EDITOR NOTE: A 289% increase in one's monthly minimum wage may sound appealing to some, but it depends on the context of the wage bump. In Venezuela, the minimum wage has been raised to 7 million bolivars, up from 1.8 million. Any layperson would ask in astonishment, “how did they get there?”. There are many factors that come into play, making Venezuela one of the hardest-hit countries among those plagued by hyperinflation. But the principles are rather simple: unchecked money printing, deficit spending, and no firm basis--whether commodity or real production--to give money its value. If a country’s currency has nothing tangible backing its value, and if the country continues to print money heavily and engage in non-stop deficit spending, then it’s playing a dangerous game of ‘chicken’ with the economic reaper on the road to hyperinflation. All it takes is a moment of distraction, wherein its citizens (and international investors) lose confidence in the currency’s ability to retain its value. Eerily, this situation sounds very familiar and close to home.
The Venezuelan government increased the monthly minimum wage by 289%, an official said on Saturday, moving from the equivalent of 64 U.S. cents to about $2.40 at the exchange rate estimated by the country’s central bank.
Venezuela's economy is in its fourth year of hyperinflation, its seventh year of recession, and has been slowly and disorderly undergoing a dollarization since 2019.
Labor Minister Eduardo Pinate said the minimum salary would increase from 1.8 million bolivars to 7 million bolivars as of this month.
Pinate made the announcement at a Labor Day event broadcast on state television, adding that the food bonus state workers are slated to receive would also increase.
The new base income of $2.40 plus the food bonus now represents $3.50, with which Venezuelans can buy a kilogram of cheese and a liter of milk.
President Nicolas Maduro's government has raised the minimum wage twice this year, with the country facing the coronavirus pandemic, a severe recession and hyperinflation.
Although two years ago the authorities relaxed controls on the economy, allowing for greater transactions in foreign currency, many workers continue to receive their wages in the local currency, the bolivar, which has lost value.
Pinate also said the salary scale in the public sector will be revised, without giving details.
Government employees receive the lowest salaries, which has led to more resignations from their ranks.
Original post from Reuters