Venezuela’s Red Friday: Maduro’s Destructive Plan

Just when the crisis in Venezuela could not get any worse, Nicolas Maduro carried out one of the greatest currency devaluations in history. Maduro’s announcement on August 17, now referred to by analysts as “Red Friday,” shows how desperate, cash-strapped, and twisted the regime truly is. As the country faces one of the most uncertain weeks of its history, what comes next for Venezuela (and its neighbors) could be catastrophic.

Hyperinflation is spiraling. The IMF estimates one million percent by year’s end, while Ricardo Hausmann, Harvard economist and former minister in Venezuela, estimates 44 million percent annual inflation. Venezuela’s borders are seeing an unprecedented number of migrants and refugees continuing to flee to neighboring nations. Inside of the country, the conditions are similar to a war-like scenario, as extreme food and medicine shortages deepen. Thousands of children are dying of malnutrition, people are contracting formerly eradicated diseases, and thousands are dying from complications due to lack of medical resources. However, Maduro’s economic plan will likely intensify the already difficult conditions.

Q1: What did Maduro announce?

A1: On Friday, Nicolas Maduro announced a series of economic measures that have everyone in Venezuela and outside concerned and confused. The economic adjustments include:

  • Cutting five zeroes off the national currency and renaming it the “sovereign bolivar.”
  • Creating two units of account: the sovereign bolivar and the petro, a regime-controlled and natural resource-backed cryptocurrency.
  • Giving the petro a value of $60, or 3,600 sovereign bolivares. The Petro will fluctuate and be used to set prices for goods and salaries.
  • Instead of a regime-mandated exchange rate of 250,000 bolivars per dollar, the state-sanctioned rate will increase to about 6 million bolivars per dollar. This translates to a whopping 95 percent devaluation.
  • Increasing the minimum monthly wage by 6,000 percent, from less than $1 per month to $30 per month by September of this year.
  • To assist small- and medium-sized businesses with the aforementioned wage increases, the government will pay the increased salaries for the first 90 days.
  • Setting nationwide “price controls” of consumer goods, without any implementation details given.
  • Raising the value-added tax (VAT) rate by about 4 percent.
  • Reiteration of announcements from last week, cutting heavily-subsidized fuel. At current price, 50 cents can fill about 9,000 small SUVs.

To soften the blowback from his economic announcement, Maduro promised holders of a Carnet de la Patria (Homeland Identification Card), the regime-controlled ID that is used as a tool for social-control, will receive a “bonus.” All of these measures will likely be funded by printing new currency—the sovereign bolivar—out of thin air. Unsurprisingly, Maduro’s announcements are triggering the country’s most acute monetary chaos to date.

Q2: What do these adjustments mean for Venezuela?

A2: As monetary policy goes, the latest measures are unlikely to provide any benefit for the economy or the people. Rather, it will further paralyze the economy and drive more people out of the country, as the exponential spiral into deeper hyperinflation continues. Economic analysts, including Hausmann,agree that Maduro’s latest announcements will only exacerbate the economic decline and unprecedented humanitarian crisis. Most businesses will be unable to meet the massive increase in salaries, which will likely translate into massive loss of jobs and further fuel mass emigration. Almost 90 percent of Venezuela’s population has dropped below the poverty line, and Maduro’s measures mean more anguish and uncertainty, aggravating an already dangerous and chaotic situation in the streets.

Rather than looking to adjust the economy and tackle hyperinflation, Maduro’s destructive announcements seem to be yet another social-control package, following the Chavista playbook to take advantage of the population’s hardship in order to strengthen political control. Given the lack of democratic exits and the regime’s desperate attempts to hold on to power, Venezuela faces its “worst-case scenario”—further collapse.

Q3: What does this mean for the international community?

