Venezuela Lops Five Zeros Off Currency Amid Soaring Inflation

Corruption is Everywhere - in Venezuela

it is combined with spectacular incompetence

Economists say confusing measures likely to accelerate hyperinflation rather than address economic problems.

The Associated Press 

Shoppers look for products at a supermarket in Caracas on Saturday. A recent fall in oil prices accompanied

by corruption and mismanagement have left the economy in crisis. (Carlos Garcia Rawlins/Reuters)

Venezuela on Monday began to launch dramatic reforms announced by President Nicolas Maduro to rescue a downward-spiraling economy, including a new currency and a more-than-3,000 per cent hike in the minimum wage.

The changes start with the introduction of a currency that lops five zeros off the country's fast-depreciating bills. Maduro says he'll also raise gasoline prices to international levels — a combination of measures critics say will only make things worse.

Opposition leaders seized on tension among residents, calling for a nationwide strike and protest Tuesday. They hope to draw masses into the streets against Maduro's socialist ruling party — something they've failed to do in over a year.

Banks remained closed Monday as they prepare to release the "sovereign bolivar," the new currency printed with five fewer zeroes in a bid to tame soaring inflation. Maduro's government says that in late-September, the world's cheapest gas will rise to international levels to curtail rampant smuggling across borders.

Maduro said Sunday that beginning Sept. 1, the minimum wage will also jump dramatically.

Economists say the package of measures is likely to accelerate hyperinflation rather than address its core economic troubles, like oil production plunging to levels last seen in 1947.

"The bolivar's redenomination will be like going under the knife of one of Caracas' famed plastic surgeons," Johns Hopkins University economist Steve Hanke wrote on Forbes.com. "Appearances change, but, in reality, nothing changes. That's what's in store for the bolivar: a facelift."

'You have to be patient'

Lines on Saturday were longer than normal at a Caracas street market, where people stocked up due to uncertainty about what will come this week. Many were frustrated by bank card readers that were slow to register or that failed altogether, forcing some to leave their goods and walk away empty-handed.

"You have to be patient," a shop worker selling grains told a growing line of customers. Many other stores remained closed, uncertain what prices to set for their goods.

Venezuela was once among Latin America's most prosperous nations, holding the world's largest proven oil reserves, but a recent fall in oil prices accompanied by corruption and mismanagement under two decades of socialist rule have left the economy in a historic economic and political crisis.

A 2.4-kilogram chicken is pictured next to 14,600,000 bolivars, its price, which is the equivalent of $2.22 US,

at a mini-market in Caracas on Thursday. (Carlos Garcia Rawlins/Reuters)

Inflation this year could top one million per cent, according to economists at the International Monetary Fund.

Inflation has made it difficult to find paper money. The largest bill under the outgoing cash system was the 100,000-bolivar note, equal to less than three cents on the commonly used black market exchange rate. A cup of coffee cost more than two million bolivars.

The new paper bills will have two coins and paper denominations ranging from two up to 500. The lowest represents the buying power of 200,000 current bolivars while the highest stands in for 50 million.

The next few days will be very confusing for both consumers and the private sector, especially commercial retailers.

- Asdrubal Oliveros, director of Ecoanalitica

The old and new currencies will remain in circulation together during a transitional period.

The government made a similar move in 2008, when then-President Hugo Chavez issued new currency that eliminated three zeros to combat soaring inflation.

Maduro announced Friday a more than 3,000 per cent leap in the minimum wage, bringing it up to around $30 US at the widely used black market rate.

New cryptocurrency

Adding to confusion, Maduro said he wants to peg wages, prices and pensions to the petro — a cryptocurrency announced in February but which has yet to start circulating. He said one petro would equal $60, with the goal of moving toward a single floating exchange rate in the future tied to the digital currency.

"The next few days will be very confusing for both consumers and the private sector, especially commercial retailers," said Asdrubal Oliveros, director of Caracas-based Ecoanalitica. "It's a chaotic scenario."

A coalition of opposition leaders and union officials said Sunday they are calling for a strike and protest on Tuesday.

Medical staff shout slogans during a protest against the government of President Nicolas Maduro in

Caracas, Venezuela, on Thursday. (Fernando Llano/Associated Press)

"The measures announced on Friday are not any economic recovery plan for the country," opposition leader Andres Velasquez said. "On the contrary, they represent more hunger, more ruin, more poverty, more suffering, more pain, more inflation, more deterioration of the economy."

Business owners say they fear the sudden wage hike would make them unable to pay employees without sharply increasing prices, despite Maduro's call to help small and mid-sized businesses for the first three months.

Jesus Pacheco, who employs six people at his butcher shop in Caracas, said Sunday that he may have no option but to let go some of his employees to stay in business. He expects the slaughterhouse prices will go up for him.

"You're going to buy products, and they're more expensive," Pacheco said. "We are going to have to fire employees. What else can you do?"

