Venezuela just raised gas prices for the first
time in about two decades.
Prices will now increase
more than 60 times — to 6 bolivars a liter up from 9.7 centavos, a 6,200%
increase according to Javier Blas of Bloomberg.
Using the weakest exchange
rate of 202.94 bolivars per dollar, Venezuela's announced
increase translates to about $0.11 a gallon, says Bloomberg.
Even with this price hike,
however, Venezuela still has the lowest gas prices in the
world!
Venezuela's
government has long subsidized the country's fuel, allowing the people to
have the cheapest gas in the world. Back
in 1989, an increase in food and gasoline prices led to nationwide
protests, which eventually led to the late President Hugo Chavez's
rise.Venezuela last raised gas prices in 1996.
Venezuela
also devalued its currency on Wednesday, cutting the value 37% and taking
its primary exchange rate to 10 bolivars a dollar from 6.3.
"The devaluation will
ease the drain on government coffers by giving state oil company Petroleos de
Venezuela SA more bolivars for each dollar of oil revenue, while higher
gasoline prices will reduce expenditure on subsidies," wrote Andrew Rosati and Pietro Pitts of Bloomberg.
"At the same time,
the devaluation will probably force the government to raise the cost of staple
foods such as rice and bread that most of the country now depends on to
eat," they added.
In the larger scheme of
things, things in Venezuela have not been great as its economy has been
crushed by lower oil prices. The country relies on the commodity for about 95%
of its export revenue.
IMF figures suggest that Venezuela's GDP contracted by a
record 10% in 2015 and is set to decline 8% in 2016. Inflation is expected to
rise from a world high of 275% in 2015 to a mind-blowing 720% in 2016.
Given the situation, many
economists and analysts think that the country is looking at another rough
year.
"Perhaps no country
in OPEC has suffered such a severe economic shock amid the collapse in oil
prices as Venezuela," wrote Helima Croft of Capital Market.
"Given these severe
headwinds, we believe that Venezuela’s economic fortunes – and its ability to
avoid a humanitarian catastrophe – will largely hinge on whether China
continues to open its checkbook to the country this year," Croft added.