Venezuela President Nicolas Maduro suspended the elimination of the nation’s 100 bolivar bill until Jan. 2 after the government’s decision to pull its largest denomination note out of circulation left the country short of cash, sparking violent protests and looting.
As Bloomberg reports,
Maduro’s decision to extend use of the most-widely-used bill came as the president said replacement higher-denomination notes were unavailable because three planes transporting them to the country were “victims of international sabotage.”
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He did not give details of the alleged sabotage.
Maduro said at a rally in Caracas on Saturday: “We are victims of an international sabotage so the bills, which are ready, cannot be shipped to Venezuela.”
Since last Sunday’s shock announcement that almost all 100-bolivar notes were being called in by the government to combat the hoarding of currency so worthless that it needs to be weighed to be spent, the past week’s daily scenes of frustrated people crowding banks and automated teller machines to deposit the bills culminated Friday in utter exasperation following Maduro’s announcement late Thursday that the new money would be late.
This, of course, is not the first scapegoating Maduro has blamed his nation’s collapse on; as Global Risk Insights’ Jeremy Luedli correctly points out, Venezuela is seeing conspiracy theories behind its inflation worries and suspension from Mercosur, as Caracas becomes increasingly divorced from reality.
It may not have seemed possible, but Venezuela has managed to further torpedo its economy over the course of a single week as the government’s ham-fisted monetary policies wreak havoc. With the country battling shortages, debt, rapid inflation, and economic collapse, the government has become increasingly disconnected from reality. The latest example came on Tuesday when Interior Minister Nestor Reverol announced that the government was removing its 100 bolivar notes from circulation. While similar efforts have recently occurred elsewhere – such as in India – the fact that Caracas only gave the populace a 72-hour notice was shocking.
The risks posed by such a short deadline are compounded by the fact that 100 bolivar notes account for almost half of all notes in circulation, as inflation has rendered smaller denominations worthless. Even so the value of a 100 bolivar note has decreased to just two cents in the informal exchange market. The bolivar has been losing 10% to 20% of its value each month, with the currency witnessing a staggering 55% devaluation in November alone.
Venezuela’s conspiracy theory addiction
This state of affairs begs the question why the government would decide on so drastic a measure. Indeed, this was the thought going through the minds of many Venezuelans as Reverol outlined an elaborate conspiracy theory on live television. Specifically, the minister claimed that some 300 million bills have been siphoned out of the country and are being stored in European warehouses as part of a scheme to undermine the Venezuelan government orchestrated by the U.S Treasury Department. Said organization is, according to Venezuela, working with the mafia and local NGOs to hoard bolivars – prompting Caracas’ rapid demonetization initiative.
This sense of righteous indignation is undermined by the fact that Venezuela increased its oil exports to the U.S by 23% in November, reaching 742,000 bpd. Crippled by the drop in oil prices, Venezuela seems more than willing to trade with Washington while furiously denouncing it at home.
Another, (marginally) more plausible culprit are the illegal Colombian exchange houses which – according to Caracas – are hoarding bolivars. Yet this in turn begs the question why anyone would be hoarding one of the world’s fastest depreciating currencies. Nevertheless, this did not stop Venezuela from shutting its border with Colombia and Brazil for 72 hours from Tuesday until midnight on Thursday, in conjunction with its demonitization efforts. These measures do not address the root causes fueling the crisis, as government critics maintain that strict currency controls and price-fixing on certain goods are to blame.
Despite claims about fighting criminals, foreign influence, and corruption, ordinary Venezuelans are those most affected by the government’s fiscal whims. Already suffering from inflation that is wiping out the nation’s savings and purchasing power – the IMF calculates that inflation will rise to 470% by the end of the year, and 1,660% in 2017 – ordinary citizens are now forced to scramble to meet the government’s absurdly tight deadline. Moreover, many poor Venezuelans do not have bank accounts, preventing them from depositing their money.
