Venezuela has been on the brink of economic turmoil for a few years now; its people have been plagued by shortages of food and water, lack of electricity, scarcity of medical supplies and a paucity of hope. Its recent 7.3 magnitude earthquake, which interrupted an unpopular pro-reform rally, did not help either.
Socialist President Nicolás Maduro, however, announced several measures to “correct” Venezuela’s economic instability while donning formal attire instead of his usual Venezuelan flag-themed tracksuit.
The government is guilty of perpetrating the causes of inflation due to the fact that supply could not meet demand when decreased oil prices prevented debt repayment and shortages of imports. The government’s decision to print more money just repelled investors because Venezuela cannot gain credit, and the value of its currency fell even more.
The government claims that the economic reforms are the “magic formula” toward recovery. Well, the government is right since these measures are mere illusions.
Maduro’s new plan aims to increase Venezuelan minimum wage by 3,000 percent, which will result in employers making their employees disappear when they cannot afford to pay them, and replacing Venezuela’s “strong bolívar” with the “sovereign bolívar,” which is the same currency except with five vanishing zeroes at the end and a new name that instills confidence in an insecure legal tender.
Maduro also tied the “sovereign bolívar” to his gimmick, the petro, a government-issued cryptocurrency connected to Venezuela’s state-owned oil reserves. Yet, how can the government support the petro if it is $45 billion in debt?
Johns Hopkins University applied economics professor Steve H. Hanke compares the rebranding and devaluation of the bolívar to “getting a face lift. You’re superficially altered but you’re still the same.” Even the wrinkleless bolívar is vulnerable to inflation as people are to age. One cannot stop aging, but self-care, in the form of a better diet and exercise, reduces the effects of it. That said, monetary policy is the self-care needed to prevent the process of inflation.
Other reforms include raising taxes and increasing fuel costs, both of which seem implausible. Reuters reported that 90 percent of Venezuelans have low income.
In fact, an estimated 2.3 million Venezuelans have fled the country, fearing that the “magic formula” fuels further economic turmoil.
Apparently, the United States rears an ugly face toward Venezuela through its financial sanctions and animosity for socialism. These sanctions may work in the long run and prevent Venezuela from overspending and increasing its debt, but they should be targeted more toward corrupt officials.
“Magician Maduro” waving his wand and making food appear when Venezuelans vote for him is not socialism. Thus, sanctions, diplomacy and international pressure are better than a violent overthrow, which will discredit any chance of a successful governmental transition.
This crisis is social and political as well. While the new reforms may work temporarily, the nation will return to the state it once was in unless the causes of hyperinflation are tackled.
Stopping the printing of money decreases money supply; alleviating price controls motivates businesses to produce for profit; and adapting the oil company to market-controlled prices improves oil exports.
Cooperating with International Monetary Fund experts and the international community may help Venezuela gain credibility among foreign markets and restructure its debts.
Maduro promises that “Venezuela is going to experience an economic miracle.” Yet, the Venezuelan government needs more than a miracle to clean up this mess and bring its people back home.
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