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Venezuela Hikes Petrol Price by 6,000%

Venezuela Hikes Petrol Price by 6,000% Venezuela Hikes Petrol Price by 6,000%

Venezuela is raising petrol prices for the first time in 20 years, although the president claims it will still be the cheapest in the world.

President Nicolas Maduro said pump prices of premium fuel would rise from the equivalent of $0.01 a liter to about $0.60. The cost of lower grade petrol would rise to about $0.10 a liter, BBC reported.

He unveiled a series measures to help ease Venezuela’s economic crisis, including devaluing the currency. The rise in the heavily-subsidised fuel price will save $800m a year. “Venezuela has the cheapest gasoline in the world,” Maduro said in a televised address. “The cost is almost nothing.”

However, other countries, including Saudi Arabia also have extremely cheap, subsidized petrol prices.

He said the price rise was “a necessary measure, a necessary action to balance things, I take responsibility for it.”

Venezuela’s 91 octane gasoline will rise 1,329% to 1 bolivar per liter and 95 octane gasoline will rise 6,086% to 6 bolivars. Small queues formed in front of some service stations as drivers filled up before the measure kicks in on Friday. Food and petrol price increases in 1989 sparked nationwide protests that resulted in scores of deaths, unrest that is considered to have paved the way for the late President Hugo Chavez’s rise to power.

Venezuela’s economy has been pushed to the brink by the collapse in the oil price, which accounts for about 95% of the country’s export revenues.

The economy shrank 10% last year, amid rampant inflation and shortages of some basic products.

 Inflation

Venezuela’s central bank on Thursday released long-awaited data showing the depth of the OPEC country’s recession, a day after Maduro announced a package of measures seen as insufficient to salvage the unraveling economy.

The bank reported that Venezuelan inflation hit 180.9% in 2015, one of the highest rates in the world, while the economy contracted 5.7%, Reuters reported.

The data showed the depth of Venezuela’s crisis and raised the prospect new measures may hurt Venezuelans without significantly improving finances in a country already facing shortages of basics like milk and medicines.

“The devaluation will temporarily exacerbate inflation, thus contributing to rising discontent, while goods scarcity will worsen on the back of lower oil prices,” said Risa Grais-Targow at consultancy Eurasia.

The increase is also insufficient to stem lucrative gasoline smuggling to neighboring Colombia and Guyana.

The International Monetary Fund estimates Venezuela’s annual inflation will jump to 720% this year. Economists are predicting another harsh economic contraction.

Meanwhile, the devaluation will not significantly impact the remaining US companies operating in Venezuela. Many decided long ago that the stronger exchange rates do not reflect reality and moved their accounts to weaker rates–writing off billions of dollars.

American Airlines, for instance, wrote off more than half a billion dollars in revenue last month.

Financialtribune.com