Venezuela is close to leaving hyperinflation behind, but not its consequences | International


A man dressed as Santa Claus distributes toys among the children, this Friday in Caracas (Venezuela).
A man dressed as Santa Claus distributes toys among the children, this Friday in Caracas (Venezuela).Rayner Peña R. (EFE)

In one of the countries with the worst economic prospects in the world, the exit from the hyperinflationary cycle after more than four years seems like a light at the end of the tunnel. Venezuela – according to economists and what the Central Bank of Venezuela itself has announced this week – will reach in the first quarter of 2022 more than 12 months with monthly inflation below 50%, which technically indicates its exit from hyperinflation. The aftermath of this cycle, however, will still remain a lead in the wing for the economic recovery that the Government promises each year.

Nicolás Maduro recognized hyperinflation late, a word rarely spoken officially, although it has been one of the problems that has plagued Venezuelans the most in recent years. Venezuela and Zimbabwe have been the only countries with hyperinflation during the 21st century. The Caribbean nation is also one of the rare cases of oil countries that have experienced this disease of the economy. And Venezuela will be the only country that has gone through hyperinflation and a pandemic, highlights Marino González, a researcher at the Simón Bolívar University, in Venezuela, and from La Rioja, in Spain.

For the academic, who has devoted himself to studying hyperinflation and its approaches, the Venezuelan has not been an exclusively monetary phenomenon like most of the cases recorded in history. “Unlike other Latin American countries such as Brazil and Argentina, here it manifests itself after a great loss of productive capacity experienced by 15 years of controls. The destructive effect of hyperinflation adds to the previous and now to the pandemic ”.

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Looking at some indicators between 2017, when the hyperinflationary fire started, and 2021 shows its effects. From 87% of poverty, the country fell to 96%, according to the annual Encovi survey. There is another more dramatic data: at the end of 2017 only 1.4 million Venezuelans had left the country, today there are six million out of the country, according to United Nations figures, mostly driven by the inability to sustain themselves economically in the country . “The human capital lost this time will be difficult to replace,” says economist and university professor Hermes Pérez.

Pérez points out that Venezuela suffers from the three most serious diseases of an economy: consecutive economic contraction for eight years, hyperinflation and unemployment, which this year reaches half of the workforce. “Of course, it is good news to get out of hyperinflation, but in 2022, without a doubt, Venezuela will continue to have the highest inflation in the world, even now when all countries are fighting against it.”

Inflation destroys the functions of money, explains Pérez. One scar left by hyperinflation in Venezuela is the virtual disappearance of the bolivar, which even changed its face on the one bolivar coin (from which 14 zeros have been removed, after three reconversions). The so-called Bolívar de Barre, after Albert Barre, an engraver for the Paris Mint who was commissioned in 1873 to engrave the profile of the hero looking to the left, persisted on coins from then until a few months ago. Those that came out as of October, with the third monetary reconversion, have the face that Chavismo rebuilt after the exhumation of the remains of the Liberator, ordered by Hugo Chávez in 2010, fueling the historical conspiracy that he was assassinated by his enemies. It is the one that has been repeated in all the banknotes since 2018 and, since this year, in the coins, with a broader and more rounded nose, with very bushy eyebrows and a square jaw, “the mulatto Bolívar”, as Chávez called him, who in his moment teased his resemblance. In any case, today it is the most devalued bolivar.

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Today dollars occupy 70% of transactions in the country. They are in strips in the hands of informal vendors or in the cashier of any establishment. The de facto dollarization that the Government allowed as of 2019, after the repeal of illicit exchange rates, is the natural response in any hyperinflation process, but in Venezuela it has ended up ruining confidence in the national currency, which it will be a problem for the future. “Not having confidence in the monetary sign does not help the economic recovery,” Pérez emphasizes, and González points out, as another peculiarity in the Venezuelan process, that none of the hyperinflations that have occurred in Latin America has ended with dollarization.

But for Maduro – and for the country – it has been an escape valve, as he has recently recognized, and it is one of the factors that has helped him come out of hyperinflation, four years later, just before surpassing the record of five years that he lived. Nicaragua between 1986 and 1991, in the first decade of Sandinismo.

“The exit from hyperinflation is occurring by spontaneous generation, not by joint economic measures to combat it,” replies Pérez. In his opinion, in addition to dollarization, other situations have had a greater incidence in ending the hyperinflationary cycle in an economy that is a fifth of what it was a decade ago. The destruction of the demand for money, in part by the six million Venezuelans who are not there, the liberalization of prices, the intervention of the market government with injections of dollars to artificially contain the exchange rate – because despite the sanctions now it benefits from the rise in oil prices— and, the most costly of the measures, according to Pérez, the exaggerated legal reserve that has been imposed on banks to totally restrict commercial and personal credit.

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Lowering inflation is just one of the conditions for the economy to take off. Different economic firms forecast a moderate contraction for the end of 2021, after falls of up to 39% in a single year, and even some growth for 2022 driven mainly by the private sector. The haze, however, remains as to whether these eases will be sustainable and lead to a true economic turnaround. Also on whether the necessary political agreements will be produced – today in the freezer – that allow creating legal certainty so that more investors enter the field and not only those who have benefited from the opacity with which Maduro has led this opening that he has made. that the economy of the poorest country in Latin America – and the most lagging in the world, according to recent IMF estimates – shows signs of life.

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George Holan

George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.

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