Photo: Independent retrieved

In a year, Venezuela broke Latin America’s hyperinflation record.

With an inter-year rate above 800,000%, it’s 35 times higher than the 24,454% of Bolivia in the 80s, and economists caution that the rate still hasn’t reached its peak. Forecasts predict it could be as high as 50,000,000% next year.

The only certainty consumers have when going to the market in Venezuela today, is the amount in their bank accounts. It’s hard to know how much a product or service will cost on a shopping day; even though we prepare to find higher prices than those of the previous week, the increment is always shocking.

Since November 2017, Venezuela’s economy is drowning in hyperinflation. The monthly inflation rates that used to surpass 50%, went up to 233% in September, and 148% in October that year, according to estimates of the National Assembly’s Finance and Economic Development Committee. The Central Bank hasn’t published these figures since December, 2015.

According to this estimate, in October, prices increased 3% daily and the inter-year inflation rate reached 833,997%. This process is deteriorating consumers’ purchasing power at dizzying speeds, compromising companies of different sizes and sectors.

“In terms of purchasing power, there’s a 95% drop when you see the whole year,” Ecoanalítica director Asdrúbal Oliveros told Caracas Chronicles.

In a year, Venezuela broke Latin America’s hyperinflation record.

Since the consumer is buying less, companies have been forced to reduce their production. According to the Industrial Situation Survey of the Federation of Industrialists of Venezuela, in the second trimester of 2018, the production of consulted companies dropped by 91%, compared to the same period last year.

The low demand is the main factor for this decline, they say, and nearly half of the sector’s companies used less than 20% of their installed capacity.

“Companies can no longer hold, they’re forced to adapt,” says economist Tamara Herrera, head of the firm Síntesis Financiera, exclusively for Caracas Chronicles. “Both individuals and companies start to think of how to compensate this loss of purchasing power, through increased prices and salaries. But the spiral is impossible to contain and our productive apparatus is in severe decline.”

Carlos Larrazábal, head of Fedecámaras, warns that hyperinflation has pushed some companies to cease operations, but he can’t say a number: “The companies that manage to survive are the ones that handle their cash flow efficiently and guarantee supplies in this hyperinflationary tragedy we’re living.”

Companies also face difficulties to estimate costs and prices in an economy without available official figures. “How to predict what’s the value of replenishing inventories?” says Larrazábal. “Because if you’re buying any item and you’re going to sell it, your minimal aspiration is a return of the capital invested (…), and an extra utility that might allow you to pay for your business’ rent.”

The Venezuelan economy has contracted nonstop since 2014 and, by the end of this year, it may be reduced by half, as per forecasts of the International Monetary Fund and private firms.

A cycle with an end…

This is the first time Venezuela has been in hyperinflation, but the process isn’t unknown in Latin America. Six countries in the region have experienced it (and overcome it) between the 1970s and 1990s: Chile, Bolivia, Nicaragua, Argentina, Brazil and Peru. The duration and rates varied in each case, with Nicaragua recording the longest episode (nearly five years, since mid-1986).

Companies also face difficulties to estimate costs and prices in an economy without available official figures.

This is the 12th month of Venezuela’s hyperinflationary process, which economists say will end, although nobody knows when. “The matter of duration is intrinsically linked to the level and political maturity of leaders and societies,” says Tamara Herrera. “Countries with democratic fragility and resistance to reforms face a more lasting process.”

“I’d like to say that we’ve seen the worst of the hyperinflationary cycle, but sadly we’re in an intermediate stage,” says Asdrúbal Oliveros. “In other words, inflation must accelerate a bit more for this breaking point to take place.”

The International Monetary Fund predicts that inflation will reach 10,000,000% in 2019, but Oliveros says that this is a very conservative forecast: “If the monthly inflation rate in Venezuela holds around 250%, which is a viable scenario, in the next 12 months, inflation might reach close to 53,000,0000%.”

Various analysts agree that, to stop hyperinflation, the country would require an integral economic plan that encompasses, among other things, monetary and tax stabilization. “The hyperinflationary spiral can only be stopped by economic authorities, because people’s basic trust is a requirement to apply an economic plan,” in Herrera’s words.

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19 COMMENTS

  1. An inflation rate of 15 billion percent is in the netherworld of infinity, asymptotes, and the number of angels that can dance on the head of a pin. In practical terms it means the currency is worthless.

    So it begs the question; “Will Vz commerce, such as it is, continue to be based on the Bolivar, or will it in effect become dollarized?”

    It seems to me dollarization is inevitable without, “an integral economic plan that encompasses, among other things, monetary and tax stabilization.” And I don’t see any signs of that happening.

    • Dollarization is fine/good solution, but the average Jose doesn’t have access to $; in the end, only a massive IMF bailout will really work, but this would require a massive political change, not to mention socio-cultural change.

    • Based on the information that I have from family and friends still living in the country. Most commerce at the micro economic level for services or good is done via barter. That which is done via currency is based on dollars from remittances or purchased on the black market.

  2. I read yesterday that the Chavistas will be giving the IMF a full financial reckoning of the economy. Or at least their version of a reckoning.

  3. This kind of Mega-Inflation does many good things for the criminal regime:

    – Forces Millions of opponents to leave the country: less mouths to feed, more left to steal.
    – Destroys the private sector, shuts down businesses, part of the Castro-Chavista sinister Master Plan.
    – Impoverishes the remaining populace, makes them more dependent on the evil “government”.
    – Entices average people to “rebuscarsela”, meaning ‘chanchullos’, ‘izquierdazos’, ‘tigritos’ ‘mordidas’. It practically forces people at all levels of the broken society into corruption. Into complicity with twisted “ministerios” and “alcaldias”. Forces them to participate in dirty scams, even flat-out steal.

