Hyperinflation in Venezuela is a period of currency instability
in Venezuela that began in November 2016 during the country's ongoing socioeconomic and political crisis.
Venezuela began experiencing continuous and uninterrupted inflation since February 1983, with double-digit annual inflation rates. From 2006 to 2012,
the government of Hugo Chávez reported decreasing inflation rates during the entire
period. Inflation rates increased again in 2013 under Chávez's successor, Nicolás Maduro, and continued to increase in the following years, with
inflation exceeding 1,000,000% in 2018. In comparison to previous
hyperinflationary episodes, the ongoing hyperinflation crisis is more severe than those of Argentina, Bolivia, Brazil, Nicaragua, and Peru in the 1980s and 1990s, or that of Zimbabwe in the late-2000s.
In 2014, the inflation rate reached 69%, the highest in the
world. In 2015, the inflation rate was 181%, again the highest in the
world and the highest in the country's history at the time. The rate
reached 800% in 2016 over 4,000% in 2017 and 1,698,488% in
2018, with Venezuela spiraling into hyperinflation. While the Venezuelan government "has essentially
stopped" producing official inflation estimates as of early 2018,
inflation economist Steve Hanke estimated the rate at that time to be 5,220%.
In April 2019, the International Monetary Fund estimated that inflation would reach 10,000,000% by the
end of 2019. The Central Bank of Venezuela (BCV) officially estimates that the inflation rate
increased to 53,798,500% between 2016 and April 2019.
Pérez and Caldera administrations - When world oil prices collapsed in the 1980s, the economy contracted, and inflation levels (consumer price inflation) rose,
remaining between 6 and 12% from 1982 to 1986. In 1989, the inflation rate
peaked at 84%. The same year, following the cut of government spending and the opening of
markets by President Carlos Andrés Pérez, the capital city of Caracas suffered from looting and rioting. After Pérez initiated liberal economic policies and made Venezuelan markets more free, Venezuela's GDP increased
from a -8.3% decline in 1989 to 4.4% in 1990 and 9.2% in 1991, though wages
remained low and unemployment remained high among Venezuelans.
While some claim that neoliberalism was the cause of Venezuelan economic difficulties, an
over-reliance on oil prices and a fractured political system have been
identified to have caused many of the problems. By the mid-1990s under
President Rafael Caldera, Venezuela saw annual inflation
rates of 50 to 60% from 1993 to 1997, with an exceptional peak of 100% in
1996. The percentage of people living in poverty rose from 36% in 1984 to 66% in 1995, with the
country suffering a severe banking crisis in 1994. In 1998, the economic crisis had worsened, with
GDP per capita at the same level as it was in 1963 (after adjusting 1963
dollars to 1998 value), down a third from its peak in 1978; the purchasing
power of the average salary was a third of its 1978 level.
Chávez and Maduro administrations - Following the 1998 Venezuelan presidential election, the
inflation rate, measured by consumer price index, was 35.8% in 1998,
falling to a low of 12.5% in 2001 and rising to 31.1% in 2003. In an attempt to
support the Venezuelan bolívar, bolster the government's
declining level of international reserves, and mitigate the impact of the oil
industry work stoppage on the economy, the Ministry of Finance and
the Central Bank of Venezuela (BCV)
suspended foreign exchange trading on 23 January
2003. On 6 February, the government created CADIVI, a
currency-control board charged with handling foreign exchange procedures. The
board set the USD exchange
rate at 1,596 bolívares to the dollar for purchases and 1,600 to the dollar for
sales.
The Venezuelan
economy shrank 5.8% in the
first three months of 2010 compared to the same period of 2009, and had
the highest inflation rate in Latin
America at 30.5%.
President Hugo
Chávez expressed optimism
that Venezuela would emerge from recession despite International Monetary Fund (IMF) forecasts showing that Venezuela
would be the only country in the region to remain in recession that year.
The IMF categorized the economic recovery of Venezuela as
"delayed and weak" in comparison with other countries in the
region. Following Chávez's death in early 2013, the country's economy
continued to fall into an even greater recession.
The annual inflation rate for consumer prices has increased
hundreds and thousands of percentage points during the crisis. Inflation
rates remained high during Chávez's presidency.
