Venezuela’s Economy Has Entered the Eye of the Hurricane and the Aftermath Will Be Devastating
On September 21, 2016, just over one year ago, the US dollar-Venezuelan Bolivar exchange rate was at 1,008, according to DolarToday. But the value of Venezuela’s currency has decreased by 95.6 percent, now going for 22,938 per one US dollar.
When Nicolás Maduro took office on April 19, 2013 following the death of Hugo Chávez and an election whose legitimacy remains in question, the country’s currency went for 24.8 Bolivars per one US dollar. That means, since Maduro took office, the country’s currency has decreased in value by 99.8 percent.
It’s not surprising when taking into account that the supply of money in 2013 was barely .07 percent of what it is today. Last year alone, according to the country’s Central Bank, it’s grown by 450 percent.
With the country’s money in disarray, it’s also not surprising that the the Center for the Analysis of Workers reports that the market basket has increased by 295 percent over the last year. Since April 2013, it has increased by — take a deep breath for this: 36,708 percent.
That figure alone should suffice in explaining the disastrous economic crisis in Venezuela, and yet the numbers don’t actually tell the full story of suffering citizens. Those who don’t flee the country protect their money by buying goods — usually non-perishables — which don’t move the economy. There is no economic trust in Venezuela.
The country has had four years of economic contraction; that is to say, four years of a continuous fall in the quantity of goods and services that it produces. Nobody invests a dollar, or a bolivar, in Venezuela, if they can avoid it. A friendly broker tells me that in the last year, the value of real estate has fallen by 70 percent.
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Maduro always boasts about having “maintained” public spending, without realizing, apparently, that public spending is a good thing. Inflation is accelerating. Prices are accelerating. That acceleration is pushing us all toward the looming threat of famine. Yet even as I write this, Maduro exercises what he believes to be sound governance — participating in television broadcasts every night. It seems to be the only thing that occupies his time. The man has no idea how to resolve the situation, and does not care; his only objective is to keep the people distracted.
I like to imagine that when he finishes his daily television broadcast, Maduro asks for a drink in Miraflores, he sits down in a comfortable chair to watch an episode of the Spanish sitcom “Nobody Lives Here,” smiles, and thinks: “I survived today” or “I survived another week” with some good Venezuelan Rum, plenty of ice and a splash of lemon.
We do not have a president. We have a hanger-on.
When I worry about the country imploding, I turn to the economist Luis Oliveros, who answers my questions about the economy through Whatsapp. Once, I asked him if the country was going to hell. He was kind enough to answer me right away, with data and explanations.
Luis is doubly kind if you consider that I ask him the same question every six months, and his answer is almost always that countries do not collapse, they only get poorer and poorer. However, this week, he had something extra to say.
“I hope that my pessimism is not confirmed, but we are still a long ways from the worst. I think that in September and October, the debate that the economists have about whether there is hyperinflation or not, will be over, because we are going to be in hyperinflation.”
Meanwhile Maduro speaks of a “miraculous” plan for the country’s youth. But what good does it do young people if they can barely earn $10 a month? That won’t fix anything. Now, Maduro is talking about investing in yuan, euros and rubles.
That’s how manipulation goes: keep promising an economic solution at the end of the rainbow, even if we won’t ever get there. The number of people who don’t believe there’s an “economic war,” according to pollsters, has climbed from 48 percent in 2013 to 85 percent in 2017. That means nobody is buying Maduro’s lies.
Considering how reluctant my friend Luis has always been in describing the situation as hyperinflation (rates increasing by more than 50-percent monthly) the fact that he is now using that term nearly gave me a panic attack. Inflation rates have usually stayed within one digit, meaning they have stayed low.
In 2013, when Maduro took power, he increased the minimum wage to 2,475 bolivars. Figures at the time showed the minimum wage to be around US $100. There was also a diversified salary scale: a professional could earn the equivalent of five, seven, or eight minimum wages.
To this day, the minimum wage is three hundred and twenty-five thousand bolivars. It has multiplied by 12 Bolivarian units, but in today’s dollars that comes to about $14 — a classic example of what is known as “monetary illusion” in macro-economics.
A kilo of tomatoes costs twenty thousand bolivars, or two days of salary. All incomes become small in such an economy. A qualified professional rounds off about two monthly minimum wages if he is lucky. It no longer makes sense to work, and that’s worrying.
But it’s just the tip of the iceberg. Currently, in addition to the almost absolute-scarcity of medicine (food products have reappeared, imported by government mafias), we have to endure a shortage of gasoline. If it continues — and there is no reason to doubt that it will — the economy, which was going to fall by seven percent this year, may fall by as much as 15. There’s no end in sight, according to Luis.
Add to this mix three other elements: 1) we will probably default in the next few months; 2) the “Dicom” will sell us yuan or rubles, not dollars and 3) in a couple of weeks, the European Union will begin to establish sanctions against Venezuelan officials, and will move on to the next step, which is for the US to sanction officials and their families, and then increasing economic sanctions. The wheels are already in motion. I have it from a reliable source.
In this scenario, what we have endured up to now in terms of pain, forced emigration and hunger will pale in comparison to what is coming next. We are entering the eye of the hurricane.
Hold on tight.