Venezuelan petrol prices rise by 6,000 per cent

February 25, 2016

Nicolas Maduro has announced a hike in petrol prices in a bid to keep the economy afloat, as food prices rise 315 per cent in a year

Venezuela’s embattled president has announced that he is to increase the price of petrol by 6,000 per cent, as the crippled country struggles to remain afloat economically and politically.

Nicolas Maduro used a rambling five hour televised address to explain the first petrol price increase in 17 years, which came into effect on Friday. Mr Maduro had little choice, with the economy spiralling towards collapse – but knows that he is taking a risk. When the Venezuelan government increased petrol prices in 1989, the Caracazo riots broke out, killing up to 3,000 people.

Venezuela has the largest oil reserves in the world, and still has the cheapest petrol in the world. Prices at the pump for 95 octane gasoline will rise from 0.097 bolívars to six bolívars (66p).

Hong Kong has the world’s most expensive petrol, at £5.55 for a gallon. Until yesterday Venezuela charged 0.5 pence per gallon. Kuwait, the second cheapest place in the world for petrol, charges 68p a gallon, according to the monitoring site Global Petrol Prices.

And the hike may have symbolic importance, but petrol still remains virtually free in Venezuela. Calculated at the widely-used black market currency exchange rate, the price per gallon will be a few US cents. In contrast, a beer costs around 300 bolívars while a basket of strawberries costs about 800 bolívars.

And Mr Maduro said the move was “a necessary measure, for which I assume the responsibility.”

The country’s central bank made a rare announcement of its data, which showed that inflation was 180 per cent; prices for food and beverages had risen by 315 per cent; health care rose by 110 per cent, and transport by 130 per cent.

Mr Maduro also announced a 37 per cent currency devaluation, and a raise in the minimum wage of 20 per cent.

“We have to protect the workers, generate employment and safeguard their wages,” he said.

Francisco Martinez, who heads the country’s largest business association, welcomed the increase.

“We hope that after these announcements we can work on the structural problems in the economy to put this recession behind us,” he said.

But analysts said the reforms did not go far enough. The rise in prices is aimed to cut $800m from the government budget, but subsidies for petrol cost Caracas $12.5 billion.

“The measures are unlikely to have a significant positive impact on the economy or improve the business environment, which have been undermined by a wave of nationalisations, tight price and foreign exchange controls, regulatory burden and a cap of 30 per cent on profits,” said Diego Moya-Ocampos, senior Latin America analyst with IHS.

And he said that the stand-off between the government and the opposition-controlled national assembly meant that little could be done to mitigate the damage.

“An institutional crisis between the government and the opposition-controlled national assembly, generating policy paralysis, means that the pro-business opposition coalition cannot do a lot to alleviate the crisis.”