Venezuela’s struggling economy just passed another grim milestone: it’s the seventh country in Latin America to ever experience hyperinflation.
The term “hyperinflation” is often bandied about, but it’s actually quite rare, and only happens when monthly inflation exceeds 50 percent for more than 30 consecutive days. On Dec. 3, Venezuela did just that, becoming the 57th known case of hyperinflation since France suffered the malaise in 1795.
“Venezuela, welcome to the record books,” said researchers at Johns Hopkins University as they added the country to their Hanke-Krus World Hyperinflation Table. “You have now entered the inglorious sphere of hyperinflation. It is a world of economic chaos, wrenching poverty and death. Its purveyors should be incarcerated, and the keys should be thrown away.”
While Venezuela’s case is obviously bad, history shows it could be worse.
The country’s implied daily inflation rate is 3.96 percent, meaning it takes 17.8 days for prices to double. That ranks it at No. 23 on the Hanke-Kraus table. The leaders of that list are Hungary (1945), when prices were doubling every 15 hours, and Zimbabwe (2007), when prices doubled every day.
“Only seven countries have hyperinflated in Latin America, but Venezuela’s case is still rather mild by hyperinflation standards,” said Steve Hanke, a professor of applied economics at Johns Hopkins University in Baltimore and the co-author of the Hanke-Krus World Hyperinflation Table.
The other countries in the hemisphere that have seen hyperinflation are Argentina (1989), Bolivia (1984), Brazil (1989), Chile (1973), Nicaragua (1986) and Peru (1988 and 1990).
On the streets of Venezuela, however, even the “mild” hyperinflation is generating real pain, as people see their purchasing power sapped amid rolling food shortages and massive shopping lines.
The Central Bank hasn’t put out inflation data all year, but Hanke and his team say annual inflation as of Dec. 9 is 375 percent. Others have said the number could be running twice that high.
Economists and administration critics blame the soaring prices on failed economic policies — including Draconian price and currency controls, which, perversely, have fueled speculation in the black market.
President Nicolás Maduro and his lieutenants, however, place the blame on “economic warfare” being waged by shadowy forces. On Friday, the government confiscated 4 million toys from the warehouses of Kreisel, one of the country’s largest merchandise distributors. The government accused the company of hoarding the trinkets so they could be sold at a “54,000 percent” mark-up. Now those seized toys will be distributed at “fair prices,” the government said.
The administration is also rolling out new, higher-denomination bills. Currently, the largest note (100 bolívares) is worth about 15 cents. It takes a stack of more than 390 just to buy a pair of tennis shoes. Over the weekend, however, Maduro announced that the bill will be removed from circulation within 72 hours in hopes of cracking down on international contraband. Late Monday, he went a step further, ordering the border with Colombia to be closed for 72 hours — effectively punishing anyone on this side of the frontier who might be hoarding the bills.
Even so, the Associated Press reports that about one-third of the Venezuelan population doesn’t have savings accounts and store their wealth in the soon-to-be-worthless bills. And while the news is likely to cause some panic, it’s unclear how it will turn the economy around.
“They’ve destroyed the currency and now they’re celebrating the fact that one of the notes is being withdrawn,” said Henrique Capriles, the opposition governor of Miranda state. “It seems like their plan is to spoil the life of Venezuelans.”
The country has been trying to tame its inflation for years, but it began spiraling out of control between 2012 and 2013, when it jumped from 20 percent to 56 percent. By 2015, annual inflation hit 181 percent, according to official figures.
Hanke, who was an adviser for Venezuelan President Rafael Caldera in the 1990s, said there are only two ways for the government to stop hyperinflation: Establish a currency board (like Bulgaria or Estonia) or to dollarize, as Ecuador did in 2000.
So far, Venezuela seems to be resisting taking the painful measures. But printing higher-denomination bills is a tacit surrender to market forces, Hanke said.
“This is very typical of what happens in hyperinflation; it goes with the territory,” he said of printing bigger bills. “And it does in a way mean that the government has thrown in the towel.”