Venezuelan President Nicolás Maduro has just done something that might seem counterintuitive at a time of falling oil prices: He raised the price of gasoline in his country.
It's part of his government's plan to try and rescue the nation's crashing economy and spiralling hyperinflation. Venezuela, which has the largest oil reserves in the world, relies almost exclusively on state-owned oil exports to prop up its economy. Sagging prices for crude have crippled the nation.
“Venezuela is probably the only country in the world where people complain that they want higher gas prices,” said Hannah Dreier, Associated Press reporter in Caracas. “People know that something is very wrong in the economy. There are these huge shortages — people can’t get the medicines they need. And at the pumps people are saying they wish they (the Venezuelan government) would raise the price of gas higher.”
Economists say increasing gas prices could help alleviate the country’s mounting deficit, estimated around 14 percent of the nation’s GDP. But the modest gas increase might only help shrink that deficit by 1 percent. President Maduro has shown no appetite for higher increases though — it took him three years just to increase prices modestly. It was the country's first price hike in 20 years.
For years, Venezuelans have come to enjoy the cheapest gas in the world, basically filling up their tanks for next to nothing.
“This is a huge increase percentage-wise, but Venezuela still has the cheapest gas in the world,” said Dreier. “Before, they were paying less than a penny.”
In other attempts to stabilize its economy, the Venezuelan government also weakened its currency, making exports more attractive on the international market. That change will have little impact on most Venezuelans, however, who exchange their local currency, the Venezuelan Bolivar, on the black market at considerably weaker rates than the official exchange rate.
The big worry in the country right now is inflation — the country has far-and-away the highest rate in the world. The country’s Central Bank said Thursday that inflation hit 181 percent last year. The International Monetary Fund predicts inflation will top 700 percent by the end of the year.
“People do walk around with huge satchels of cash. I’ve gone through two wallets in the past couple of months just because you walk around with these balls of cash that destroy the stitching,” said Dreier. “I saw a one Bolivar note sitting on the sidewalk for weeks recently. The currency has just lost so much value that nobody wanted to bother to pick it up.”
She said ATM’s have also failed to keep up with inflation, so people can only take out the equivalent of $8 at a day.
And people are spending their cash right away.
“You see people, even in the slums, buying flat screen televisions, buying refrigerators because the currency is just bleeding value and it’s going to get so much worse.”