A3: The exodus from Venezuela, which could eventually surpass the 6 million people who have fled Syrian civil war, threatens to bring further chaos to the region. Colombia is bearing the brunt, as it shares the longest and most accessible border with Venezuela. About 120,000 people cross daily from Venezuela to Colombia. Many return after acquiring food and medicine, while others stay in Colombia or continue the journey to other neighboring countries. Roughly two million people have fled the country over the past two years, but after Friday’s announcement, more families and individuals will have no other alternative but to flee the already unsustainable economic situation. Experts estimate that one to three million people will flee in the upcoming months.

Venezuelans fleeing a once-rich and immigrant-friendly country now needs that solidarity from its neighbors, as OAS Secretary General Luis Almagro urgently implored this weekend.

The international community—mainly with sanctions and diplomacy efforts—continues to increase pressure on the Maduro regime, thus far to little effect. The United States, among other regional countries like Argentina, is providing much-needed assistance to Colombia and Brazil to mitigate humanitarian risks at their borders. Brazil, which has provided shelters and welcomed Venezuelans in the past years, is now deploying troops to its border, as residents of the Brazil border town of Pacaraima attacked Venezuelan camps on Saturday. Fearful for their safety, about 1,200 Venezuelans rushed back to the country they just fled. Other countries, such as Ecuador and Peru, have recently tightened requirements for Venezuelan migrants.

As increasing waves of migrants and refugees are expected in the upcoming weeks and months—especially after Friday’s announcements—neighboring countries and the international community should increase efforts to relieve the suffering of the Venezuelan people. The United States recently responded by sending a U.S. Navy hospital ship to the Colombian coast to help alleviate Venezuelan migrants suffering. Argentine president Mauricio Macri announced Monday that he will involve the International Criminal Court to investigate Venezuela’s government for crimes against humanity—a much needed initiative for long-term solutions. Venezuelans fleeing a once-rich and immigrant-friendly country now need solidarity from its neighbors, as OAS Secretary General Luis Almagro urgently implored this weekend.

Q4: What is the Venezuelan opposition proposing and how should the international community respond?

A4: After Maduro spawned a totalitarian regime by creating an illegitimate and rigid Constituent Assembly last year and revoked the opposition-led National Assembly’s powers, fragmentation within the opposition has been the norm. The regime has used excuses, from tweets to drone attacks, to further crack down on both civil liberties and any political opposition. The latest case is against Juan Requesens, a 29-year-old member of the National Assembly, who was dragged out of his home by masked men and taken to El Helicoide, a maximum security prison run by the government’s intelligence wing. The combination of threats, kidnappings, and imprisonment without charges, for both politicians and their families, has resulted in most Venezuelan opposition leaders fleeing the country.

After Venezuela’s “Red Friday,” opposition leaders are responding with different tones and actions. Some opposition leaders joined with representatives of some oil workers’ unions to call for a national strike today, the day Maduro’s economic measures are to take effect. Other opposition leaders, such as Maria Corina Machado, are calling to intensify street protests.

Secretary Almagro released a letter calling out the opposition president of the now power-stripped National Assembly, Omar Barboza, to recognize the authority of the supreme court, who were appointed by the National Assembly, and then subsequently fled to Bogota due to regime persecution. Almagro charged Barboza to not only recognize the exiled court’s authority but also to respect their recent ruling of public corruption and money laundering against Nicolas Maduro. Providing credence to the supreme court’s legitimate decisions while withdrawing recognition from the de facto regime could be a way forward for the United States and regional democratic governments.

A once-wealthy nation with the biggest oil reserves on the planet is now trapped under a regime complicit in human rights abuses, narco-trafficking, rampant hyperinflation, and ever-increasing societal control. The regime’s strongest enemy remains the economy, as it won’t bend to Maduro’s will. The international community should be committed more than ever to both increasing pressure on the regime and limiting the suffering of the Venezuelan people.

Moises Rendon is associate fellow and associate director of the Americas Program at the Center for Strategic and International Studies in Washington, D.C.

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Moises Rendon

Moises Rendon

Former Senior Associate (Non-resident), Americas Program