What causes hyperinflation in Venezuela

Hyperinflation in Venezuela : Handbags made from banknotes

Out of all the desolate news from Venezuela, this one stood out: The International Monetary Fund (IMF) has predicted that inflation in Venezuela will amount to one million percent by the end of the year. The IMF compares the situation with that in Germany in 1923 and that in Zimbabwe at the end of the 1990s. Both countries experienced political upheavals a short time later.

To be able to imagine what one million percent inflation means: If, for example, you had to put down a cent for a piece of chewing gum on the first day of the year, it would be 10,000 euros on the last day of the year. Anyone can imagine the practical problems of this decline in the value of money.

With hyperinflation comes a breathtaking economic decline. The IMF estimates that Venezuela's gross domestic product will shrink by 18 percent this year. It would be the third year in a row that the oil-rich nation's economic output has declined by double digits. The rest of Latin America, on the other hand, recorded slight growth rates.

A new currency should fix it

Venezuela's Socialist President Nicolás Maduro responded to the IMF's predictions by announcing a new currency. The "Sovereign Bolívar" (Bolivar Soberano) will have five zeros fewer than the old Bolívar and will be put into circulation on August 20. Its value is linked to the Venezuelan cryptocurrency Petro. Maduro's announcement was also surprising because the day before it had been said that the new currency would only have three zeros less. The president predicted that the introduction of the new currency would "radically change" the country's monetary and financial situation.

But that can confidently be doubted. The expropriation of large companies, the state fixing of prices and exchange rates, the dramatic decline in oil production due to a lack of investment, corruption - all these are structural causes for the decline of the Venezuelan economy. While the rich Venezuelans can often help themselves because they have access to dollars that are traded on the black market at rates of up to 3.6 million bolivares (many times the official exchange rate), the poor are hit particularly hard.

Workers with minimum wages are never fed up

The minimum wage is currently 5.5 million bolivares a month. That's the equivalent of 1.50 dollars. But for just one kilo of meat you have to raise ten million bolivares. And bread costs 1.4 million bolivares in some places. The workers who receive the minimum wage are therefore not satisfied and suffer from hunger: It is no coincidence that the average weight of Venezuelans fell by 14 kilograms in 2017. And even more affluent Venezuelans now spend their entire income only on food, buying new clothes or going out is considered a luxury.

In addition, because of inflation, all money has to be spent quickly because it loses value within hours. In any case, there are constant problems with cash: Since the highest value bank note is currently a 100,000 bolívar note, the ATMs only spit out a few million bolívar per person due to lack of space, which is just enough for a few basic purchases. Since some banknotes are worth next to nothing anyway, they are misused. Resourceful craftsmen are already making handbags from them. The problems with cash - how should one expect such amounts and where should one put all that paper - have contributed to the fact that around 85 percent of all payments are now made electronically. Venezuela is experiencing almost cashless hyperinflation - a historic first.

A supply committee as a means of political pressure

In order to somehow keep the poor in this situation, the government distributes crates of food once a month, the so-called CLAP - that stands for "Local Supply and Production Committee". The boxes contain staple foods such as rice, pasta, cornmeal and oil. But not even they are still produced in Venezuela, but imported from Colombia, Mexico and Turkey. This further contributes to the fact that the government uses up its limited foreign exchange reserves. She also uses the CLAPs as a means of political pressure. Only holders of the “Fatherland Card” (Carnet de la Patria) invented by the government are eligible as recipients. In this way open contradiction is suppressed. Almost two-thirds of Venezuelans now depend on government grants like this.

The list of economic contradictions goes on and on. It is often the small absurdities that characterize the great debacle. For example, the use of the metro in the capital Caracas is free because printing a ticket would exceed the price of a trip that has not been adjusted for inflation. There would also be no coins or notes whose value would be low enough to buy a ticket. The metro system will therefore perish in the foreseeable future, as will bus traffic. Many buses no longer run because the bus owners cannot keep their vehicles in good condition due to expensive spare parts.

Water only every few days

The public infrastructure is also collapsing in other areas. In some regions of the country, including the capital Caracas, water only comes out of the tap every few days. A Venezuelan Twitter user commented: “Water discovered on Mars. It has disappeared with us. ”Power outages are also part of everyday life in Venezuela because corruption, a lack of maintenance and investments have ruined the energy network.

The health system has been particularly hard hit by the crisis: If you are ill or need an operation, it is best to bring your medication or surgical instruments with you to the hospital. The blatant shortage meant that child mortality increased by 30 percent in the past year, and maternal mortality rose by as much as 65 percent. Following the publication of these figures by the Ministry of Health, President Maduro immediately dismissed the Minister of Health. The Venezuelan government has not published any data on the economic situation for a long time.

Given these circumstances, it is understandable that 1.5 million Venezuelans left their country for Colombia and Brazil. Nonetheless, Nicolás Maduro's regime persists. It has to do with the fact that the opposition is weak, divided and backward looking and Maduro controls the military. If the economic situation does not improve, however, Venezuela is likely to experience political upheaval as well.

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