Venezuela fuel plan points to dollarization

Venezuela's president Nicolas Maduro promised last night that the "deformity" of giveaway gasoline prices will be addressed by 2020 under a new "sovereign" plan that would effectively dollarize parts of the oil-based economy.

In the latest of his frequent national broadcasts, Maduro confirmed a two-tier fuel pricing system that will be applied after a controversial vehicle census that he said would run through 17 August.

A "direct subsidy" for fuel will be maintained for more than 17mn Venezuelans who carry a homeland identity card, Maduro said. Venezuela has a population of about 32mn. Venezuelans without the card — which government opponents say is a tool for official control and surveillance — will pay international prices at the pump, Maduro said.

The approach will wipe out fuel smuggling to Colombia and other countries which Maduro said is costing the country some $18mn a month.

The fuel pricing plan is part of the government's plan for "economic recovery, growth and prosperity," he said. "This is the first time that Venezuela has an absolutely sovereign economic plan."

He declared 20 August a national holiday in order to facilitate the introduction of a new currency, the sovereign bolivar, which removes five zeros from the existing strong bolivar.

Economists widely dismiss the "monetary reconversion" as a fruitless effort to tame hyperinflation and reverse steep economic contraction.

In a vague series of remarks last night, Maduro said the sovereign bolivar would be tied to the petro, a nominal financial instrument backed by undeveloped oil reserves that the government announced last year.

The petro will be tied to the value of international currencies, and will become the bookkeeping currency of state-owned oil company PdV, Maduro said. He added that the Venezuelan central bank will publish the sovereign bolivar's value, indexed to the petro, in real time on a daily basis.

The remarks suggest that Venezuela would effectively dollarize the economy, starting with gasoline prices for people without the homeland identity card which it considers opponents. Maduro said all salaries and prices will also be indexed to the petro.

The fuel pricing plan coincides with a sharp decline in Venezuelan oil production and refining, reflecting years of mismanagement and a lack of capital and investment. Fuel shortages are widespread, and many vehicles are inoperative because of a lack of spare parts.