Petrol price up 6,000% in oil-rich Venezuela

Queues formed at Venezuela's petrol stations before the 6,000 per cent price hike kicked in yesterday
Queues formed at Venezuela's petrol stations before the 6,000 per cent price hike kicked in yesterday. PHOTO: EUROPEAN PRESSPHOTO AGENCY

Govt also devalues currency, but economists say measures not enough to plug deficit

CARACAS • Popular and political pressure on President Nicolas Maduro has intensified as he boosted Venezuela's super-low petrol price and devalued its currency, in efforts to save the oil-rich nation from economic disaster.

Mr Maduro ramped up the cost of petrol for the first time in two decades on Wednesday, hiking it by 6,000 per cent from one US cent to 60 US cents (84 Singapore cents) a litre - still among the world's cheapest. Queues formed at petrol stations as motorists rushed to fill up before the new prices took effect yesterday.

Mr Juan Ortega, a customer at a petrol station in Caracas, said: "The old fuel price was ridiculous. But now, I am afraid that everything - transport and food - will get even more expensive."

Citizens are already struggling with soaring inflation and shortages of basic goods.

Mr Maduro also devalued the strongest official exchange rate by 37 per cent to 10 bolivars per US dollar from 6.3, and streamlined the previous three-tier system into a dual exchange rate mechanism, hoping to increase exports and oil revenues.

The weaker of the two rates will be a free float based on an existing system that currently sells dollars at around 200 bolivars, he said, while the stronger rate will over time be shifted based on criteria he did not specify.

The political opposition reacted with outrage. Congress Speaker Henry Ramos Allup said the moves were "not even more of the same, but the worst of the same". "Without international help, we will not be able to get out of this bottomless pit," he told Congress on Thursday.

Venezuelan and foreign economists warned that Mr Maduro's policies were not enough to stabilise the economy and the country's public finances. Venezuelan economist Luis Vicente Leon said: "The failure of the currency controls and interventions wasn't due to how they were implemented. The problem was the controls and interventions in themselves."

Mr Maduro is hoping major oil producers will agree to freeze their crude production to buoy up prices that have plunged since mid-2014.

Economist Michael Henderson said the petrol price hike "is a step in the right direction, but any fiscal gains will be a drop in the ocean", since the country's deficit is huge.

Analyst Edward Glossop of London-based research group Capital Economics said the currency devaluation would increase revenues by boosting the local currency value of Venezuela's crude oil exports, but reckoned it would not be enough to offset the sharp fall in crude prices.

Venezuela's outlook darkened further on Thursday with new official data. The central bank said the economy contracted 5.7 per cent last year. The official inflation rate topped 180 per cent last year.

Analysts and politicians have warned of a risk of unrest in Venezuela, where 43 people died during street protests in 2014.

AGENCE FRANCE-PRESSE, REUTERS

A version of this article appeared in the print edition of The Straits Times on February 20, 2016, with the headline 'Petrol price up 6,000% in oil-rich Venezuela'. Print Edition | Subscribe