In the latest attempt to bolster its flagging economy, Venezuela’s socialist government has ordered a 30 percent increase in the nation’s minimum wage, effective immediately. The increase, symbolically chosen to take effect on International Labor Day, marks the second major increase in Venezuela’s minimum wage in the last two months. In a previous attempt to boost the economy, Venezuelan President Nicolas Maduro announced a 25 percent increase in the minimum wage on March 1. Officially, this would ensure Venezuela’s workers a monthly income of $1,500 USD. However, in real economic terms, as defined by purchasing power, the latest announcement raises the average monthly wage to $50 USD.
None of this is particularly surprising — the economy of Venezuela has been experiencing almost unbridled inflation for some time. The economy, heavily dependent on oil revenues, has contracted roughly 6 percent in the past year. Dating back to the regime of the late President Hugo Chavez, Venezuela has used its oil revenue to finance a host of social programs, as well as to guarantee a certain minimum standard of living. Along with other factors, these shrinking oil revenues have sent Venezuela’s economy into a freefall.
Maduro has attempted to change his country’s reversing fortunes through a combination of wage hikes, price controls, and minimum and maximum production quotas, and currency manipulation. In danger of defaulting on its sovereign debts, and, more troubling for its economy, running out of cash, Venezuela began selling off gold reserves in 2015. Of the $15.2 billion in foreign reserves Venezuela had in hand, less than $1 billion of that was in cash, with the rest being in gold. Even with the massive selloff of its gold reserves, Venezuela retained outstanding debt of $15.8 million through the end of 2016. The looming threat of default is another drag on the flailing economy.
According to Cunliff of Fee,“The country can no longer afford the pieces of paper which represent the money it doesn’t have.” In other words, Venezuela, attempting to save its economy by printing more banknotes to keep up with spiraling price increases, cannot afford to print hard currency. Lacking the internal resources to do so, it has resorted to importing its own currency, but Venezuela is rapidly running out of money to pay for its own money.
[Photo by Spencer Platt/Getty Images]