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24 April 2024

Economic crisis means tough start to 2018 for Venezuelans


Luis Briceno built up a small bottle branding business over the last 25 years but in the maelstrom of Venezuela's economic crisis he and many like him are facing closure.

"This New Year is criminal," he said reflecting the anguish of millions of Venezuelans facing acute shortages sparked by falling oil prices, political unrest and corruption.

Socialist President Nicolas Maduro last week decreed a 40 percent increase in the minimum wage to try to contain the crisis, after food protests broke out in several cities.

But Briceno believes it will only complicate things for his and other small businesses.

"It seems criminal, because ask the workers themselves if they want the government to increase the minimum wage and they say no, because the next day everything increases."

Although he tries to avoid thinking about it, the 70-year-old businessman knows that the next few months will be crucial for his small firm, which is already battling a shortage of supplies and a hyperinflationary spiral that the government said reached 2,616 percent by the end of December.

To make matters worse, two of his three remaining employees are planning to join the lines of young emigrants fleeing the crisis. Not long ago, his firm used to employ 10.

- 'Every time you buy less' -

In the business district of the capital, 53-year-old housewife Raquel Benarroch said she was saddened by the closure of scores of businesses that "will never open again."

"Before, we saw the bottom of the abyss, now we see things much blacker than that."

Despite Maduro's announcement of a minimum wage increase, most Venezuelans will still earn only about $7 a month in salary and food vouchers, based on the commonly used black market exchange rate.

Bricelo said he pays above minimum wage to his employees, but he now has to increase the food voucher quotient, which represents 69 percent of the total wage. His costs will rise, and so will costs all along the chain of production, he said.

The government says 13 million Venezuelan workers earn the minimum wage or receive the vouchers, out of a workforce of 19.5 million.

Ever-rising inflation means the basic income barely buys a basket of staples like kilo of meat, 30 eggs, a kilo of sugar and a kilo of onions.

"Every time you go shopping you buy less and your budget is limited to food," 50-year-old tourism employee David Ascanio told AFP as he shopped in a Caracas market.

On Saturday, the government forced more than 200 supermarkets in the capital to lower prices, causing huge lines to form outside as Venezuelans jumped at the chance to stretch their meagre incomes.

Experts say wage increases are needed to cope with hyperinflation, but they are useless without other government measures, such as reducing liquidity.

Monetary liquidity increased 1,100 percent in 2017, according to the analysts Rendivalores.

"The problem is not the pill that you take, but the one your are not taking," said economist Luis Vicente Leon, adding that the government needed to free up and rationalize the economy and promote private enterprise.

The government said the increases are necessary to counter the runaway inflation, which it has long insisted is part of an "economic war" aimed at overthrowing Maduro.

- 'For 2018, we have nothing' -

Falling oil prices -- in a country where oil contributes 96 percent of state income -- political unrest, and corruption have decimated the country's economy under Maduro, leading to chronic food and medicine shortages.

The Fedecamaras employers' union says industry is working at 30 percent of capacity due to state controls and expropriations.

Having once produced 70 percent of its food needs, the country with the world's largest oil reserves supplied barely 30 percent in 2017 and that was because they could still rely on stores of fertilizers and seeds, said Aquiles Hopkins, the head of the country's agribusiness sector Fedeagro.

"For 2018, we have nothing," he warned.

The IMF forecast a drop in GDP of 12 percent in 2017 and 6.0 percent in 2018.

The state as well as its oil company PDVSA have been declared in default due to delays on capital payments and interest on debt.