IMF: Venezuela inflation to reach 1 million percent
July 24, 2018
Venezuela's real GDP is expected to shrink by 18 percent in 2018, marking five consecutive years of declining growth. The IMF said that Venezuela's hyperinflation forecast is similar to that of post-WWI Germany.
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Venezuela's million percent inflation
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The International Monetary Fund reported on Monday that Venezuela's crippling inflation could top 1 million percent by the end of the year, as its economy continues to worsen. The South American nation finds itself in a political and economic crisis that has led to more than a million fleeing the country since 2015.
"We expect the government to continue to run wide fiscal deficits financed entirely by an expansion in base money, which will continue to fuel an acceleration of inflation as money demand continues to collapse," Alejandro Werner, head of the IMF's Western Hemisphere department said.
The once wealthy oil-producing nation of Venezuela has been struggling for years from an unrelenting rise in inflation, shortages of food and medicine, and declining oil production.
"We are projecting a surge in inflation to 1,000,000 percent by end-2018 to signal that the situation in Venezuela is similar to that in Germany in 1923 or Zimbabwe in the late 2000s," Werner said.
President Nicolas Maduro, who won a second six-year term as president in May despite the deep economic crisis, blames the poor state of the county's economy on an economic war that he says is being waged by the United States and Europe.
In March 2017, violent protests erupted across the country in response to a Supreme Court decision to strip the legislative branch of its powers. Amid an international outcry, President Nicolas Maduro reversed the decision, but it was too late. Thousands continued to take to the streets, calling for new elections. More than 100 people were killed in clashes with security forces.
Image: Getty Images/AFP/J. Barreto
Hunger, a growing problem
The violence added to the ongoing economic and political crisis in Venezuela. Many Venezuelans spend more than 30 hours a week waiting in lines to shop, and are often confronted with empty shelves when they finally enter a store. President Maduro blames the crisis on US price speculation. The opposition, however, accuses the Socialist government of economic mismanagement.
Image: picture-alliance/AA/C. Becerra
Health care in crisis
The crisis has even affected health care in the oil-rich nation. Venezuelans often head to Colombia to collect medical supplies to send home, as seen in this picture. Hospitals across Venezuela have compared conditions to those seen only in war zones. As patient deaths rise, health officials have sounded the alarm on the rise of malaria and dengue fever.
Image: picture alliance/dpa/M.Duenas Castaneda
Power grab
By July 2017, Venezuela's pro-government Constituent Assembly was established. For observers, it had all the hallmarks of a power grab. The new body adopted the authority to pass legislation on a range of issues, effectively taking away the powers of Venezuela's elected congress, which was under the opposition's control. The move drew wide international condemnation.
Image: picture-alliance/dpa/P. Miraflores
The West sanctions
In response to the political crisis, the United States and European Union imposed a series of sanctions against ruling officials. The US blacklisted members of the Constituent Assembly and froze all of Maduro's assets that are subject to US jurisdiction. The EU banned arms sales to the country.
Image: picture-alliance/dpa/AFP/T. Schwarz
Government victorious in regional elections
In October 2017, Venezuela held two votes: regional elections and elections for governors, which were long overdue. The opposition boycotted the vote, but then split, as some candidates and small parties chose to participate. This caused a deep rift within Maduro's opponents. The government went on to sweep the vote, which detractors say was unfair and heavily favored the regime.
Image: picture-alliance/AP Photo/A. Cubillos
Debt default
In November 2017, the oil-rich, cash-poor nation faced its day of reckoning. Credit ratings agencies declared Venezuela and its state-run oil company in "selective default." But Russia offered to restructure the South American country's debt to ensure Caracas pays its other creditors. US and EU sanctions, however, limited the chance of an agreement.
Image: picture-alliance/AP Photo/A. Cubillos
Presidential elections scheduled
The National Assembly announced in January 2018 that it would grant Maduro's call for snap presidential elections. The electoral authority, CNE, held the elections on May 20. The EU, the US and 14 Latin American nations warned that they would not recognize the results. The mainstream MUD opposition alliance boycotted the vote, leaving only one possible outcome.
Image: Getty Images/AFP/F. Parra
Maduro wins ...
Maduro was re-elected to a second six-year term with about 68 percent of the vote. Turnout was only 46 percent, according to electoral authorities. However, the MUD opposition alliance put turnout at less than 30 percent. The Organization of American States (OAS) called the elections neither free nor fair.
Image: picture-alliance/AP Photo/A. Cubillos
... Guaido assumes power
But weeks into the new year, the situation took a drastic turn. On January 23, 2019, parliament president Juan Guaido declared himself interim president of Venezuela — a move that was quickly recognized by US President Donald Trump. Maduro called it a US-backed "coup." Days later, the US sanctioned Venezuela's state oil firm, while Guaido staked his claim on the country's foreign assets.
Image: Imago/Agencia EFE
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GDP continues to drop
Venezuela's real GDP is projected to fall by about 18 percent this year. The decline is being driven by a significant drop in oil production, widespread micro-level distortions and large macroeconomic imbalances, Werner explained. If true, Venezuela's economy would have seen a 50 percent contraction over the course of the last five years, putting it among the world's deepest economic falls in six decades.
OPEC data confirms that Venezuelan oil production reached a new 30-year low of 1.5 million barrels a day in June, despite having the world's largest reserves of crude. The health of Venezuela's oil sector is a key to its survival, as the country earns 96 percent of its revenue through oil sales.
Venezuelans rely on remittances to survive
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Werner said the IMF projections are based on calculations prepared by the organization's staff and warned that the numbers could change, given the high degree of uncertainty. "An economy throwing you these numbers is very difficult to project," Werner cautioned.
The IMF noted that the economic distortions, coupled with chronic shortages in electricity, domestic water and public transportation, and a high crime rate, plague the citizens of Venezuela and are the reason why so many have fled the country.
"The collapse in economic activity, hyperinflation, and increasing deterioration in the provision of public goods (health care, electricity, water, transportation, and security) as well as shortages of food at subsidized prices have resulted in large migration flows, which will lead to intensifying spillover effects on neighboring countries," Werner warned.
Venezuela's economic collapse has also dragged down growth forecasts for Latin America and the Caribbean to 1.6 percent this year, from 2.3 percent when Venezuela is excluded.
The region, excepting Venezuela, "continues to recover" amid a growth in consumption, with a 2.8 percent growth expected for 2019, the IMF said.