New Data Reveals Venezuela’s Inflation in Excess of 300 Percent

By: Fergus Hodgson - @FergHodgson - Nov 7, 2013, 9:41 pm

EspañolVenezuela may have an official exchange rate of 6.3 Bsf. (bolívares fuertes) per US dollar, but that doesn’t mean anyone believes it. New data out today from the Troubled Currencies Project reveals the black market rate, which reflects current supply and demand, to be 57.32 Bsf. per US dollar — almost 10 times the official rate.

The project of the libertarian Cato Institute documents the world’s most unstable currencies, and right now Venezuela leads the pack. The nation’s reported inflation rate was 42.6 percent, as of July, but taking into account the more accurate black market value, economist Steve Hanke finds it to be 320 percent. Syria is next in line with inflation of 67 percent, followed by Argentina (59), North Korea (30), and Egypt (19).

Country
Black-Market Exchange Rate
Official Exchange Rate
Annual Implied Inflation Rate (Percent)
Annual Official Inflation Rate (Percent)
Argentina
9.96
5.94
59
10.61
Egypt
7.12
6.89
19
10.28
North Korea
8090.00
129.48
30
N/A
Syria
123.00
139.63
67
40.23
Venezuela
57.32
6.30
320
42.6
Source: Steve H. Hanke, The Troubled Currencies Project, Cato Institute – Johns Hopkins University. Retrieved on 11/7/2013 from http://www.cato.org/research/troubled-currencies-project.

Although the threshold is imprecise, economists generally label inflation beyond 50 percent per month as hyperinflation. Venezuela’s annual rate of 320 percent translates to approximately 13 percent per month, so the nation hasn’t reached that point yet. However, it has worsened since the August release, when the annual rate was 241 percent, and it shows no sign of turning around.

Such rapidly changing prices cause severe problems, particularly because they undermine long-term contracts and international trade. Already, Venezuela has earned a reputation for widespread shortages of everything from toilet paper to basic food items.

Venezuela's inflation in excess of 300 percent
Source: EDO ilustrado

In response, the central government has blamed the CIA, taken over factories, instituted price controls, and prohibited “hoarding.” Less than two weeks ago, President Nicolás Maduro also created the Viceministerio para la Suprema Felicidad del Pueblo (Ministry for the Supreme Happiness of People). Then yesterday he announced a government venture to control imports, the Centro Nacional de Comercio Exterior, to crack down on violations of the currency and import restrictions.

Jorge Redmond, ex-president of the Venezuelan Council of Industries, believes many residents are seeking to avoid inflation by denominating contracts in dollars and at the unofficial “free dollar rate.”

“The fact that the free rate is ten times the official rate is a distortion the government had never planned on, and it is driving them nuts,” he says. “The hard liners want more controls to punish those who raise prices and the end result will be greater scarcity. It would seem that the government has everything to lose because of its unwillingness to face reality.”

María Diaz, a corporate social responsibility specialist based in Caracas, says the worst part of the controls associated with prices and the currency market is that they generate more opportunities for corruption.

Regarding the newly-announced trade center, it is “a way to control imports and restrict companies’ access to foreign currency at the official rate, [but it] will only increase the instability in the economy, the scarcity of basic products, and thus, the distrust in the economy.”

Fergus Hodgson Fergus Hodgson

Fergus Hodgson was the founding editor in chief of the PanAm Post, up until January 2016. Originally from New Zealand, he divides his time between Canada and Argentina, and he has also lived in Colombia, Ecuador, and the United States. Follow @FergHodgson and his Facebook page.