By 2010, inflation had removed any advancement of wage
increases. By 2014, it was the highest in the world at 69%. By 2016,
the media reported that Venezuela was suffering an economic collapse. The IMF estimated a 500% inflation rate and 10%
contraction in GDP. In November 2016, Venezuela entered a period of hyperinflation. In December 2016, monthly inflation exceeded 50% for the
30th consecutive day, meaning the economy was officially experiencing
hyperinflation, making Venezuela the 57th country to be added to the Hanke-Krus
World Hyperinflation Table.
The inflation rate reached 4,000% in 2017. The same year, a
trend began in Venezuela in which gold farming in cybergames, such as RuneScape, became an acquirable way to get hard currencies. In many cases, they made more money than salaried workers in
Venezuela, despite earning just a few dollars per day. During the
Christmas season of 2017, some shops no longer used price tags; since prices
inflated so quickly, customers were required to ask staff how much each item
was. In early 2018, the Venezuelan government "essentially
stopped" producing inflation estimates.
In May 2019, the BCV released economic data for the first time
since 2015. It reported that the inflation rate was 274% in 2016, 863% in 2017,
and 130,060% in 2018. The new report suggests a contraction of more than
half of the economy in five years, described as "one of the biggest contractions
in Latin American history" by the Financial Times. According two undisclosed sources from Reuters, the release of this data was due to pressure from China, an ally of Nicolás Maduro. One of the sources claims that this disclosure may bring
Venezuela into compliance with the IMF, making it harder to support Juan Guaidó during the presidential crisis. At the time, the IMF was not able to support the validity
of the data as they had not been able to contact the authorities.
2018 inflation estimate - In 2018, the IMF estimated that Venezuela's inflation rate would
reach 1,000,000% by the end of the year. This forecast was criticized by
economist Steve
Hanke, who claimed that the IMF had released a
"bogus forecast" because "no one has ever been able to
accurately forecast the course or the duration of an episode of hyperinflation.
But that has not stopped the IMF from offering inflation forecasts for
Venezuela that have proven to be wildly inaccurate". According to Hanke,
Venezuela's inflation rate on 31 July 2018 was 33,151%, suggesting that
"Venezuela is now experiencing the 23rd most severe episode of
hyperinflation in history." The IMF
reported that the inflation rate for 2018 reached 929,790%, slightly below the
original 1,000,000% estimate.
2019 inflation estimate - In October 2018, the IMF estimated that the inflation rate would
reach 10,000,000% by the end of 2019, which was reconfirmed in its April 2019
World Economic Outlook report.
Causes - A monetarist view is that a general increase in the prices of
things is less a commentary on the worth of those things than on the worth of
the money. This has objective and subjective components: Objectively, that the
money has no firm basis to give it a value. Subjectively, that the people
holding the money lack confidence in its ability to retain its value.
According to experts, Venezuela's economy began to experience
hyperinflation during the first year of Nicolás Maduro's
presidency. Potential causes of the hyperinflation include heavy
money-printing and deficit spending. In April 2013, the month Maduro took office, the annual
inflation rate was 29.4%, only 0.1% less than the rate in 1999 when Hugo Chávez
took office. By April 2014, the annual inflation rate was 61.5%. In
early 2014, the BCV did not release statistics for the first time in its
history, with Forbes reporting that it was a possible way to manipulate the
image of economy.
In April 2014, the IMF stated that economic activity in
Venezuela was uncertain but may continue to slow, and that "loose macroeconomic policies have generated high inflation and a drain on
official foreign exchange reserves". The IMF suggested that "more significant policy
changes are needed to stave off a disorderly adjustment". According
to economist Steve Hanke, Venezuela's current economy, as of March 2014, had an
inflation rate hovering above 300%, an official inflation rate around 60%, and
a product scarcity index rising above 25% of goods. The Venezuelan
government did not report inflation data for September and October 2014.
The growth in the BCV's money supply accelerated during the beginning of Maduro's presidency,
which increased price inflation in the country. The money supply of the
bolívar fuerte in Venezuela increased 64% in 2014, three times faster than any
other economy observed by Bloomberg News at the time. Due to the rapidly
decreasing value of the bolívar fuerte, Venezuelans jokingly called it
"bolívar muerto" ("dead bolívar").
