percent this year. That continues what has already been four years of economic misery for the country.

Hyperinflation has crippled the Venezuelan economy

Maduro has consistently blamed others for the economic difficulties and over the weekend, his government defended its role in the ongoing crisis.

"Don't pay attention to naysayers," Information Minister Jorge Rodriguez said. "With oil income, with taxes and income from gasoline price hikes, we'll be able to fund our program."

Since Sunday, electronic transactions have been suspended in the country in order to facilitate the currency switch. However, considering that Venezuela has made similar moves before, hopes are less than high that the reforms will work.

"Everything will stay the same, prices will continue to rise," 39-year-old Bruno Choy, who runs a street food stand in Caracas, told AFP.

aos/uhe (AFP, Reuters)