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News Analysis: Venezuela struggles to cut reliance on oil exports, boost production

Xinhua, February 21, 2016 Adjust font size:

Venezuela is struggling to transform its economy to reduce reliance on oil and boost and diversify production, a local economist said.

The South American country's economy has been battered by low oil prices and destabilizing actions such as speculation, leading to long queues for food and other basic goods and frustrated consumers, local analysts said.

The government, at the same time, has to deal with uncooperative opposition.

President Nicolas Maduro on Wednesday announced six lines of action to boost production while at the same time protecting workers' rights.

The measures aim to correct the deficiencies of the so-called rentier model -- one that depending on exporting natural resources, and to tackle the drop in foreign currency earnings, as well as to stabilize prices, economist Luis Enrique Gavazut told Xinhua.

Maduro also announced to increase gasoline prices for the first time in two decades, from just under 0.1 bolivars per liter to six bolivars (from 1.5 U.S. cents to 95 U.S. cents) -- an increase of roughly 6,000 percent from the current super-low level. The price hike is expected to increase revenue and combat fuel smuggling.

"The adjustment is still below the cost of production and the international price. However, it allows the tax burden to be alleviated because Venezuela is suffering from the impact of foreign restrictions," said Gavazut.

The bolivar's official exchange rate was also adjusted from 6.30 to 10 against the U.S. dollar. This exchange rate is used to purchase imported supplies for priority sectors, such as health, food and medicine.

Thirty percent of tax collection will go to financing and subsidizing public transport, according to Gavazut.

The government also decreed a new 20 percent increase in the minimum wage to bolster workers' income at a time of runaway inflation.

Nevertheless, the opposition has described the government's proposals as "half-way measures" that will fail to quickly resolve problems. Endi