Venezuela economy will continue to be the last in all of Latin America and the Caribbean

22/12/2019

In the short term, there is no solution to the economic, political and social crisis facing Venezuela. This is what the analysts assure and the figures support. Plunged into hyperinflation, which by November stood at 35.8%, Venezuela's economy is facing its worst crisis in recent history.

Venezuela's economy is facing its worst crisis in recent history. Photo: U.S. Southern Command
Venezuela's economy is facing its worst crisis in recent history. Photo: U.S. Southern Command

Congressman Ángel Alvarado, a member of the Legislative's Finance Committee, revealed that accumulated inflation stood at 5,515.6%, while annualized inflation reached 13,475.8%. "The economy began to fall in 2013 and hyperinflation as a result of that collapse manifested itself in October 2017," explained Alvarado.

This is the reason why Venezuela is always at the bottom of the lists of economic projections of the main international entities, even beating Argentina in terms of the worst economic scenario. While the IMF projects that by 2020 the Venezuelan economy will contract 10%, the World Bank refrains from presenting forecasts, since the government has not provided official macro figures for many years. In the case of ECLAC, the contraction of Venezuela's GDP next year will be 14%, a figure that at the end of this year is projected to be -25.5%.

Venezuela's situation must be understood with the destruction of economic rights as of 2007, Alvarado said. "The expropriations destroyed the country's industrial, agricultural and productive capacity, and the bad management by PDVSA led to a collapse of oil production as of 2015," he stressed. In this regard, Corina Fung, an economist with Ecoanalítica, recalled that the sanctions imposed by the U.S. to pressure Maduro to add to the problems facing Venezuela. "The sanctions have put up barriers in the Venezuelan external sector, complicating the commercialization of the little crude oil produced by the oil company PDVSA.

For Henkel García, director of Econométrica, Venezuela's economic recovery has been truncated by the "absence of a coherent, integral and ambitious plan" on the part of Nicolás Maduro's regime. Although García points out that the government has announced specific measures such as the relaxation of currency controls to somehow solve the crisis, these have not been enough. "We need to recover the oil industries, public services, international financing, a direct subsidy plan, a system with greater economic freedoms, an institutional readjustment so that both political and economic institutions create the conditions and rules of the game for that recovery. None of that is there," explained the director of Econométrica.

That low or no industrial productivity is equivalent to consumption. According to Cenda's latest figures, the monthly cost of the basic basket is 4.25 million bolívares (US$180). If a Venezuelan earns a minimum wage of 150,000 bolivars (US$6.35), that means that he can only acquire 3.5% of the basic basket and up to 7% if minimum wage plus food tickets are added.

"The big obstacle to economic recovery is the restitution of political rights," said Alvarado. The deputy said that it is necessary to restore those rights in order to generate confidence in the international community and attract new investment. "It is complicated to believe in economic growth for 2020. The country has greatly diminished its capacity, investment and confidence are required and that will only be possible if there is a political change that generates stability, clear rules of the game," he explained.

The dollar on the street: a way out of the crisis

Venezuelans are becoming more familiar with the U.S. dollar every day. A study conducted by Ecoanalítica revealed that the country is migrating to the international currency as a response to the crisis. Among the five days covered by the study (October 10-15), more than 50% of the transactions were in dollars. Asdrúbal Oliveros, director of Ecoanalítica, estimates that "the stock of dollars in cash is between US$2.5 billion and US$3 billion," which means that the U.S. currency has tripled to the local currency.

A higher minimum wage does not make a difference

In January 2019 the minimum wage stood at 18,000 sovereign bolivars, while in April it rose to 40,000, plus 25,000 food basket. In October, Nicolás Maduro increased the minimum wage in Venezuela by 375% to 150,000, plus a food allowance of 150,000, which was equivalent to about US$15 at the time, but today stands at US$6.48 due to the devaluation of the currency against the dollar. One of the many measures of the regime that has not been effective in mitigating the economic crisis that families are experiencing.

The factors that slowed growth this year

Hyperinflation and low crude oil production explain part of the economic crisis

Hyperinflation

The accumulated hyperinflation as of November was 5,515.6%, while the year-on-year rate was 24,312.5%. Between October and November, hyperinflation increased by 15.1 percentage points, from 20.7% to 35.8%, as reported by the National Assembly.

Migration increases

The Regional Interagency Coordination Platform for Refugees and Migrants of Venezuela, led jointly by UNHCR and IOM, with data up to December 5, revealed that 4.7 million Venezuelans have migrated from their country.

Unemployment rises

The IMF said in its World Economic Outlook report that by 2020 Venezuela will be the country with the highest unemployment rate at 50.5%, which is 3.3 percentage points higher than expected for 2019 (47.2%).

GDP continues to fall

The most recent report of the Central Bank of Venezuela revealed that the GDP in the first quarter of 2019 had a variation of -26.8%. The IMF points to a fall in real GDP of 35% by 2019, while ECLAC forecasts a contraction of 25.5%.

Blocked oil

Venezuela has greatly reduced its oil production due to the sanctions imposed by the United States. However, according to Reuters, by November it showed an increase of more than 20% over the previous month, with 926,000 barrels per day being pumped in.

By Mexicanist Source La Republica