All this has resulted in massive lines outside banks and ATMs as the population races to beat the deadline. Ordinary Venezuelans are sharing their experiences and providing insights into how dysfunctional the country has become. Speaking on the announcement of the 72 hour deadline, Clarissa – a graphic designer from Caracas – lamented that “credit and debit card services collapsed a few weeks ago and the people who spent hours at banks trying to withdraw money to have just in case, are now forced to return to their banks and deposit it all.”
To make matters worse, the government’s plan to introduce six new notes ranging from 500 to 20,000 bolivars has been delayed. This means that the most widely circulated note and its replacements are both unavailable. Gabriel, a student from Caracas, pointed out the absurdity of the situation:
“The banks said they have not received [the new notes]. After people changed the notes, they went to ATMs […] they received new 100 notes and had to make the line again to deposit them. This shows a little bit how illogical the situation is.”
As of writing, Venezuelan banks have not received the new notes, with some Banco de Venezuela ATMs still dispensing the now defunct 100 bolivar notes. Moreover, central bank president Nelson Merentes has vaguely stated that the new notes will be distributed in a “progressive manner to banks” – further details are not forthcoming.
Mercosur-bashing and gatecrashing
The degree of Caracas’ disconnect from reality is also being mirrored at the international level, as highlighted by a bizarre incident involving the country’s foreign minister and Mercosur. Venezuela’s Delcy Rodriguez attempted to gatecrash the Mercosur foreign ministers meeting in Argentina, resulting in a confrontation with Argentinian authorities. Rodriguez claimed that she was manhandled by security personnel, with President Maduro claiming Rodriguez was thrown to the ground and broke her collarbone.
These claims were undermined by the foreign minister’s own Twitter tirade which included pictures of a smiling Rodriguez waiting with the Bolivian representative for the arrival of the Mercosur foreign ministers after her gatecrash attempt. When said ministers unsurprisingly did not show up Rodriguez began denouncing them and Mercosur.
Rodriguez explained her actions by stating that “if they close the door to us we will, as our President Maduro has said, go through the window. Venezuela does not need an invitation because it is for the time being president of Mercosur.”
This claim runs counter to the fact that Venezuela was blocked from becoming president for the second half of 2016 in June. Moreover, Venezuela was suspended from Mercosur on December 2nd after a vote by Paraguay, Uruguay, Brazil, and Argentina citing Caracas’ economic and human rights failings.
In response, Argentinian foreign minister Susanna Malcorra stated that, “no one ever gets into a multilateral meeting without authorization. The minister obviously felt she had the right to attend, but she had been told explicitly, verbally and in writing, that she was not invited.”
Venezuela itself only became a member under somewhat dubious circumstances in 2012. Since then the rise to power of free-market centrist leaders in other Mercosur members has further isolated Venezuela within the organization
As a result, Venezuela has begun referring to Brazil, Argentina and Paraguay as the ‘Triple Alliance’ – imbuing Caracas’ suspension with nefarious and conspiratorial connotations. It is interesting to note that Uruguay has been exempted from this slander, despite voting to suspend Venezuela. This is likely due to Uruguay’s ongoing efforts at mediation and statements praising Venezuela’s ostensible willingness to use consensus-building tools.
The language used by Venezuela to describe Mercosur gives further proof of its detachment from reality and penchant for conspiracy theory thinking. The monicker ‘Triple Alliance’ is a reference to the Triple Alliance of 1865 which comprised Uruguay, Brazil, and Argentina. The Alliance’s devastating war against Paraguay makes for a compelling, if somewhat inaccurate metaphor (i.e. switching out Uruguay for Paraguay).
This choice is also apt, as modern interpretation of the conflict ranges from a fearless struggle by smaller nation to defend its rights against the aggression of larger neighbours to a foolish attempt to fight an unwinnable war that almost destroyed it. That pretty much sums up the disconnect between Venezuela’s depiction of itself and the assessment of the rest of Mercosur.
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Author: Tyler Durden