Heat rises on Venezuela leader with fuel, dollar hikes

Maria Isabel Sanchez
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Venezuelan President Nicolas Maduro speaks during a TV program in Caracas on February 17, 2016

Venezuelan President Nicolas Maduro speaks during a TV program in Caracas on February 17, 2016 (AFP Photo/)

Caracas (AFP) - Popular and political pressure on President Nicolas Maduro intensified Thursday as he boosted Venezuela's super-low gasoline price and devalued its currency, trying to save the oil-rich nation from economic disaster.

Maduro on Wednesday ramped up the cost of gasoline at the pump for the first time in two decades, by 6,000 percent, from $0.01 to $0.60 per liter -- still among the cheapest fuel in the world.

Queues formed at gas stations as motorists rushed to fill up before the new prices take effect on Friday.

Citizens were already struggling with soaring inflation and shortages of basic goods such as cooking oil and toilet paper.

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

Maduro also eased the official bolivar-dollar exchange rate, hoping to increase exports and oil revenues. He launched a new alternative exchange rate which will see the bolivar floated on the open market.

The political opposition that is trying to oust Maduro reacted with outrage.

His most high profile opponent Henry Ramos Allup, speaker of the congress, said the measures 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 the assembly Thursday.

"With this government, everything will get worse."

Venezuelan and foreign economists warned Maduro's policies were not enough to stabilize the economy and public finances.

"The failure of the currency controls and interventions wasn't due to how they were implemented," said Venezuelan economist Luis Vicente Leon.

"The problem was the controls and interventions in themselves."

- 180% inflation, or higher -

Venezuela has the biggest known oil reserves in the world and has been practically giving gasoline away at the pump in recent years.

But it has suffered from the plunge in world oil prices since mid-2014.

Maduro is hoping major oil producers will all agree to freeze their crude production to buoy up prices.

Economist Michael Henderson at British-based investment consultancy Verisk Maplecroft said the gasoline 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 so high.

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 he reckoned it would not be enough to offset the sharp fall in crude prices.

Like various other economists, he forecast a looming balance of payments crisis.

"Another round of cash loans from China could help Venezuela avoid default this year, but there's no guarantee these will be forthcoming," he wrote in a note.

Venezuela's outlook darkened further on Thursday with new official data.

The central bank said the economy contracted 5.7 percent in 2015, after a 3.9 percent fall in 2014.

The official inflation rate topped 180 percent in 2015 -- one of the highest in the world. Non-government economists estimate the real rate is several times higher.

Economists will now be watching closely to see what value the bolivar reaches on the currency markets.

Until now, the government's alternative rate for non-essential transactions was about 200 bolivars to the dollar, but on the black market the US unit costs nearly 1,000 bolivars.

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

"Maduro's economic measures are too little too late," said Venezuelan analyst Diego Moya-Ocampos on Twitter.

They "will not reduce regulatory burden and will increase protest risks."