Maduro has blamed capitalist speculation for driving high inflation rates and creating widespread
shortages of basic necessities. He has said he is fighting an "economic
war", referring to newly enacted economic measures as "economic
offensives" against political opponents, who, according to Maduro and his
loyalists, are behind an international economic conspiracy. Maduro has
been criticized for concentrating on public opinion instead of tending to practical
issues that have been warned by economists, or creating solutions to improve
Venezuela's economic prospects.
Devaluation of the bolívar - After the Chávez administration established strict
currency controls in 2003, there have been a series of five currency devaluations, disrupting the economy. On 8 January 2010, the value was
changed by the government from the fixed exchange rate of 2.15 bolívares
fuertes (Bs.F) to 2.60 bolívares (for imported healthcare goods and certain
foods) and 4.30 bolívares (for imported cars, petrochemicals, and
electronics). On 4 January 2011, the fixed exchange rate became 4.30
bolívares per US$1.00 for both sides of the economy. On 13 February 2013, the
bolívar was devalued to 6.30 bolívares per USD in an attempt to counter budget
deficits. The black (or parallel) market value of the bolívar
fuerte and the bolívar soberano has been
significantly lower than the fixed exchange rate and other rates set by
the Venezuelan government (SICAD, SIMADI, DICOM). In November 2013, it was
almost one-tenth that of the official fixed exchange rate of 6.3 bolívares
per U.S.
dollar. On 18 February 2016, President Maduro
used his newly granted economic powers to devalue the official exchange rate of
the bolívar fuerte from 6.3 Bs.F per USD to 10 Bs.F per USD, which was a
37% depreciation against the USD.
On September 2014, the unofficial exchange rate for the bolívar
fuerte in Cúcuta, Colombia reached 100 Bs.F per USD. In May 2015, the bolívar
fuerte lost 25% of its value in a week; the unofficial exchange rate was at 300
Bs.F per USD on 14 May and reached 400 Bs.F per USD on 21 May. In July
2015, the bolívar fuerte again dropped sharply, reaching 500 Bs.F per USD on 3
July and 600 Bs.F per USD on 9 July. By February 2016, the unofficial rate
reached 1,000 Bs.F per USD. In November 2016, the bolívar fuerte saw its
largest-ever monthly loss of value; the exchange rate reached 2,000 Bs.F per
USD on 21 November 2016 and nearly 3,000 Bs.F per USD only days after. On
29 November 2016, the exchange rate surpassed 3,000 Bs.F per USD. In the month
preceding 28 November 2016, the bolívar fuerte lost over 60% of its value.
On 26 January 2018, the government retired the protected
and subsidized 10 Bs.F per USD exchange rate that was highly overvalued
following rampant inflation. On 5 February 2018, the BCV announced a 99.6%
devaluation, with the exchange rate going to 25,000 Bs.F per USD. This made
the bolívar fuerte the second least-valued circulating currency in the world
based on the official exchange rate, behind only the Iranian rial. Between September 2017 and August 2018, according to the
informal exchange rate, the bolívar fuerte was the least-valued circulating
currency in the world. The official exchange rate stood at 248,832 Bs.F
per USD as of 10 August 2018, making it the least valued circulating currency
in the world based on official exchange rates.
In June 2018, the government authorized a new exchange rate for
buying, but not selling currency. On 13 August 2018, the rate was 4,010,000
Bs.F per USD according to ZOOM Remesas.
Minimum wage - The minimum wage in Venezuela dropped significantly during Maduro's
presidency. It decreased from approximately $360 per month in 2012 to $31 per month in March 2015 when using
the weakest legal exchange rate. On the Venezuelan currency black market, the minimum wage was only $20 per month.
In April 2014, President Maduro raised the minimum wage by 30%,
hoping to improve citizens' purchasing power. According to El Nuevo Herald, most economists said that the measure will only help
temporarily due to the official inflation rate being over 59%, and that the
wage increase will only make the situations of companies more difficult since
they already face a shortage of currency. In January 2015, the government
announced that the minimum wage would be raised 15%. On 1 May 2015,
President Maduro announced that the minimum wage would increase 30%, including
20% in May and 10% in July. The newly announced minimum wage was about $30 per
month at the black market rate.
