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Venezuelan government raises taxes as it tries to combat runaway inflation

A man shows new five Bolivar-notes in Caracas on Monday. Caracas is issuing new banknotes after lopping five zeroes off the crippled bolivar, casting a pall of uncertainty over businesses and consumers across the country. (Photo by FEDERICO PARRA/AFP/Getty Images)

Venezuelan President Nicolas Maduro has raised taxes in his country, even as Venezuelan citizens are struggling to survive.

Maduro's government also implemented a plan Monday he had announced earlier that removed five zeroes from the Venezuelan bolivar in an attempt to combat runaway inflation.

What's the story on Venezuela's economy?

Venezuela's economy has been collapsing for several years due to a combination of falling oil prices and socialist policies. Things have gotten so bad that citizens have resorted to eating from the trash.

Not even the army has been immune to these problems. Reuters reported that a lack of food has caused soldiers to desert and leave the country.

According to the International Monetary Fund, the country's runaway inflation could hit 1 million percent by the end of the year. According to Reuters, a 2.4 kilogram (5.3 pounds) chicken currently costs 14,600,000 bolivars, or $2.22.

In addition to lopping five zeros off the currency, — which may make it look on paper like the situation has improved, but which does nothing to actually rectify the problem and may actually make it worse, CNBC reported — Maduro has increased taxes and hiked the minimum wage by about 3,000 percent.

In order to help small- and medium-sized businesses, which are largely cash strapped as it is, to pay their workers 30 times the rate they were before, Maduro has promised to cover the difference for three months.

However, he was not clear about how this would work or where the money would come from. Even if he did follow through, small business owners would be be forced to pay the higher rates or shut down once the three months ran out.

What about gasoline prices?

Maduro also informed Venezuelans that they would no longer be able to pay low prices for gasoline — one of the few breaks that the struggling populace still had.

Venezuelans will now have to register with the government and present an ID card in order to get subsidies that would prevent gas prices from being the same in the country as it was outside. And with a minimum wage that as of July was roughly $1 a month, those prices would make it impossible for the average Venezuelan to fill up a tank of gas.

But Maduro tried to assure the Venezuelan people that everything was under control.

"I want the country to recover and I have the formula. Trust me," he said Friday during a televised address. "They've dollarized our prices. I am petrolizing salaries and petrolizing prices."

"Petrolizing" refers to the petro, a Venezuelan government-backed cryptocurrency. However, the petro has suffered from a lack of international faith in Maduro's government. Also, while Maduro had initially planned to use the petro to circumvent U.S. sanctions, an executive order from President Donald Trump banned American citizens from using the petro shortly after it was first issued.

"We are going to convert the petro into the reference that pegs the entire economy's movements," Maduro said during Friday's speech.

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