Friday, January 23, 2015

As Venezuela Faces Total Economic Meltdown, Socialist Ruler Lobbies Minimum Wage, Pension Increases

1/23/2015

VenEconomy: God Helps those Who Help Themselves! 

From the Editors of VenEconomy

On Wednesday, on his return from a fantasist and failed tour around the world and several days behind his constitutional duties, Nicolás Maduro addressed the Parliament to fulfill the legal requirement of the annual report and accounts.

The first thing that needs to be clarified here is that, in his nearly three-hour tirade, Maduro was unaccountable to the nation because, according to what he said with total impudence, a deputy minister did the job for him the previous week while he was traveling to Russia, China and other OPEC countries.

What he did acknowledge is that oil at $100 per barrel is not coming back and that’s the reason why the country is going through an economic crisis, as he tried once more to shrug off the responsibility of a failed model of a country imposed over the past 16 years that gave rise to the so-called Socialism of the 21st century in Venezuela.

This crisis, which Maduro just doesn’t seem to understand, led him to announce for the second time in less than a year that an increase in gas prices is required (highlighting that it is the cheapest in the world) and, therefore, he said a debate on the subject must be opened and that his Vice President, Jorge Arreaza, should take care of carrying it out.

From there, many realized from the speech of Maduro that the worst is yet to come for Venezuela.

To begin with, Maduro insists on a distribution of income for "social spending" purposes that no longer exists in a bid to mitigate the widespread discontent of the population due to high consumer prices and alarming shortages. This way he announced a 15% increase in the minimum wage and pensions (up to Bs.5,634.47 a month if calculated at Bs.6.30 per dollar) starting February 1, whose resources will come from an additional credit for Bs.49.7 billion ($7.8 billion.) One doesn’t have to be a genius to realize that this increase in minimum wage, unilateral and without consultation, will negatively impact the battered finances of companies, on the one hand, and on the other, workers will not be able to continue to cover the cost of the food basket, which according to Cendas (an NGO) was at Bs.17,230.42 ($2,735) in December of 2014.

To this were added other extras such as a health bonus for retirees (he announced one for tourism purposes back in 2014, but never granted it in the end); a bonus for households, scholarships for students, some 400,000 homes and investments in infrastructure.

The long-awaited and necessary rectification of foreign exchange rate policies was never announced on Wednesday, even when it’s about one of the Gordian knots of the supply crisis the country is experiencing. This indicates that Venezuela’s economic outlook will go from bad to worse. On the foreign exchange side, Maduro said that the official Bs.6.30 per dollar will be maintained for food and medicine imports; that the SICAD I auction system will become a single SICAD method; and that SICAD II will become an open market where the public and private sector will participate, it will be managed by brokerage houses, and so forth. He didn’t specify either the new rates or their conditions. We will have to wait for the reform of the law or regulations to know exactly if it is a legalization of the parallel market or another drainage of foreign currency.

Another highly disturbing point is the announcement of more "audits" to distributors and the ratification of the desire of the Government to "control everything." If the audits carried out in the past are taken as a precedent, it is foreseeable that this will translate into more expropriations of private companies, more legal uncertainty, less confidence to invest, higher unemployment and shortages and inflation will get worse.

Continuing with the line of evoking divine forces, Venezuelans should resort to the popular motto "God helps those who help themselves!"

VenEconomy has been a leading provider of consultancy on financial, political and economic data in Venezuela since 1982.
Click here to read this in Spanish


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