Venezuela’s economic crisis has made headlines all over the world for
the past few years. Hunger is widespread there. Unable to afford the small amount of food
available in supermarkets, many Venezuelans have resorted to eating garbage to survive. Even zoo animals in Venezuela are starving
according to a report by the Daily Mail, and people have been breaking into zoos to eat
them. A recent survey found that the “food crisis
has also created an education crisis, as more than 1 million children no longer attend school,
mostly due to hunger and a lack of public services.” Moises Rendon and Mark L. Schneider of the
Center for Strategic & International Studies provide a bleak assessment of Venezuela’s
current situation, saying the country is suffering “an unprecedented man-made humanitarian
crisis.” They say Venezuela resembles “a country
at war” and notes some of its major social problems, including “extreme food and medicine
shortages,” “rampant crimes in every city,” “constant electric blackouts,” and “looting
and repression.” When you see and hear these stories, you can’t
help but wonder what went wrong. How could a country that was once one of the
most affluent countries in South America reach such a sorry state? One source of the misery in Venezuela is its
out-of-control inflation, which we will examine in this episode of The Infographics Show,
“Venezuelan Hyperinflation Explained.” Before we discuss Venezuelan hyperinflation,
let’s begin with a discussion of what hyperinflation is in general. Simply put, hyperinflation is very high, rapid,
and continuous inflation. In a hyperinflation situation, the prices
of goods and services in an economy quickly rise to a level so high that they become difficult
to afford for most people. While experts cannot agree what that exact
level is, economist Michael K. Salemi states that hyperinflation is generally used to “describe
episodes when the monthly inflation rate is greater than 50 percent.” He gives the example that “at a monthly
rate of 50 percent, an item that cost $1 on January 1 would cost $130 on January 1 of
the following year.” The hyperinflation in Venezuela is significantly
more than the rate cited by Salemi. According to an August 2018 BBC article, prices
of goods “have been doubling every 26 days on average,” and the annual inflation rate
“reached 83,000% in July.” One source reported that a cup of coffee cost
450 bolivars in Venezuela less than two years ago. Earlier this year, it cost a shocking 2.5
million bolivars. But wildly high prices are not the only serious
effect of hyperinflation. As a Guardian article notes, the “problem
comes when the supply of paper money in an economy outstrips demand for goods and services,
causing the value of the currency to fall.” Following in the footsteps of Zimbabwe, Venezuela
turned to increasing its money supply because it had no other means to pay its debts as
we shall see later. But ultimately Venezuela ended up in its current
hyperinflation situation due to a combination of several factors: Number 3: High Government Spending President Hugo Chavez ran Venezuela from 1999
until his death in 2013. Chavez and his administration implemented
social programs called the Bolivarian Missions that were supposed to improve living conditions
for the poor by redistributing wealth and reforming the way land was used. There was also an attempt to promote economic
democratization through the establishment of worker-owned cooperatives. Data from the Center for Economic and Policy
Research (CEPR) indicates that Chavez achieved a high degree of success with these programs. He was able to reduce unemployment from 14.5
percent in 1999 to 7.8 percent in 2011. The poverty rate also dropped from 50 percent
in 1999 to 31.9 percent in 2011, while extreme poverty dropped from 19.9 to 8.6 percent in
2011. Unfortunately, this prosperity came at a high
financial cost. The social programs were good for the people
but bad for the economy. Chavez spent more money on these social programs
than the country could really afford. According to CNBC, public spending accounted
for more than 50 percent of Venezuela’s GDP in 2012. He also borrowed money from other countries
to keep the programs going. By 2013, Venezuela’s foreign debt climbed
to a little over $106 billion. According to one source, Chavez had been warned
about the growing fiscal deficit as early as 2002, but he didn’t pay attention to
the warnings. For Chavez, these social programs were a way
to win over the people. Maintaining his popularity with the people
was important to him because it was a way for him to maintain his power. An article in The Economist states that through
the Bolivarian Missions and the “flood of oil money” he was able to “rebuff a referendum
in 2004 that would have removed him from office.” To make matters worse, Chavez and his administration
failed to save money for future economic crises, which quickly emerged due to an event that
happened in 2014. Number 2: Low Oil Prices Venezuela’s economy is mainly based on selling