Brazil and Venezuela: The Discrete Fallout of Two Strategic Partners

By: María Teresa Romero - @mt_romero - Nov 7, 2013, 6:30 pm

EspañolSince 2003, when Luiz Inácio Lula da Silva took office as president of Brazil, and under his successor Dilma Rousseff, commercial and diplomatic relations with Chavista Venezuela have been positive and close. The pair have been vital strategic partners, despite the undeniable political differences between both their governments. These differences can be seen clearly in their foreign policies. In contrast with the ones implemented by Hugo Chávez and Nicolás Maduro, marked by their ideological bias, those favored by Lula and Rousseff have been more pragmatic; they are mainly based on economic interests and their traditional geo-strategic objective, to consolidate themselves as a regional and global power. This explains Brazil’s friendly but conditional stance towards Venezuela during the Chavista regime. In fact, Brazilians have always refused to join the Bolivarian Alliance for the Peoples of our America (ALBA). It also explains why their bilateral relations, which had a golden era during Lula da Silva’s eight-year mandate, are now, under Dilma Rousseff, undergoing a subtle decline. This divide may deepen in the future due to the economic crisis and the political instability of Nicolás Maduro’s administration. We should recall that it was in 2005, with Lula, when the “strategic alliance” was truly signed between Brasília and Caracas. Officials initiated agreements on a wide array of matters, quarterly meetings, and a cooperation facility. As these links strengthened, a very privileged partnership arose, which brought about an 858 percent increase in Brazilian exports to Venezuela. According to the Venezuelan Ministry of Foreign Affairs, total Brazil-Venezuela trade grew seven-fold from 2003 to 2012. Regarding politics and diplomacy, though, President Lula signaled his distance from Chávez’s stance in matters that compromised Brazilian interests. For instance, during confrontations between the Commandante and George W. Bush’s administration in the United States and with the Colombian Álvaro Uribe, Lula acted as mediator or an appeaser with Chávez. Still, Lula's support for Chávez afforded the Venezuelan president international legitimacy. He did so through action or omission, sometimes with complicit silence, sometimes in a direct way or through his minister of foreign affairs, Celso Amorin, or his adviser Marco Aurelio García, who were in charge of his foreign policy. With Lula’s successor, Dilma Rousseff, those fruitful bilateral relations have continued. Venezuela still accounts for 15 percent of Brazil’s total trade surplus. In 2012, their bilateral trade reached a record US$6.1 billion — although it favored Brazil steeply, where 80 percent of the traded goods and services came from. The energy sector accounted for Venezuela's 20 percent (state-led). Russeff and Maduro too have a cordial relationship. One of the Venezuelan president’s first visits this year, after his dubious electoral win, was to Brazil — and Brazil was one of the first countries to offer diplomatic acknowledgement. During the meeting, both leaders committed to sustaining their alliance and signed new agreements. Later, Brazilian authorities ensured that they would help Venezuela overcome the serious shortages it is currently experiencing. Nevertheless, neither commercial nor diplomatic relations have been quite the same as those between Lula and Chávez. A political distancing and higher commercial pragmatism can be seen. Rousseff, more than Lula, acts on her own interests, which are those of an emerging power. Therefore, her stance changes according to the circumstances she faces. And she has critical internal issues to deal with — public demonstrations, popular unrest, partisan divisions, economic recession, etc. — although these are not as acute as those faced by her Venezuelan counterpart. The disastrous economic situation in Venezuela is also a factor in Russeff’s growing apart. It was why, on October 28, she sent a mission to Caracas led by her minister of commerce and industry, Fernando Pimentel. He intended to claim the repayment of debts incurred by Venezuelan state firms with Brazilian exports companies, mainly in the food sector. According to the Folha de Sao Paulo newspaper, many payments of exports from Brazilian companies this year are already four months late. Brazil’s subtle distancing is also due to the militarization and radicalization of Maduro’s administration. Rousseff and her Workers’ Party (Partido dos Trabalhadores) are in a pre-electoral campaign period for the 2014 presidential elections, and her reelection is at stake. Therefore, she has no wish to be seen as having a close relationship with an undemocratic government that openly attacks the Constitution, the democratic opposition, and the rights of its citizens, including freedom of speech and information. Rousseff has repeatedly said that she prefers “the noise of newspapers to the silence of dictatorships.” After all, Brazil is aware that it enjoys a democracy in which the media have a vigilant role and, in general terms, respect the democratic principles and institutions, plurality of voices, and human rights. It is also aware of its key status in South America — hence the caution against Maduro’s Chavismo. It is, after all, debased not only economically but also politically in the hemisphere and has long ceased to be the epicenter of the Latin American left. Translated by Ceteris-Paribus.

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