Ten Million Percent Later

Add another zero to the raging fire of Venezuela’s macroeconomic cataclysm.

The Republic and PDVSA’s failure to make recent debt payments on time won’t trigger legal action from bondholders if the regime keeps dishing out the petrodollars to Wall Street, even if late. And while everyone is distracted, the bottom is falling out of Venezuela’s currency and oil sector.

The black market rate blew past 60,000 today. It’s now up over ten million percent since Chavez became president in February 1999. That’s a one with seven zeros and a % sign: 10,000,000%. The black market rate is up by a factor of 10x since May 18th this year. All the while, the government’s putting the pedal to the metal with the monetary accelerator, fueling an unprecedented expansion in the supply of bolivares.

The government will try to engineer a consumption boom for municipal elections scheduled for December 10th. That plus the usual year-end Christmas bonuses will likely make November record breaking for money printing and push monthly inflation past the traditional 50% threshold for hyperinflation. As the economy tanks and the government funds more and more of its spending with monopoly money from the BCV, base money will grow faster and faster and faster, locking in hyperinflation.

If nothing changes, all prices but especially food prices will continue to rise at an accelerating rate and outpace wages, fewer and fewer price controlled goods will be available, the cash shortage and problems with electronic payments will intensify, and life for Venezuelans will become yet more chaotic and desperate. Things are horrible now, but they can and will get worse.

And it’s not just the domestic situation that’s deteriorating: oil production at PDVSA is falling faster than pessimists thought possible just a year ago. So far in 2017, in addition to crude quality declining, production is down 14% to under two million barrels according to OPEC, the lowest level in three decades. Secondary sources say production is even lower. And it’s oil from PDVSA’s solely operated fields that’s falling the most, not the joint-ventures where production has been at least holding steady. So the decline in PDVSA’s production of cash-generating barrels is bigger than 14%.

The price of Venezuela’s oil export basket is up 30% this year versus 2016, but it’s not enough. Between the lower production, higher debt service and depletion of financing sources, there’s still less money leftover for imports. Less money to invest to curb PDVSA’s production decline, less money for critical production inputs for the private sector, and less money to import food and medicine keep people from starving and dying. On the plus side, there’s also fewer dollars left to steal.

Production is down 14% to under two million barrels according to OPEC, the lowest level in three decades. Secondary sources say production is even lower.

Sometimes, I’m tempted to think the regime doesn’t understand how damaging its policies are. But that’s naive: they just don’t care. Maduro brushes off Venezuela’s misery just like he gave the world the middle finger by appointing a U.S. designated drug kingpin to lead debt restructuring negotiations. Oceanic corruption and total impunity are not just a features of Chavez and Maduro’s clientelist politics, they are its lifeblood. The crackpot economic distortions, authoritarianism and dysfunction are central for military and narco support. Maduro could give a damn the country is going into hyperinflation, he just crushed the opposition in regional “elections”.

Every day without a change the country’s suffering deepens. If three quarters of Venezuelans lost, on average, almost 9 kg of weight involuntarily in 2016 according to the ENCOVI survey, I can’t imagine what ghastly weight loss figures the survey will turn up this year.

If 82% of Venezuelans were income-poor in 2016, how much farther into poverty will Venezuela have fallen in 2017? If 93% of Venezuelans reported not having enough food for their family to eat last year, how hungry must people be at this very moment? How many have left the country for good? 100,000? 200,000?

Who knows…

Things look bleak for Venezuela. It’s too late for the country to climb out of the hole it’s in without concerted effort from the international community. Whatever the E.U. and Latin American countries are doing, whatever the government and what’s left of the opposition are negotiating, whatever the U.S. is plotting by sanctioning most high ranking regime officials but not Diosdado Cabello, I hope it works. It has to work. It needs to work.

Frank Muci

Frank is a public policy and development researcher in Cambridge, MA.