By Ronit Gandhi
Venezuelan inflation is expected to be at 1,000,000% by the end of this year and this article will look into the causes and consequences as well as possible solutions to fix their crisis.
Venezuela has the largest oil reserves in the world, therefore it is quite surprising to see that they have fallen prey to hyperinflation, however it is arguable that them having such a large oil reserve combined with poor government policy was the reason for this inflation. Since 2014 the price of oil has been plummeting and the Venezuelan government did not account for this possibility so their economy which is predominantly oil based suffered heavily. Venezuela used oil revenues generated from the state company to subsidise food, oil and fund their welfare programmes; the country was in a good state before 2014 as unemployment and poverty rates were declining. In 2013 President Nicolas Maduro came into power and when the price of oil crashed and government revenues severely decreased; he decided that the Venezuelan government should print more money to pay the workers and to fund the welfare programmes. Printing more money led to quick rising prices over time and this problem just kept on increasing until inflation was rising at uncontrollable levels. Furthermore, they printed money to pay off their debts but the debts are in Dollars not Bolivars therefore they ended up defaulting on most of their loans and now they are finding it hard to receive new loans. With little revenue and no new money coming in the government couldn’t invest into the state oil company so now its output has fallen by over half further decreasing its revenues leading to an increased economic crisis.
The consequences of this hyperinflation are very severe as it has led to the people of Venezuela starving with 75% of people losing 11kg since it started; Venezuela is a nation that imports most of its food and with little revenue they aren’t able to. A 2.4 kg chicken currently costs 14,600,000 bolivars in Venezuela, the equivalent of $2.22 USD. Moreover, the hospitals are lacking necessary life-saving medicine leading to infant mortality rates rising. President Maduro has taken the role of an authoritarian figure and has been criticised widely for undemocratic practices, with other countries such as Brazil not recognising the government leading to a more unstable economy, violent protests and looting.
One way the government is trying to fix the problem is by creating a cryptocurrency to get around the restrictions put on them by the US to secure more international financing. Another alternative would have been to ask the International Monetary Fund for a bailout but the Venezuelan government broke ties with them so that isn’t an available option at the moment. The best option moving forward is to join the international community and seek help from foreign states and organisation such as the IMF by repairing relations with them as well as diversifying the economy to not rely on oil as that was the cause of the hyperinflation in the first place.