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Venezuela Crisis: Maduro to curb fuel subsidies

  Venezuelan President Nicolas Maduro during a televised speech in Caracas, Venezuela

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The president of Venezuela has announced that subsidized fuel prices are set to rise so that smugglers do not cheat the country by the millions.

"Gasoline must be sold at an international price to stop smuggling into Colombia and the Caribbean," said Nicolás Maduro in a televised address.

Like many oil producing countries, Venezuela offers heavily subsidized petrol to its citizens.

Smugglers can then sell their bags and resell the oil in neighboring countries.

Venezuela's economy is in free fall and inflation rates are estimated at one million percent this year ̵

1; but the price of oil has barely changed.

Local media report that a cup of coffee costs about 2.2 million bolivars (about $ 0.50 0.39 pounds at black market prices). For the same price, you can fill a small SUV with petrol nearly 9,000 times.

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Media caption Venezuelan cash crisis: How a coffee costs banknotes

The cut in fuel subsidies is part of a wider plan to increase government revenues, BBC correspondents say.

Mr. Maduro said that "direct subsidies" would continue to be granted to citizens with state IDs if they registered their cars in a government census – but he did not realize how the system would work.

Many Venezuelans against Mr. Maduro's government refuse to use the ID cards.

What is the root of the Venezuelan economic crisis?

Venezuela is rich in oil. It has the largest proven oil reserves in the world. But it is precisely this wealth that underlies many of its economic problems.

Venezuela's oil revenues account for approximately 95% of its export earnings. This means that with high oil prices a lot of money has flowed into the coffers of the Venezuelan government.

When Socialist President Hugo Chávez was in power from February 1999 until his death in March 2013, he used some of it to fund generous social programs to reduce inequality and poverty.

However, when oil prices fell sharply in 2014, the government suddenly faced a gaping hole in their finances and had to cut some of their favorite programs. 19659015] How is inflation out of control?

Hyperinflation has been fueled by the government's willingness to print extra money and its willingness to raise the minimum wage on a regular basis in an effort to regain some of Venezuela's popularity. [19659005] The government is also increasingly battling for loans after it has defaulted on some of its government bonds.

With creditors risking less the risk of investing in Venezuela, the government has again printed more money, further undermining its value and fueling inflation.

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