By Carlos Seijas Meneses
Caracas, Mar 26 (EFE).- The Venezuelan government has had some success in taming inflation through a combination of tight money and infusions of hard currency, though experts say the strategy is vulnerable because Caracas relies so much on Russia – sanctioned over its invasion of Ukraine – to circumvent the punitive measures the United States has imposed on the oil-rich Andean nation.
Over the first seven months of 2021, the value of the Venezuelan bolivar plunged 72 percent against the dollar, from 1.11 million to 4 bolivares per greenback.
But since last October, when Venezuela reduced the maximum denomination of its currency from 1 million bolivares to 100 bolivares, the exchange rate has remained in a range of 4-5 bolivares to the dollar.
Besides the drastic revaluation, regulators have limited lending in bolivares even as the central bank has engaged in “massive injections” of hard currency, economist Asdrubal Oliveros, director of the consultancy Ecoanalitica, told Efe.
During the 24 months that ended Feb. 28, the central bank sold nearly $2.2 billion in dollars to Venezuelan banks, according to Ecoanalitica’s calculations.
Oil exports generate 70 percent of Venezuela’s hard currency revenues, down from 95 percent prior to Washington’s imposition of crippling sanctions on Venezuelan state oil company PDVSA.
In recent years, Venezuelan has begun to earn revenue from sales of gold and scrap and from cryptocurrency mining.
“The government receives many of its payments in cash because it faces restrictions to use the international financial system because of sanctions,” Oliveros said. “From that money, from those payments, is where the sale of currency comes from.”
Most goods in Venezuela are priced in dollars, so the stabilization of the exchange rate has had the effect of banishing hyperinflation, at least for now.
Even so, the cost of the basic food basket has soared 61 percent in the last 12 months, from $282 to $455.
The sanctions against Russia over Ukraine could have a negative impact on Venezuela, Oliveros warned.
“That can generate cash shortages and diminish the government’s capacity to sell currency via the banks, which would raise the exchange rate,” the economist told Efe.
Conversely, he ruled out any risk that President Nicolas Maduro’s announcement of a more than tenfold increase in the minimum wage would cause an inflation spike.
“For the first time in a long time,” Oliveros said, the government is financing the pay hike with earnings, rather than by printing money. EFE csm/dr