Artists use Venezuela’s devalued currency to make handbags, sculptures
Reeling amid power blackouts and water shortages, Venezuelans could be forgiven for missing the latest economic report.
On Thursday, the opposition-controlled congress confirmed that the country is still trapped in a hyper-inflationary spiral that has made life a misery for the vast majority.
Year-on-year inflation as of February is running 2.3 million percent by its calculations.
Venezuela’s Central Bank hasn’t put out inflation data since 2015 and some experts say the congressional number is itself grossly inflated, but there’s no question that Venezuela remains the global leader in runaway prices.
If there is a silver lining in the new data, it’s that inflation in February was 54 percent for the month — down from 191 percent in January, said Jose Guerra, an opposition deputy and a member of the body’s economic committee.
Guerra said the slowdown was essentially due to the “brutal drop” in consumer spending, but the regime’s decision to loosen its currency controls has also helped stabilize the bolivar.
The inflation news comes as Nicolás Maduro is struggling to hang onto power amid growing unrest and the rise of interim President Juan Guaidó, the man recognized by Washington and 50 other countries as the nation’s legitimate leader.
Guerra said the only way for the economy to right itself was for Maduro to step down.
“Maduro has to leave office before the economy will ever start to recover,” he said. “He created the problem and there’s no way to solve the economy without resolving our political issue.”
Venezuela is sitting on the world’s largest oil reserves, and was once South America’s most prosperous nation. But critics say two decades of single-party rule in Venezuela — first by Hugo Chávez and now Maduro — have bred corruption, cronyism and mismanagement that have destroyed the economy.
The International Monetary Fund expects the economy to shrink 5 percent this year and inflation to hit 10 million percent by year’s end — fueling shortages of everything from food to medicine.
Steve Hanke, an economist at Johns Hopkins, who tracks hyper-inflationary nations, thinks both the IMF figure and the congressional figure are “utter rubbish” and grossly exaggerated for “political reasons.”
By his calculations, year-on-year inflation at the end of February was 163,272 percent — still the world’s highest. The next most problematic country, Zimbabwe, has annual inflation of 212 percent, followed by Iran with 183 percent, Sudan with 122 percent and Argentina with 105 percent.
“There’s nothing even close to Venezuela,” Hanke said. “It’s the only country hyper-inflating in the world right now.”
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. That’s exactly what happened in Venezuela starting in 2016.
The Maduro regime won’t provide its own data, but for years it has accused the opposition and shadowy outside forces of engaging in “economic warfare” that has “induced” price increases.
Now, Maduro’s fears seem to have materialized, as the United States and others have slapped the country with financial and oil sanctions as they try to force him to step down and call new elections.
The sanctions are part of the reason there’s been a complete breakdown in U.S.-Venezuela diplomatic relations. On Thursday, Secretary of State Mike Pompeo said the last of the U.S. diplomatic staff had left the country.
“We remain firm in our support for Venezuelan people and [Guaidó] and look forward to returning to a free & democratic Venezuela,” he wrote on Twitter.
The move makes Venezuela the only country in the region — and one of the few in the world — without a U.S. diplomatic presence.
Guerra said the U.S. sanctions are exacerbating the economic crisis but the nation’s primary problems — inflation, food and medicine shortages, and a collapsing economy — were present long before the U.S. rolled out its first financial measures in 2017.
“The sanctions are aggravating the crisis but they didn’t cause the crisis,” Guerra said. “They may be deepening the crisis but the crisis was here already.”