Hyperinflation in Venezuela
Hyperinflation in Venezuela was the currency instability in Venezuela that began in 2016 during the country's ongoing socioeconomic and political crisis. Venezuela began experiencing continuous and uninterrupted inflation in 1983, with double-digit annual inflation rates. Inflation rates became the highest in the world by 2014 under President Nicolás Maduro, and continued to increase in the following years, with inflation exceeding 1,000,000% by 2018. In comparison to previous hyperinflationary episodes, the ongoing hyperinflation crisis is more severe than those of Argentina, Bolivia, Brazil, Nicaragua, and Peru in the 1980s and 1990s, and that of Zimbabwe in the late-2000s.
In 2014, the annual inflation rate reached 69%, the highest in the world. In 2015, the inflation rate was 181%, again the highest in the world and the highest in the country's history at the time. The rate reached 800% in 2016, over 4,000% in 2017, and about 1,700,000% in 2018, and reaching 2,000,000%, with Venezuela spiraling into hyperinflation. While the Venezuelan government "had essentially stopped" producing official inflation estimates as of early 2018, inflation economist Steve Hanke estimated the rate at that time to be 5,220%. The Central Bank of Venezuela officially estimates that the inflation rate increased to 53,798,500% between 2016 and April 2019. In April 2019, the International Monetary Fund estimated that inflation would reach 10,000,000% by the end of 2019. Several economic controls were lifted by Maduro administration in 2019, which helped to partially tame inflation until May 2020.
In December 2021, economists and the Central Bank of Venezuela announced that in the first quarter of 2022, Venezuela would reach more than 12 months with monthly inflation below 50% after more than four years of a hyperinflationary cycle. This would technically indicate its exit from hyperinflation, but the consequences would remain.
Background
Pérez and Caldera administrations
When world oil prices collapsed in the 1980s, the economy contracted, and inflation levels rose, remaining between 6 and 12% from 1982 to 1986. In 1989, the inflation rate peaked at 84%. The same year, following a cut in government spending and the opening of markets by President Carlos Andrés Pérez, the capital city of Caracas suffered from looting and rioting. After Pérez initiated liberal economic policies and made Venezuelan markets more free, Venezuela's GDP increased from a −8.3% decline in 1989 to 4.4% in 1990 and 9.2% in 1991, though wages remained low and unemployment remained high among Venezuelans.While some claim that liberalization was the cause of Venezuelan economic difficulties, an over-reliance on oil prices and a fractured political system have been identified to have caused many of the problems. By the mid-1990s under President Rafael Caldera, Venezuela saw annual inflation rates of 50 to 60% from 1993 to 1997, with an exceptional peak of 100% in 1996. The percentage of people living in poverty rose from 36% in 1984 to 66% in 1995, with the country suffering a severe banking crisis in 1994. In 1998, the economic crisis had worsened, with GDP per capita at the same level as it was in 1963, down a third from its peak in 1978; the purchasing power of the average salary was a third of its 1978 level.
Chávez and Maduro administrations
Following the 1998 Venezuelan presidential election, the inflation rate, measured by consumer price index, was 35.8% in 1998, falling to a low of 12.5% in 2001 but rising to 31.1% in 2003. In an attempt to support the Venezuelan bolívar, bolster the government's declining level of international reserves, and mitigate the impact of the oil industry work stoppage on the economy, the Ministry of Finance and the Central Bank of Venezuela suspended foreign exchange trading on 23 January 2003. On 6 February, the government created CADIVI, a currency-control board charged with handling foreign exchange procedures. The board set the USD exchange rate at 1,596 bolívares to the dollar for purchases and 1,600 to the dollar for sales.The Venezuelan economy shrank 5.8% in the first three months of 2010 compared to the same period in 2009, and had the highest inflation rate in Latin America at 30.5%. President Hugo Chávez expressed optimism that Venezuela would emerge from recession despite International Monetary Fund forecasts that Venezuela would be the only country in the region to remain in recession that year. The IMF categorized the economic recovery of Venezuela as "delayed and weak" in comparison with other countries in the region. Following Chávez's death in early 2013, the country's economy continued to fall into an even greater recession.
