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Black Friday

The symbolism of announcing the drastic measures on a Friday night wasn’t lost on many Venezuelans. In 1983, President Luis Herrera Campins devalued the bolivar for the first time in 22 years after oil prices crashed. The day became to be known locally as “Black Friday.”

When in 1989 Venezuela raised gasoline costs, lifted foreign-exchange controls and let the currency plunge, prices soared 21 per cent in one month alone, leading to riots known as the “Caracazo” that killed hundreds and eventually paved the way for Chavez’s rise to power.

Military Alliance

It’s not clear how the shock measures announced by Maduro will sit with one of his key allies: the military. Top ranking generals have been handed the keys to ministries, the state-run oil company and the lucrative business of food imports. Myriad exchange rates created juicy arbitrage opportunities that enriched many close associates of the state.

“Clearly this will hit Maduro’s popularity, but power is being sustained with bullets and not with votes,” Naim said. “As long as the military continues to have access to lucrative businesses it will continue to grant support to the government.”

The opposition, a fragmented group of parties whose leaders are either in hiding or in jail, called for protests against the measures Tuesday. Several labour unions also called for a 24-hour national strike.

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 must deal with even faster inflation and mandatory wage hikes. It’s 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.

Bloomberg.com