Venezuela inflation to hit 1,000,000%: IMF

Health workers in Caracas on Wednesday protesting to demand higher salaries. President Nicolas Maduro on Wednesday said five zeroes will be removed from the bolivar. The new bolivar bills will be in circulation next month .
Health workers in Caracas on Wednesday protesting to demand higher salaries. President Nicolas Maduro on Wednesday said five zeroes will be removed from the bolivar. The new bolivar bills will be in circulation next month .PHOTO: EPA-EFE

Hyperinflation has led to food, medicine shortages and collapse of public services

CARACAS • Whether it sparks a social revolution or forces the government to open up the economy, one thing for sure is that Venezuela's projected 1 million per cent inflation will heap more misery on an already suffering population.

Earlier this week, the International Monetary Fund (IMF) made the stunning projection, adjusting its previous estimate that inflation would hit 14,000 per cent to a figure more than 70 times higher.

Already, poverty is reaching unprecedented levels, an estimated 1.6 million people have fled the country, social unrest is on the rise among those who stay, salaries have become almost worthless, there are shortages of food and medicine - and yet President Nicolas Maduro clings to power.

"Nothing surprises me," Mr Marcos Salazar said after being told of the IMF projection as he munched on a hamburger while standing beside a street stall.

That burger cost five million bolivars (around US$1.50, or S$2, on the black market), equivalent to the minimum monthly salary, which is itself partly paid in food vouchers.

"Week after week, day after day, things cost more. It's not gradual, it's exponential," added Mr Salazar, a 31-year-old professor working three jobs, which still is not enough to support him and his partner.

They survive thanks to money sent home from relatives who fled the country.

Hyperinflation has not only contributed to shortages of food and medicine but also to the collapse of public services, including water, electricity and transport.

Specialist Henkel Garcia of economics consultancy Econometrica believes Venezuela desperately needs political and social reforms in order to maintain "a minimum of stability".

"You can only escape from hyperinflation through a profound reform of economic policy," he said, pointing to the examples of Germany in the 1920s and Zimbabwe in the 2000s.

Poverty climbed to 87 per cent last year and extreme poverty to 61 per cent, according to a group of leading Venezuelan universities. They said six out of 10 people claim to have lost on average 11kg due to hunger.

Venezuela is dependent on its oil exports that account for 96 per cent of revenues, but output has dropped to its lowest level in 30 years - 1.5 million barrels a day, from 3.2 million in 2008 - according to the Organisation of the Oil Producing Countries.

This has prevented the country from benefiting from a recovery in oil prices, while the Maduro government's decision to print more money due to lack of foreign exchange has engendered economic paralysis.

The economy is expected to contract by 18 per cent this year, the third consecutive year of double-digit declines.

Mr Garcia says that as well as reeling in the expansion of the monetary base, Venezuela needs to boost industry, currently running at 30 per cent capacity, and dismantle controls over prices and the exchange rate, which give the government a monopoly on foreign currency.

Attracting funds is another imperative, currently thwarted by US sanctions against the government and state oil company PDVSA.

Econometrica says the country needs an injection of US$20 billion to US$30 billion a year for the next two or three years to arrest the slide.

While demonstrations are becoming more commonplace, political scientist Miguel Martinez Meucci believes there is only one way Mr Maduro's grip on power will weaken: loss of support from the armed forces, which wield great political and economic power.

There have been rumblings of discontent emerging from within the ranks, and tensions could ignite during the governing United Socialist Party congress, due to start tomorrow.

"The revolution has been going on for 19 years now. We're responsible for the good and the bad," admitted Mr Freddy Bernal, an influential Maduro ally who acknowledged that "governance has been lost".

Indeed, late on Wednesday, Mr Maduro announced the removal of five zeroes from the country's currency - two more than originally planned. The new bolivar bills will entre circulation on Aug 4.

AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on July 27, 2018, with the headline 'Venezuela inflation to hit 1,000,000%: IMF'. Print Edition | Subscribe