Economy in tatters, Venezuela's Maduro tells citizens 'God will provide'

Venezuelans have been hit hard by plummeting oil prices and high inflation, and Maduro outlined no specific solutions in his highly anticipated address to the nation last night.

At a pharmacy in Caracas Thursday morning, hundreds of people stood in line hoping to get their hands on diapers and other essentials inside. Queuing up has become routine for many here, as Venezuela has struggled to pay for the import of most of its goods.

But the morning after a much-anticipated speech by Venezuela’s President Nicolás Maduro, which had citizens hoping to hear concrete plans for a way out of the nation’s economic tailspin, many fear tougher times are on the horizon.

“We have confidence in God but not so much Maduro. He’s to blame for all this,” says Marvelis Bazque, a housewife standing in line. She’s referencing a line from the president’s speech Wednesday night, where he assured Venezuelans that despite a big drop in the price of oil, which the nation greatly relies on, “God will provide.”

The Venezuelan economy is in tatters with higher than 64 percent inflation and dwindling foreign reserves. Protests like those that paralyzed the country last February are beginning to sprout up again. Maduro’s decision to essentially maintain business as usual – in his speech last night he accused opposition politicians of planning a coup and avoided an explicit devaluation of the currency – signaled to Venezuelans and the world that he’s not willing to face the country’s ailing economy head on.

“The scarcity will probably get worse over the next weeks, the people won’t be happy, and we could see some social pressure emerge,” says Henkel Garcia, director of Econométrica, a local economic consultancy.

"These decisions are not sufficient for the complexity of the current crisis," Mr. Garcia says, referring to Maduro's general lack of action. "Maduro tried to get along with several groups with power [within Chavismo], and because of this he hasn't focused on truly generating social welfare. Even before the grim scenario [we're facing] in the wake of the falling oil prices."

Oil sales account for 96 percent of Venezuela’s foreign income, a figure that has gone up from around 80 percent since former President Hugo Chávez came to power in 1999. With little diversification of the economy, Venezuela has suffered more than any other country from the major fall in global oil prices the past few months.

Maria Corina Machado, a hardline critic of the government, wrote on Twitter: “Maduro has confessed he has no idea what to do ... God isn’t responsible for this horror, nor the solution.”

Traditional government supporters have become increasingly angered by the economic and political situation here, and Maduro’s approval ratings are in the low 20s. Inflation last year topped 64 percent and the country’s economy contracted by 2.8 percent.

Back in line at the pharmacy, Maureen Garban, who sells cakes for a living, says the struggle to find sugar has put her livelihood at risk. “Maduro is waiting for a miracle but it’s not going to happen,” she said.

Prices expected to rise

Enacting major pragmatic policy changes is tough for Maduro, who does not have the same political capital as his predecessor.

Reforms introduced last night include a slight revamp of the complex exchange rate system. Currently, the country offers three official exchange rates with the US dollar. The strongest rate, 6.3 bolivars per greenback is severely overvalued; a black market exists on which the dollar sells for 30 times that figure.

That strongest rate is to be maintained for essentials such as food and medicine, though importers say they are not receiving money at this rate regardless. The two other rates are to be merged and a new third rate introduced, which will allow private brokers to trade in hard currency.

“You don’t see an official exchange rate devaluation but you see a major adjustment in the average exchange rate,” says Efrain Velazquez, a Caracas-based economic consultant. He expects 2015’s average to be even weaker, meaning that importers are paying more to bring goods in, and so prices are going to go up.

Maduro also announced that the country’s gas prices, the lowest in the world at just a few cents per tank, were a “distortion.” He said the time had come to raise them, which would be a small start to recovering some of the lost income due to the fall in international oil prices. However, no concrete announcements were made. Last time the government here tried to increase gas prices, in 1989, thousands took to the streets to protest.