On Thursday, Venezuelan President Nicolas Maduro began his second term after being re-elected last year despite annual hyperinflation of 1,300,000% and an economic collapse that has created millions of refugees. Russia has long sponsored Maduro’s regime, like Hugo Chavez’s regime before that, and is the only international ally of the U.S.-sanctioned Latin American country. The Bell has learned that, in November, Russian officials wrote a roadmap for Maduro’s administration to help them find a way out of economic crisis.
The list of measures to save the Venezuelan economy was passed to Maduro’s government in November by a delegation led by Russia’s deputy minister of finance, Sergei Storchak. The recommendations, seen by The Bell, include:
- Introduce a minimum income for households. Gasoline was free for Venezuelans before 1 January 2019, but now the government has introduced market prices. A guaranteed minimum income, according to the Russian officials, is the most effective way to fight poverty: “the money can be spent on gasoline, and on what households need.”
- Stop financing the budget deficit by printing money. In August, Maduro removed five zeroes from the country’s currency and relaunched it as a “sovereign bolivar”. But without any other steps to reduce the deficit, the currency lost 95% of its value against the dollar in just a few months. Banks are reportedly already refusing to accept two bolivar banknotes, the lowest denomination, even though they are brand new.
- Reform the tax code, with a new focus on indirect taxation.
- Increase oil production and diversify exports (it was unclear from the document how this could be accomplished).
Russian officials also diplomatically praised Venezuela’s attempts to solve hyperinflation by creating a national crypto-currency tied to oil — the El Petro. But Storchak said Russia is not prepared to use this currency for settlements between the two countries.
Whatever the merits of the proposals, it is unclear if Maduro’s government is actually ready to implement them. Venezuela received what it needed most from Russia when Maduro met President Vladimir Putin in December. After the talks, Maduro announced Russia would invest over $5 billion in in Venezuelan oil assets and deliver 600,000 tonnes of grain. Altogether, according to calculations by Reuters, the Russian government and state-owned oil giant Rosneft have provided over $17 billion worth of loans to Caracas since 2006. Venezuela’s state-owned oil company, PDVSA, is repaying this via oil deliveries, but it is a very slow process.
Why the world should care
While Russia’s friendship with Venezuela is loss-making, the Latin American country’s economic collapse plays into the hands of Russian oil companies and was a major reason for crude price rises in 2018. If the Venezuelan government heeds the reasonable advice given to them by Russian officials, it would make life easier not just for Venezuelans, but the country’s neighbors, who took in 3 million refugees in 2018 and are predicted to receive another 2 million this year.
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An insider view, in 5 minutes