The annual inflation rate for consumer prices has increased by hundreds and thousands of percentage points during the crisis. Inflation rates remained high during Chávez's presidency. By 2010, inflation had removed any advancement of wage increases. By 2014, it was the highest in the world at 69%. By 2016, the media reported that Venezuela was suffering an economic collapse. The IMF estimated a 500% inflation rate and a 10% contraction in GDP.
History
Maduro administration
In November 2016, Venezuela entered a period of hyperinflation. In December 2016, monthly inflation exceeded 50% for the 30th consecutive day, meaning the economy was officially experiencing hyperinflation, making Venezuela the 57th country to be added to the Hanke-Krus World Hyperinflation Table.The inflation rate reached 4,000% in 2017. The same year, a trend began in Venezuela in which gold farming in cybergames, such as RuneScape, became an acquirable way to obtain hard currency. In many cases, they made more money than salaried workers in Venezuela, despite earning just a few dollars per day. During the Christmas season in 2017, some shops no longer used price tags; since prices inflated so quickly, customers were required to ask staff how much each item was. In early 2018, the Venezuelan government "essentially stopped" producing inflation estimates.
In May 2019, the BCV released economic data for the first time since 2015. It reported that the inflation rate was 274% in 2016, 863% in 2017, and 130,060% in 2018. The new report suggested a contraction of the economy by more than half in five years, described by the Financial Times as "one of the biggest contractions in Latin American history". According to undisclosed sources from Reuters, the release of this data was due to pressure from China, an ally of Nicolás Maduro. One of the sources claimed that this disclosure might bring Venezuela into compliance with the IMF, making it harder to support Juan Guaidó during the presidential crisis. At the time, the IMF was not able to support the validity of the data as they had not been able to contact the authorities.
2018 inflation estimate
In 2018, the IMF estimated that Venezuela's inflation rate would reach 1,000,000% by the end of the year. This forecast was criticized by economist Steve Hanke, who claimed that the IMF had released a "bogus forecast" because "no one has ever been able to accurately forecast the course or the duration of an episode of hyperinflation. But that has not stopped the IMF from offering inflation forecasts for Venezuela that have proven to be wildly inaccurate". According to Hanke, Venezuela's inflation rate on 31 July 2018 was 33,151%, suggesting that "Venezuela is now experiencing the 23rd most severe episode of hyperinflation in history."The IMF reported that the inflation rate for 2018 reached 929,790%, slightly below the original 1,000,000% estimate.
2019 inflation estimate
In October 2018, the IMF estimated that the inflation rate would reach 10,000,000% by the end of 2019, which was again mentioned in its April 2019 World Economic Outlook report.2021 inflation estimate
In December 2021, economists and the Central Bank of Venezuela announced that Venezuela would reach in the first quarter of 2022 more than 12 months with monthly inflation below 50% after more than four years of a hyperinflationary cycle, which would technically indicate its exit from hyperinflation, but its consequences remained by that date.Causes
A monetarist view is that a general increase in the prices of things is less a commentary on the worth of those things than on the worth of the money. This has objective and subjective components:- Objectively, that the money has no firm basis to give it a value.
- Subjectively, that the people holding the money lack confidence in its ability to retain its value.
The growth in the BCV's money supply accelerated during the beginning of Maduro's presidency, which increased price inflation in the country. The money supply of the bolívar fuerte in Venezuela increased 64% in 2014, three times faster than any other economy observed by Bloomberg News at the time. Due to the rapidly decreasing value of the bolívar fuerte, Venezuelans jokingly called it "bolívar muerto".
Maduro has blamed capitalist speculation for driving high inflation rates and creating widespread shortages of basic necessities. He has said he is fighting an "economic war", referring to newly enacted economic measures as "economic offensives" against political opponents, who, according to Maduro and his loyalists, are behind an international economic conspiracy. Maduro has been criticized for concentrating on public opinion instead of tending to practical issues that have been warned by economists, or creating solutions to improve Venezuela's economic prospects.