Venezuela Economic Minister Resigns

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Event

The economy minister and “vice-president for the productive economy”, Luis Salas, has resigned.

Analysis

Mr Salas, a sociologist who was a surprise appointment to the Ministry of the Economy after disastrous mid-term legislative elections for the government in December 2015, lasted little more than a month in his post. He cited personal reasons for his departure, claiming that he could not dedicate the necessary time to fulfil his role, but his stance to the extreme left of the government ranks has become increasingly untenable. Mr Salas has resisted currency adjustment, denied the phenomenon of inflation and advocated government default. These positions have left him increasingly at odds with other, slightly more moderate members of government, including the vice-president, Aristóbulo Istúriz, the foreign trade and investment minister, Jesús Farias, and the industry minister, Miguel Pérez Abad, who has replaced Mr Salas.

Mr Farias and Mr Pérez Abad have pushed for moderate economic adjustments, including currency devaluation to increase the local-currency value of fiscal oil income, and an increase in extremely low domestic petrol prices, which are a huge burden on the public purse. The president, Nicolás Maduro, has, in fact, stated that he will announce a series of economic measures in the coming days, following the Supreme Court’s controversial approval of an economic emergency decree handing the president sweeping powers to rule by decree. These measures seem likely to have to include a substantial devaluation and petrol price rises. Mr Maduro has made several vague adjustment announcements in recent weeks, without actually implementing reforms, creating some scepticism over his most recent statements, but the deepening of the economic crisis suggests that some measures will be announced shortly.

Impact on the forecast

Our forecasts assume that a devaluation of well over 50% this year and the departure of Mr Salas—who, in his short tenure, resisted macroeconomic reforms—will facilitate some adjustments. However, the scale of the adjustment will be insufficient in the light of the decimation of domestic production and the inability of the current government to restore confidence in economic policymaking and contract rights. In this context, we continue to believe that there is a strong risk of hyperinflation, default and a balance-of-payments crisis, prompting economic collapse this year. We also continue to assume that the Maduro government will not see out its full term of office.