NICOLÁS MADURO’S address to his fellow Venezuelans on August 17th began like all his other “cadena” (“chain”) appearances on state television. The country’s president has made more than 100 such broadcasts this year, all of them carried (by government order) by all television and radio stations. Nearly half of viewers switch off or ignore their televisions when the mustachioed authoritarian appears to make a pronouncement, according to a survey published this month.
This one was worth staying tuned in for. Wearing a business suit rather than his usual tracksuit, and sniffling through a head cold, Mr Maduro made unexpected announcements. He appeared to jettison some of the economic practices that make Venezuela’s “Bolivarian revolution” a uniquely destructive experiment in left-wing populism. Venezuela has suffered an economic contraction of more than a third since 2013; inflation that may exceed a million per cent this year; shortages of food and medicine; and an exodus of people to neighbouring countries (see article).
Promising an economic miracle, Mr Maduro abolished the state-controlled exchange rate for the bolívar, introduced by Hugo Chávez, the revolution’s founder, in 2003. The currency has been devalued from the official rate of 250,000 to the dollar to the black-market rate of 6m. A new currency with five fewer zeros, the sovereign bolívar, has replaced it. This is a volte face by a regime that had long insisted that the black-market rate was fraudulent.
As significant was Mr Maduro’s unprecedented admission that the government has caused hyperinflation by printing bolívares to finance massive budget deficits. He promised to cut the deficit to zero (from an expected 30% of GDP this year), in part by raising value-added tax and by increasing the price of petrol, which now costs nearly nothing, to international levels. He plans to speed up tax collection, so that the value of revenues is not inflated away by the time they reach the treasury.
Brave new bolívares
The new era began on August 20th, which Mr Maduro declared a public holiday to allow for the introduction of the sovereign bolívar. When banks reopened on the following day, people queued to make their first withdrawals. Although the president said Venezuela had ten times the cash it needed, ATMs restricted withdrawals to ten new bolívares, about 17 cents. Many Venezuelans regarded the exercise as a baffling maths test. “I had 9m old bolívares in my account. Can I take out 50 bolívares?” wondered Alberto Claudino, a customer at a bank in eastern Caracas.
Some elements in Mr Maduro’s rescue package sound as if they were conceived in the boardroom of an international bank. In fact, that is close to what happened. As inflation accelerated this year, a team led by Tareck El Aissami, the vice-president for the economy since June, has been consulting financial advisers. A group from Ecuador, which adopted the dollar in 2000 after a bout of inflation, was spotted in Caracas last month. “We all heard [the government was] looking for suggestions from economists,” says Pedro Palma, director of Ecoanalítica, a Caracas-based economic consultancy. “Some inside the government realised the situation was unsustainable.”
Mr Maduro has suppressed the opposition, and stripped the powers from a legislature that it controls. Pressure on him is coming increasingly from within the regime itself. In July the congress of the ruling United Socialist Party (PSUV), held once every four years, became a forum for criticising him. Freddy Bernal, who runs a government programme that distributes subsidised food, challenged the regime’s argument that its failings—including hyperinflation—are the result of an “economic war” waged by subversives and foreign powers. “We are 19 years into a revolution. Only we are responsible for the good and the bad,” he declared. On the meeting’s fringes, criticism of Mr Maduro was scathing, according to one delegate.
On August 4th he faced worse. At a military parade in Caracas, two drones laden with plastic explosives headed towards the podium where he was speaking. One exploded a few hundred feet from the president, the other hit a building. Viewers of the event, which was broadcast on television, saw national-guard conscripts run away. The cameras were abruptly switched off. Twenty-five people have been arrested in connection with the apparent assassination attempt, including three senior officers of the paramilitary national guard.
This episode helped convince Mr Maduro that he needed to present “a believable proposition” for ending the economic calamity, says Colette Capriles, a political scientist. He decided to add a more ambitious set of policies to the introduction of the new currency, already scheduled for August 20th. Just a few ministers knew the details in advance.
The rescue scheme mixes sensible ideas with Bolivarian barminess. “It’s like two economies, or two worlds—the Marxist and the monetarist,” says Ms Capriles. Ángel Alvarado, an opposition politician, calls the scheme “impossible… Utopian”. Mr Maduro’s promise to eliminate the budget deficit is hard to square with the plan to increase the minimum salary 35-fold, and to take over from small firms the extra cost of paying it for 90 days. The fiscal benefit from raising fuel prices will be reduced by a pledge to continue giving subsidies to some 17m holders of government-issued ration cards, more than half the population.
Mr Maduro made no mention of the external debt, on which the country is already in partial default. The government may still exert control over the foreign-exchange market. The stability of the new currency is meant to come from its link to the petro, a “cryptocurrency” invented by the government that is supposedly backed by oil reserves. One petro has the same value as a barrel of oil (now about $60), and the new bolívar is pegged to the new unit of account (at a rate of 3,600 to one).
This is supposed to bolster confidence in the sovereign bolívar. But there is little reason to think that the device will end the expansion of the money supply that causes inflation. “The petro is a fake, a way to get the central bank to inject money,” says Mr Palma. Many Venezuelans share that scepticism. “It’s a disguise,” said Beatriz Piñate as she queued for bread in Caracas. “All I know is I’m poorer this week than I was last week.”
The extra income from a higher minimum wage could soon be consumed by inflation, causing more misery and popular rage at the government. No sooner had the sovereign bolívar appeared than its value began to slip. DolarToday, a popular source of information on the black-market bolívar, quoted it at 1.4 cents on August 22nd, a further devaluation of 18%.
These are worrying omens for Mr Maduro, whose survival in office probably depends on the success of his economic plan. “If he fails, he will own the defeat, and bear the potential consequences,” says a source familiar with the PSUV’s inner workings. If a new president takes to the airwaves, fewer Venezuelans might switch off.