In August 2018, following the release of a new currency, the
minimum wage was raised from 392,646 Bs.F to 180 million Bs.F (equivalent to
1,800 bolívares soberanos, or Bs.S) per month, a 33-fold (3,000%)
increase. Sales
tax was increased from 12% to 16%. The new wage was
estimated to be around $30 per month at the black market rate. It became
effective on 1 September 2018. The minimum wage was further increased to
4,500 Bs.S ($9.50) a month in November 2018 and then to 18,000 Bs.S ($6.52) a
month in January 2019, a 300% increase.
By early-April 2019, the 18,000 Bs.S monthly minimum wage was
the equivalent of $5.50 — less than the price of a McDonald's Happy
Meal. Ecoanalitica estimated that prices jumped by 465% in the
first 2-and-a-half months of 2019. In March 2019, The Wall Street Journal stated
that the "main cause of hyperinflation is the central bank printing money
to fund gaping public spending deficits", reporting that a teacher could
only buy a dozen eggs and two pounds of cheese with a month of wages.
On 27 April 2019, President Nicolás Maduro increased the minimum wage from 18,000 Bs.S ($3.46) to 40,000
Bs.S ($7.69), according to a presidential decree. In addition, President Maduro
also announced the resumption of food vouchers worth 25,000 Bs.S ($4.80). The
new wages became effective on 1 May 2019. According to a local NGO, the
new minimum wage covers only one tenth of the cost of basic food products. The
wage only allows Venezuelans to buy about four kilograms of beef or two
McDonald's Happy Meals. By mid-August 2019, further inflation of the
bolívar soberano has decreased the minimum wage by 65% from $8 a month to $2.80
a month and decreased further to $2 a month by late-August.
In 2014, El Nuevo Herald reported that due a lack of
money, SEBIN had decreased its work of monitoring of "potential
external threats" and asked for Cuban intelligence agents to return to
Venezuela.
According to El Nacional newspaper, funding for "official propaganda" increased. 65%
of the funds of the Venezuelan Ministry of Popular
Power for Communication and Information (MINCI)
were used for propaganda in 2014. A total of over 500 million bolívares were
allocated as funds to MINCI. For the 2015 Venezuelan government budget,
the government designated 1.8 billion Bs.F for the promotion of the supposed
achievements made by the Maduro administration, which was more than the 1.3
billion Bs.F designated by the Ministry of Popular
Power for Interior, Justice and Peace for public
safety of the most populous Venezuelan municipality, Libertador Bolívarian Municipality. Funding
for domestic propaganda increased 139.3% in the 2015 budget; 73.7% of the
MINCI's budget was used for official propaganda.
Inflation rate BCV estimates - Under President Maduro, the inflation rate has been increasing
at the highest levels, with the BCV estimating that inflation was at 56% in 2013, 69% in 2014
(highest in the world), and 181% in 2015 (highest in the world and the
country's history). In 2016, Venezuela entered hyperinflation. The inflation
rate reached 274% in 2016, 863% in 2017, 130,060% in 2018, 282,973% in April
2019 and 4,679% in September 2019. Since 2016, the overall inflation rate has
increased to 53,798,500%.
Venezuela
Inflation by Year
Sept
2019 4,679%
April
2019 282,973%
2018 130,060%
2017 863%
2016 274%
2015 181%
2014 69%
2013 56%
In its World Economic Outlook report, the IMF has provided
inflation rate estimates between 1998 and 2019. In 2018, the annual inflation
rate reached 929,790% and is expected to reach 10,000,000% by the end of
2019. According to the April 2019 World Economic Outlook report,
Venezuela's inflation rate of 10 million is the highest in the world. In
comparison, in Latin America, Argentina has an inflation rate
of 43.7%.
Comments
Venezuela’s
“bolivar of broken dreams” began with voters believing lies and politicians
telling them. The crooks took over to profit from Venezuela having the largest
world oil reserves. Two things governments need to do are not devalue the
currency to cause inflation and not run out of cash. Venezuela needed to be
more careful knowing that oil prices were volatile. They didn’t prepare for
years of want; they spent too much in years of plenty. Worse, they didn’t
maintain their oil production industry continue to function.
Norb
Leahy, Dunwoody GA Tea Party Leader
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