IMF: Venezuela Inflation Will Increase 13,000% This Year

By Allen Cone 

UPI -- Venezuela's inflation will soar 13,000 percent this year, though other Latin American countries have much better economic prospects, the International Monetary Fund said in a revised forecast Thursday.

The increase -- 130 times greater than last year -- is more than five times the inflation previously projected by IMF.

Of course, this means the Bolivar is rapidly becoming worthless. In 2008, Venezuela issued new Bolivars - Bolivares Fuertes which was worth 1000 of the original Bolivars. Rampant inflation made it necessary, and will probably make it necessary again.

Last year, price increases were 2,400 percent -- the biggest in the world.

The IMF wrote in the report that the rise is "fueled by monetary financing of large fiscal deficits and the loss of confidence in the nation's currency."

President Nicolas Maduro's government has attempted to control inflation by refusing to loosen foreign-exchange controls and price caps that have increased the short supply of all sorts of products, including food to medicine.

Also, Venezuela's real gross domestic product is projected to fall by about 15 percent for a cumulative GDP decline of almost 50 percent since 2013. The growth forecast for 2019 is a 15 percent decline and 6 percent drop in 2019.

"This trend is the result of significant micro-level distortions and macroeconomic imbalances compounded by the collapse in oil exports -- initially from the sharp fall in oil prices in mid-2014 and, more recently, from the collapse in domestic oil production," the IMF said in the report.

The United States last month sanctioned Venezuela government and military officials accused of having associations with corruption and repression. The Treasury Department said "corruption and repression" has continued to grow under Maduro's regime.

The IMF revised its projections of other nations in Latin America with the GDP predicted to increase 1.9 percent in 2018 and 2.6 in 2019 after it was 1.3 percent last year.

Other Latin Americans in Central America and parts of the Caribbean will benefit from stronger U.S. growth, the report said. And South America's economy has increased due to the end of recessions in Brazil and Argentina, as well as higher prices for the raw materials to export, according to the report.

"Recent trends in the world economy and financial markets are good news for Latin America," Alejandro Werner, head of the IMF's Western Hemisphere department wrote in the report. "Global growth and trade are on an upswing, and we expect the momentum to continue in 2018. Stronger commodity prices have also helped the region rebound."

The IMF specifically was high on Ecuador after coming off its recession because of higher oil prices and greater acceptance to financial markets. IMF boosted its 2018 GDP outlook to 2.2 percent from 0.6 percent.

And the IMF cited Chile's growth prospects because of continued improvement in copper prices and business sentiment -- 2.2 percent in 2018.

Mexico's GDP is predict to grow 2.3 percent in 2018 and 3.0 percent in 2019 on the strength of higher growth in the United States, now pegged higher at 2.7 percent in 2018 and 2.5 percent in 2019.

Desperate Venezuela Tried to Buy Medicine with Diamonds, Gold

Venezuelan currency is bordering on worthless and it's just

getting worse as the economy appears to be in full collapse

By Sara Shayanian 

A group of people walk in front of a liquor store that was looted in Caracas, Venezuela.

Photo by Miguel Gutierrez/EPA

UPI -- Venezuela's struggles to front $5 billion in debt to pharmaceutical companies have gotten so dire the government tried to swap diamonds and other precious items for medical supplies.

The cash-strapped country proposed an exchange of diamonds, gold and coltan, a rare metal used to make cellphones, for medicines from foreign suppliers to combat a shortage of medical items in the nation's hospitals.

According to the Wall Street Journal, it's not clear the the pharmaceutical companies accepted the deal, but they told government officials they didn't have rules saying whether they could fill non-monetary purchases.

Nevertheless, the proposed exchange illustrates the struggle of Venezuela's President Nicolás Maduro to pay for goods as the country's economy collapses.

Venezuela, which has the largest known oil reserves in the world, is running out of money due to years of negligence and corruption that have resulted in $141 billion in debt to international bondholders and creditors.

The Venezuelan Bolivar weakened over 97 percent in relation to the U.S. dollar and inflation in the country has increased to 4,115 percent.

Bartering has become commonplace in Venezuela, especially in transactions between Venezuelans trying to acquire sought-after staple items.

Caracas store

"Money was created so that we could avoid having to barter for basics," Omar Zambrano, a Caracas-based economist, said. "But we've fallen so far that we're now going back in time."

According to Caracas-based economic consultant Orlando Ochoa, using commodities to settle debts to pharmaceutical companies is extremely rare.

"It feels like a bluff," Ochoa said. "It's as if they want to show off their assets to give the illusion that there's still an intention of paying even though they can't pay."

Economists are warning that the economic situation could get worse, as hyperinflation may pass 30,000 percent in 2018.

"Those who are now predicting that Venezuela will close 2018 with an inflation rate of 5,000 don't really understand what is happening," Francisco Ibarra, head of the Econometrica company, told the Miami Herald. "We could hit that 5,000 mark already in February."