A recent International Monetary Fund report that Venezuela will reach a 720 percent inflation rate this year — the highest in the world — has drawn a lot of media attention, but what I heard from a senior IMF economist this week was even more dramatic.
Robert K. Rennhack, deputy director of the IMF’s Western Hemisphere department, told me in an interview that Venezuela is on a path to hyperinflation — the stage where the economy reaches total chaos — and could reach a “total collapse of the economic system” in 12 to 18 months if there are no changes in economic policies.
“Inflation in Venezuela probably entered on a hyperinflationary path in 2015,” Rennhack says. He told me that he expects Venezuela’s inflation to reach 2.200 percent in 2017, and could balloon very fast to 13,000 a year, the stage that most academics define as full-blown hyper-inflation.
Although he didn’t get into that, no Latin American government in recent memory has been able to survive a hyper-inflationary crisis. When you reach five-digit inflation rates, governments either make a dramatic political u-turn, or they fall.
“Hyper-inflation means that the currency has lost its value, people have to go to the stores with bags full of money, and prices rise almost by the hour,” Rennhack said. “What we saw in previous cases of hyperinflation in Latin America is that there was a political consensus that policies had to change.”
Asked how he reached his 12-18 month projection for hyper-inflation in Venezuela, Rennhack said his team of economists looked at previous episodes of hyper-inflation in Bolivia (1982-1984,) Argentina (1989-1990) and Brazil (1989-1990.) From those experiences, they concluded that Venezuela is on a similar path as these countries were between 12 and 18 months before their hyper-inflationary crises.
President Nicolas Maduro’s term ends in 2019, although the opposition MUD coalition is considering launching a referendum to demand early elections.
Many Venezuelans believe the country will explode much sooner than in 12 to 18 months. Prices go up daily, supermarket shelves are near empty, there are growing electricity shortages — Maduro has declared every Friday in April and May a non-working holiday in order to save energy — and crime statistics are skyrocketing.
The Venezuelan currency, the Bolivar, is increasingly worthless. Not even robbers want it: a few months ago, news report quoted an engineer named Pedro Venero as saying that he was attacked by armed robbers who were looking for U.S. dollars stashed in his home, but refused to take Bolivars.
Since Maduro took office after a dubious election in 2013, the economy has collapsed from a 5 percent growth rate that year to an 8 percent contraction in 2016. Most importantly, poverty has ballooned from 23 percent to 73 percent of Venezuelan households over the same period, according to a joint study by the University Andres Bello, the Central University of Venezuela and the Simon Bolivar University.
My opinion: With Venezuela on a “hyper-inflationary path,” it’s hard to see how Maduro can finish his term in 2019.
Most likely, there will be a military coup — current speculation is that it would come from “Chavista” army officers concerned about Maduro’s incompetence — or a regional diplomatic offensive to press Maduro to respect the laws passed by the opposition-controlled National Assembly.
Granted, many Venezuelans are skeptical that Venezuela’s opposition will get enough votes at the 34-country Organization of American States (OAS) to apply the organization’s Democratic Charter, which would demand that Maduro take specific steps to restore democratic rule. But skeptics about the outcome of a OAS vote could be wrong: Venezuela’s petro-diplomacy has lost its clout in the region with the collapse of oil prices, and Latin America’s political map is changing fast, moving away from Venezuela’s corruption-ridden socialist model.
A collective regional move under the OAS Democratic Charter to demand a constitutional solution to the Venezuelan crisis would be much better than a military coup, which — no matter which side it comes from — would mark a return to the dark ages of Latin America’s military regimes. The region’s democracies should seek an OAS Democratic Charter vote as early as next month, because the alternative — doing nothing — may lead to a “total collapse of the economic system” followed by a military government.
Watch “Oppenheimer Presenta” Sundays at 9 p.m. on CNN en Español. Twitter: @oppenheimera
Watch “Oppenheimer Presenta” Sundays at 9 p.m. on CNN en Español