Venezuela Economy Worsening
On Sunday, Venezuelan President Nicolas Maduro raised the country’s minimum wage by a whopping 50%. But it wasn’t much of a surprise—the country has already raised the minimum wage four times in the past year alone, in an attempt to adapt to a crippling inflation crisis that has caused the price of basic necessities like food to skyrocket to astronomical levels.
Maduro announced that he was hiking the monthly minimum wage to 40,000 bolivars, which amounts to just $12 on the black market, where most people buy dollars because they don’t have access to official exchange rate dollars. The minimum wage has now risen by a cumulative 322% since last February, Vox.com reported.
Venezuela’s economy has been in a tailspin since a drop in global oil prices in 2014, and its explosive inflation—the highest in the world—is showing no signs of letting up. The International Monetary Fund estimates that the country’s inflation is expected to rise 1,660% this year and 2,880% next year. Just to get a sense of how much that defies the region’s trends, if you exclude Venezuela, inflation in Latin America is expected to increase by less than 7% in 2017.
Proponents of free market capitalism have been eager to point to Venezuela’s disaster as the latest proof that socialism is a guarantor of economic ruin. But the reality is considerably more complex.
Setting aside the fact that some leftist policymaking experiments in South America like Bolivia are faring quite well, Venezuela’s woes are due to a confluence of factors, ranging from the country’s destructive addiction to oil to shortsighted monetary policy—factors that can’t simply be dismissed as vices of socialism.
The country is suffering from huge shortages in food, medicine, and electricity, which has triggered upheavals ranging from widespread looting of stores to disruptions in the school year for millions of children. If someone wants to try to find alternatives to publicly subsidized stores that are running low on goods, buying an item like flour on the black market can cost an entire month’s pay for minimum wage workers.
Analysts say the latest increase in minimum wage doesn’t come close to keeping up with the rate of inflation, meaning that it won’t raise the minimum wage to a rate that’s easy to actually live on.
The inflation crisis has made the everyday use of cash incredibly difficult.
In December, Venezuela announced that it expects to print six new bank notes, worth between 500 and 20,000 bolivars, to ease the cash crisis. It also announced a plan to pull 100-bolivar notes from circulation—both because the currency has basically become worthless and in order to try to crack down on the untaxed shadow economy. However, the deadline for them to be decommissioned has been delayed until later in January, and it’s unclear exactly what status they have at the moment.