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Exclusive: Saudi PIF in talks to invest in aspiring Tesla rival Lucid - sources

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Exclusive: Saudi PIF in talks to invest in aspiring Tesla rival Lucid - sources

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SANTIAGO, Chile — Venezuelan President Nicolas Maduro carried out one of the greatest currency devaluations in history over the weekend — a 95 percent plunge that will test the capacity of an already beleaguered population to stomach even more pain. The official rate for the currency will go from about 285,000 per dollar to 6 million, a shock that officials tried to partly offset by raising the minimum wage 3,500 percent to the equivalent of just $30 a month. While Maduro boasted in Friday nights announcement that the International Monetary Fund wasnt involved in the policies, aspects of the moves bore a resemblance to a classic orthodox economic adjustment, albeit with some confusing twists. ADVERTISING One likely outcome is that inflation, which already was forecast to reach 1,000,000 percent this year, will get fresh fuel from the measures. Prices are currently rising at an annualized rate of 108,000 percent, according to a Bloomberg index. ADVERTISEMENT Maduros strategy for managing the economy is a desperate response after years of disastrous policies that undercut growth, sent prices soaring, and turned what had once been one of Latin Americas wealthiest countries into a dysfunctional nation thats spawned a refugee crisis. Pressure is mounting on him to right the ship as calls for his overthrow grow six years after he took over for the late Hugo Chavez. Earlier this month, Maduro started a fresh crackdown on his opponents after a failed attempt to assassinate him using an aerial drone. Get Talking Points in your inbox: An afternoon recap of the days most important business news, delivered weekdays. Sign Up The economic shock measures demonstrate the “governments willingness to do what it takes to stay in power,” Raul Gallegos, an associate director at Control Risks, said from Bogota. “Maduro looks vulnerable, clearly something could happen.” The devaluation comes at the same time the government is redenominating the currency by lopping off five zeros and introducing new bills and a name change. So instead of the minimum wage being 1.8 million strong bolivars, it will be 1,800 sovereign bolivars. To make things more complicated, the new bolivars value will be linked to a crypto currency, believed to be the first time a government has ever employed the technique. The so-called Petro is backed by crude oil and is valued by the government at $60, or 3,600 sovereign bolivars. The Petro will fluctuate and be used to set prices for goods. In some ways, the devaluation is a mere formality. For years now, most people and companies have been unable to access dollars at government-set rates and have been purchasing them in the black market. As a result, the prices on many goods across the country are already based on that exchange rate. ADVERTISEMENT “They had to do this because they ran out of money,” Moises Naim, a fellow at the Carnegie Endowment and a former minister in Venezuela, said from Washington. He pointed out that oil production, pretty much the countrys sole industry at this point, has plummeted in recent years amid a shortage of equipment and technical expertise, foreign reserves have plummeted and allies such as China and Russia are providing less support. Amid the cash crunch, Maduro has halted most payments on Venezuelas foreign debt and is now $6.1 billion in the hole with bondholders, cutting off most sources of new financing. Creditors are also looking at the countrys assets abroad with an eye toward seizing them. A small Canadian mining company was awarded the right to collect on an arbitration ruling by taking shares held by the parent of US refining unit Citgo, a verdict Venezuela is appealing. In Caracas this weekend, many small shops were closed while people flocked to supermarkets and gasoline stations to stock up. Online banking services will be suspended for 24 hours starting at 6 p.m. local time in anticipation of the redenomination. Many private companies, already dealing with hyperinflation, years of brain drain, price controls, and threats of seizure, now much deal with even faster inflation and mandatory wage hikes. Its also possible that the exodus of Venezuelans to other countries will increase, even as Ecuador and Peru announced entry restrictions and tensions flared along the border with Brazil. “People are leaving because of a feeling of despair, and the desperation will now increase,” Naim said. Fabiola Zerpa reported from Caracas.


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Added On: August 19, 2018, 11:24 pm EDT


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