Alex Vasquez -
Zapping five zeros off Venezuela’s almost worthless currency is nothing but a half-hearted measure and won’t solve the country’s chronic hyperinflation, analysts have said.
President Nicolas Maduro initially announced in March that he would strike three zeros off the bolivar bank notes, before upping that to five. Having predicted earlier this year that Venezuela’s inflation would hit 14,000 per cent in 2018, the International Monetary Fund adjusted that projection earlier this week to a mind-boggling one million per cent.
As the country grapples with a financial and humanitarian crisis, shortages of food and medicines, and failing public services such as water, electricity and transport, the question is how will this drastic move help drag Venezuela into recovery?
Prices and inflation are rising so fast that the highest denomination bank notes emitted in 2016 are already practically worthless.
The biggest of those, 100,000 bolivars, would have bought five kg of rice in 2017, now it’s barely enough for a single cigarette.
“If inflation continues at 100 per cent a month,” the new 500 bolivar note, which will be the largest following the currency redenomination on August 20, “will be obsolete by December,” said economist Leonardo Vera.
Currently, a pair of reading glasses can cost one billion bolivars. It would require 10,000 of the country’s largest bank note to pay for those in cash. Some shops had resorted to weighing bank notes to determine their value rather than arduously counting them out.
Unsurprisingly, cash has practically vanished and electronic transfers reign.
But few people could afford to buy those glasses anyway given they cost 200 times the minimum wage of five million bolivars a month.
The government’s move to rub out some zeros is merely a “partial acknowledgement” of the hyperinflation crisis but “needs to be accompanied by economic reform in order to stop it,” said Henkel Garcia of economics consultancy Econometrica.
Venezuela has already been down this road, 10 years ago when Maduro’s predecessor Hugo Chavez tried the same trick by deleting three zeros.
“The redenomination in 2008 was a failure because we still ended up with hyperinflation,” said Asdrubal Oliveros, an economist with Ecoanalitica, another economics consultancy.
“The redenomination was made without accompanying policies to combat inflation so it didn’t tackle the causes.” — AFP
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