Venezuela Economy Head Calls for Creativity as Oil Hits Low

  • New minister signals he's against ending price controls
  • Country's oil basket fell to 12-year low of $27.87 a barrel

Venezuela’s new economy minister, who has argued that inflation doesn’t exist “in real life,” said policies to be announced on Jan. 12 would seek to avoid sacrifices by ordinary people as the price the South American country receives for oil exports plunges to a 12-year low.

“Our goal is to see how we can respond to these external restrictions without making internal sacrifices,” Luis Salas, who President Nicolas Maduro put in control of the economy this week, said Friday in an interview on the Telesur network. “That’s going to take creativity.”

The falling price of oil, which accounts for 95 percent of exports, has exacerbated shortages of everything from medicine to soap and placed the economy as the number one issue on voters’ minds as they handed Congress to the opposition for the first time in 16 years last month. No single measure can solve the economic problems, said Salas, who went on to signal that he opposes raising subsidized prices for household goods in order to boost supply.

“We’re not doing anything to make products available if the people can’t afford them,” Salas said.

He downplayed a recession that saw the economy contract 10 percent last year, according to the International Monetary Fund. Inflation in Venezuela, already the fastest in the world, will increase to 204 percent this year, the IMF also estimates. The central bank hasn’t published any official data since the end of 2014.

“With all the problems Venezuela has, this isn’t the worst crisis we’ve ever seen. The worst crisis was in the 1990s,” he said.

Political Change

Maduro and his new cabinet appear to be underestimating the country’s economic crisis and lack the urgency needed to solve it, Barclays Plc analysts Alejandro Arreaza and Alejandro Grisanti wrote in a note to clients on Friday.

“The government’s hard-line position on both the political and the economic fronts increases the possibility of a political change and boosts uncertainty as to what shape a potential transition might take,” they wrote. “We see the government’s stance as pushing Venezuela into a confrontation of powers.”

The only measures that could reduce a fiscal deficit that is now almost 25 percent of gross domestic product include a “sharp” currency devaluation, a hike in gasoline and electricity prices and spending cuts, they said.

Angel Alvarado, an opposition deputy affiliated with the Primero Justicia opposition party, said he was doubtful that Maduro’s government would present any legislation that could fix the country’s problems. He warned that Venezuela was on the brink of hyperinflation.

“What we are asking is that the government change the economic model, not ministers or articles,” he said Friday in a telephone interview. “Ministers like Luis Salas who deny the most basic economic principles want to allow the central bank to print money indefinitely. We’re worried about the plan they’re going to present. It doesn’t look like there will be a rectification. What’s coming is more controls and more socialism.” 

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