Maduro’s huge salary hike deals fatal blow to 40 percent of Venezuelan stores

A woman leaves a market in Caracas, Venezuela.  About 40 percent of Venezuela’s stores have been forced to close, business owners say, after President Nicolás Maduro imposed a big hike in minimum wages.
A woman leaves a market in Caracas, Venezuela. About 40 percent of Venezuela’s stores have been forced to close, business owners say, after President Nicolás Maduro imposed a big hike in minimum wages. AP

Nearly 40 percent of all Venezuelan stores have closed their doors — some of them perhaps permanently — after the government of President Nicolás Maduro increased the minimum salary by nearly 3,500 percent in one fell swoop, according the National Council of Commerce and Services of National Council of Commerce and Services of Venezuela.

Many of the companies, which had been barely surviving the gradual collapse of the economy, saw the salary increase and other changes announced last month as the fatal blow in a string of policies that have been gradually strangling their operations.

“It is a perfect storm,” said María Carolina Uzcátegui, president of the council. “These decisions are leading many business people to say, ‘No, I can’t do it any more.’”

The problem is that Venezuelan companies are being forced to sell at prices far below cost just as employee salaries are increasing by 60 times, Uzcátegui said.

What’s more, the regime has banned stores from increasing their prices in order to cover the increases in salaries, arguing that it is not necessary.

If they do increase prices, store owners or managers can wind up in prison, Uzcátegui said.

“We have inspections, and they force us to sell at last month’s prices,” she said. “That takes money away from the business because of the hyperinflation, when you can’t even sell at yesterday’s prices because you lose money.”

“And anyone who protests against these measures runs the risk of going to jail, without the right to appeal, without the right to anything, simply because the official whose turn it was to inspect the store just felt like arresting you. He did it, and that’s all,” she said.

Estimates by the legislative National Assembly show that the country’s inflation hit 200 percent in August alone — which means that the currency, the Bolivar, lost two-thirds of its value in 31 days.

About four out of every 10 stores have not opened their doors since Maduro announced the salary increase two weeks ago. And some of the stores that did open are simply liquidating their merchandise and plan to close definitively when that’s done.

Economist Orlando Ochoa said the stores cannot survive the salary increase, especially because the owners already had problems obtaining foreign currency to buy imports, and buying national products, in short supply, to fill their shelves

“The government sector has the monopoly on imports, the currency market is dysfunctional and there’s hyperinflation,” said Ochoa. “So, if salaries are increased by decree, and the commercial and industrial sectors cannot sell their products because of these problems, and on top of that because of electricity blackouts, infrastructure problems and the loss of qualified personnel, which is leaving the country, then it’s easy to understand that many may prefer to close.”

The decision to close is much easier for small and medium-size companies. Bigger companies risk losing equipment and other investments that could be seized by the government, Ochoa said.

The problem grows even worse because the economic collapse that the country is suffering through is pummeling consumers and therefore sales, added Francisco Ibarra, director of the Econometrica company.

“If you already have a demand that has been falling across all Venezuelan sectors, and you have this kind of increase in salary, and then you don’t have any way of adding these costs to the prices, and you also don’t have access to bank financing, and the company already was not generating significant profits, it’s obvious then that what’s happening is that the company is dying,” said Ibarra.

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