A whole packet of new economic initiatives are set to take effect in Venezuela after socialist President Nicolas Maduro announced a series of far-reaching measures in response to the country's economic crisis on February 17.
In a televised five hour address to the nation, Maduro explained the extent of the economic crisis afflicting the country as well as his government's plan to tackle it. Economic initiatives include changes to the country's multi-tiered exchange rate, an increase in domestic petrol prices, a new tax system and expansion of community control over food distribution.
He also reaffirmed his commitment to continuing his government's investment in Venezuela's many pro-poor public programs, known as “missions”.
The far-reaching reforms come after the Venezuelan Supreme Court of Justice (TSJ) moved to approve a state of economic emergency decree issued by Maduro in January. The court decision overrides what it described as an unconstitutional attempt by the opposition-controlled National Assembly to block the decree.
The country's economy has been consistently worsening over the past two years, suffering from skyrocketing inflation, which peaked at more than 140% last year. A 97% drop in earnings from oil — the country's main source of income — due to plummeting global prices and shortages of key imported goods have also contributed to the turmoil.
It has also whittled away at the government's support, leading to it losing the December parliamentary elections. This was only the second electoral defeat suffered nationally by the Chavista movement since late socialist president Hugo Chavez was first elected in 1998.
Since the ruling the country has been on tenterhooks awaiting news of the measures.
The most anticipated announcement is the government's decision to amend the country's multi-tiered exchange rate system. Maduro announced that the system, which fixes a series of differing prices for the bolivar to US dollar exchange rate, will be changed to a dual model. This falls short of the complete unification of exchange rates hoped for by some economists.
The new system will consist of one subsidised exchange rate of Bs10 per dollar and one free floating exchange rate based on market supply and demand.
The preferential rate will be made available to the health and food sectors, the missions and to industries involved in national production.
A similar “supply and demand” initiative was implemented last year, but stagnated when it was unable to keep up with the climbing black market rate. It is still unknown what constraints, if any, the government will place on the new rate, which will begin to float at Bs200.
Petrol and taxes
The government also raised the domestic cost of petrol for the first time in two decades — following years of debate on the subject.
The heavily subsidised price will be raised by 6000%, and will now sell at Bs6 a litre. This is up from just one cent per litre (well below production costs and virtually free).
Venezuelan petrol will still be the cheapest in the world. The increased revenue earned from the price rise will be invested in the state's social missions.
Despite the substantial raise, some critics say that the move does not go far enough — pointing to the heavy production costs associated with processing Venezuelan oil.
Nonetheless, the raise has been welcomed by environmental groups who blame the extremely low price of petrol for creating an apathetic attitude towards energy usage.
In other reforms, the government also promised to carry out a “tax revolution” with the help of the Ecuadorian government.
Maduro said the government's tax and customs body would implement an electronic and digital system for collecting national contributions.
He said: “The system has had extraordinary results in Ecuador for the Citizens' Revolution and I have asked President Rafael Correo, alongside our team ... to install a system against tax evasion, fraud and avoidance in Venezuela.”
Maduro noted that tax reforms implemented in 2014 generated Bs2.3 last year, which was invested in the national pension scheme. He said the government expected to collect Bs4 billion this year, which will also be used to sustain the social missions.
Recognising that high levels of corruption had stymied the socialist government's attempts to come to grips with the economic crisis, Maduro pledged to make ministries more efficient and turn them into “true institutions of people's power”.
He also announced the unexpected measure of putting local communities organised into communal councils in charge of administering the state supermarket chain, Abastos Bicentenario.
The decision comes in light of a recent investigation by intelligence services into the chain. This led to more than 55 officials being arrested for corruption, including former Abastos Bicentenario president Barbara Gonzalez.
The president said state institutions would no longer act as a gravy train for corrupt state functionaries. Increased efficiency and transparency in state institutions will be vital over the coming year, with Maduro approving Bs190 billion for public infrastructure.
Other measures that will be implemented as part of the sweeping reforms include creating a new price fixing system. It aims to calculate the state-regulated selling costs of subsidised items such as cornflour and milk to reflect the reality of production costs.
The newly appointed vice-president for the productive economy, Miguel Pérez Abad, will be in charge of the re-evaluation.
The national minimum wage will also rise from Bs9649 a month to Bs11,578, and workers' food coupons from Bs6650 to Bs13,275. A system for providing about 796,000 vulnerable families with direct and targeted subsidies will also be set up through the creation of “Socialist Mission Cards”.
“It's going to be a social program safety mechanism for financing the family, protecting children,” said Maduro.
A 100 day-drive to promote urban agriculture among communities will also begin over the coming weeks, the president said.