    That’s what made Kleptozuela: a country mostly made of twisted people, scam artists, complicit public employees (5 Million on Maduro’s payroll?). Just to survive with such hyperinflation and economic crisis, the people that decided to stay are practically forced to Enchufarse.

    In fact, anyone doing business in Kleptozuela knows that, at the very least, to stay afloat you must bribe everyone left and right, comply with a filthy game, and turn a blind eye on countless atrocities that go on, in every industry. Gotta grease the Guardia, the Inspectors, the “officials”. Want to win a bid or a contract for any project or construction? You have to grease lots of people, because that’s what all your competitors do. The contracts go to the higher Greaser. That’s how the Chinese grabbed the oil industry, that’s what happens in the mining industry and all others: PURO GUISO, left and right, at all levels. Not just in politics, mind you. Or at an international level. Happens everywhere, whatever you want to but or sell, whatever service you want to provide. You must first get your hands real dirty in multiple scams. Guess I should change the name of Kleptozuela for Guisozuela.

  4. I read earlier this week that levels of consumption and supplies are so low that EVEN IF you have a hard currency Venezuela has become rather expensive in real terms. Essentially Venezuela is a war economy where all consumption is a luxury.

  5. I’m really curious as too who exactly is going to take power after the country is fully destroyed and the chavistas alongside it.

    Let’s face it, the country most likely faces decades of purgatory unless the ruling president has carte blanche to impose the (capitalist) reforms needed to make the country even remotely investable again.

    No offense to the opposition figures, but most of them are just another brand of chavista, Coke Light if you will.

    I don’t see a democrat taking power after this, not after the country has been reduced to a tropical mix of Yemen and Somalia, only the Iron Fist will be able to brink back the country from the hell that’s been inflicted on it.

    May God have mercy on the Venezuelan people.

    • You are assuming there will be a country. At this rate, Venezuela may soon look like Somalia, a patchwork of warring tribes ruled by local warlords, and only minimal pretention of central government.

  6. I’m starting to get real worried about MRubio.

    He should have been back by now, especially since we’re back to our usual visceral posts when justified…and since CC’s ill-founded censorship policy has collapsed within two short weeks.

    • Ira!!! You just had to say it didn’t you?
      I tend to go by the adage that when it’s too good to be true, it’s because it is. Oh and here’s another one: “leave well enough alone.”
      I personally find that I enjoy commenting here because it’s a release for me. Don’t have many friends to talk to these days and it helps to get some things off my chest once in a while so Mr. Toro, if that is the case and you have reconsidered your policy I would like to offer you a warm thank you, very big of you. Now let’s keep it clean from now on shall we boys?

    • Ira
      This is an excerpt from an email that Mrubio wrote me on October 31, 2018

      “this all kind of folds into the ongoing Caracas Chronicles clusterfuck right now. John, as you’re aware, I’ve long felt that I risk my personal freedom and safety by posting there because I provide a lot of clues about myself and my location, and more importantly because I just tell the unvarnished truth about what’s going on here in Venezuela. Despite the personal risk, I decided it was worth it because so many people seemed to appreciate my on-the-ground reports even though my observations are limited to only my immediate area as I no longer travel extensively.

      However, Quico’s recent decision to censor the comments section (and he can call it all the names he wishes, it’s still censorship), were too much for me. Why should I risk my safety and well-being, and that of my woman, to contribute to a site that is doing exactly what this regime does, only to some lesser extent? I simply cannot support with Caracas Chronicles what I oppose so vehemently everywhere else so I won’t be posting there again.

      If during the normal course of conversation anyone asks if you’ve heard from me, tell them the truth, that I’m fine, healthy for the moment, and working hard as always. Feel free to quote any of my words above if it makes it easier for you to explain my decision to those who wish to know what happened to me.”

  7. Jessica Morales concludes her fine article with the following observation, “… to stop hyperinflation, the country would require an integral economic plan that encompasses, among other things, monetary and tax stabilization.”

    I believe that an economic plan for Venezuela’s recovery would have to include the repossession of assets resulting from the illegal appropriation of the country’s wealth.

    A couple of years ago two of the regime’s ex-cabinet ministers, Jorge Giordani and Hector Navarro, denounced that 300 billion dollars had been allegedly misappropriated during a decade of the regime that has been in power for almost twice that time. For its part the National Assembly, controlled by the opposition, estimates the embezzlement at between 350 and 400 billion dollars. This amounts to as much as $12,300 per person in Venezuela, equal to 140 years of the minimum wage at the parallel exchange rate.

    Thus between 300 and 400 billion of dollars may be stashed away in foreign bank accounts, cryptocurrencies and other assets waiting to be repossessed by their rightful owners, the Venezuelan people.

    A measure by the National Assembly should authorize an ad-hoc international organization like the United Nations to recover these ill-gotten funds. The Venezuelan Supreme Court in exile would do well to back the Assembly’s decision. This international assistance should be considered of a temporary nature until conditions in the country change for the better.

    In the next decade close to 100 billion dollars of the foreign debt is scheduled to be paid. That would leave between 200 and 300 billion dollars potentially available to Venezuela to begin to undo the disaster the regime has left behind. This should and can be accomplished without the need of acquiring additional debt, including an IMF bailout.

    What about hyperinflation? Once the default of the debt is eliminated, hyperinflation would be recalled as a vivid nightmare of a very tragic past.

  8. When the new-new Bolivar hits 1000:1USD, I will start to show I terested again. I figure by Valentine’s day there with be some more love for Maduro to shower his followers with.

    But the country is quickly “dolarizering”, regardless of economic methods to avoid it.

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