only one commodity: oil. Venezuela has the largest oil reserves in
the world. The World Atlas states that it has 300,878
billion barrels of proven reserves. According to Oil Sands Magazine, “most of
Venezuela’s proved oil reserves are located in the Orinoco Petroleum Belt,” which is
located on the eastern Orinoco River Basin. The Orinoco Belt is approximately 370 miles
(600 km) in length and has an area of about 21,357 sq. mi. (55,314 sq. km.). It is estimated that the area contains about
1.2 trillion barrels of oil. Another oil-rich area in the country is the
area near Lake Maracaibo, which is actually a brackish tidal bay that is located near
the Caribbean Sea. One source estimates that the “lake’s
basin supplies about two-thirds of the total Venezuelan output.” With the discovery of oil in Venezuela in
the early 1900s, the country relied more and more on it as a revenue source. Today, Venezuela “derives over 50% of its
GDP from petroleum exports which represents about 95% of total exports” according to
a Forbes article. This meant that when oil prices were high,
life was good. For instance, Venezuelans enjoyed a high standard
of living when oil prices spiked in the 1960s and 1970s. An online magazine called Foreignpolicy.com
describes how “Venezuela was considered rich in the early 1960s: It produced more
than 10 percent of the world’s crude and had a per capita GDP many times bigger than
that of its neighbors Brazil and Colombia — and not far behind that of the United
States.” Conversely, when oil prices went low, life
was bad, and this is what happened to Venezuela starting in 2014. That year, the price of oil dropped sharply
from $100 to about $70 a barrel, and the price decline continued “to a low of around $33
dollars a barrel in early 2016” according to the American Institute for Economic Research
(AIER). The slump in oil prices sent Venezuela into
an economic downward spiral. Lower oil prices brought with it a reduction
of Venezuela’s foreign reserves, and AIER states that this in turn reduced the government’s
ability to “subsidize basic goods and services for its people.” Number 1: Continuing Economic Mismanagement The Venezuelan government, now under the control
of Chavez’s successor Nicolas Maduro, dealt with the budget gap the way other countries
in a similar situation did in the past when they had no other way to pay their debts – print
money. AIER notes that printing money set the wheels
in motion for hyperinflation: “The budget shortfall was closed by printing money. Hyperinflation took hold, destroying the savings
of individuals and making productive business investment nearly impossible.” A comment made by a nurse named Maigualida
Oronoz helps you understand what living with hyperinflation is like for the average citizen
living in Venezuela. In an interview with the Guardian, she says,
“We are millionaires, but we are poor . . . We can just about eat, but if some health emergency
happens we’ll die because the prices of medicines are sky-high and rise every day.” According to economist Theodore Cangero, hyperinflation
continues under Maduro because “he is continuing the disastrous economic policies of the late
President Chávez.” Earlier this year, Reuters reported that Maduro
seemed to be in denial about Venezuela’s hyperinflation. In an interview with Reuters, Rodrigo Cabeza,
Hugo Chavez’s former finance minister, said that “Venezuelan President Nicolas Maduro
has refused to recognize the country’s hyperinflationary problem and has no plan to address it.” Now it seems that he has come up with course
of action. President Maduro has decided to play games
with the value of Venezuela’s dying bolivar currency in a desperate effort to give the
appearance that hyperinflation is disappearing from his country. The Peterson Institute for International Economics
(PIIE) outlines his current plans for the bolivar: “His proposed monetary reform has
three pillars: (1) slash five zeros from prices—so a product that costs 100,000 bolívares would
now cost 1 bolívar—and give the currency a different name, the “sovereign bolívar”;
(2) devalue the currency by 95 percent; and (3) peg the bolívar to the petro, Venezuela’s
digital currency backed by oil introduced in February 2018.” He then plans to combine these monetary reforms
with yet another round of questionable government interventions. CNBC reports that he will “hike the minimum
wage by over 3,000 percent, boost the corporate tax rate, and increase highly-subsidized gas
prices in coming weeks.” PIIE and other economic experts are skeptical
that these measures will work to reduce hyperinflation because they don’t address the underlying
problems that are causing the hyperinflation in the first place. PIIE argues that “there is no substantial
fiscal reform in the works, no attempt to rebuild dismantled institutions, and no announced
shifts in economic policymaking.” PIIE even forecasts that Venezuela “looks
set to beat Zimbabwe, a country that managed to have an annualized inflation rate of 79
billion percent in November 2008.” The economists interviewed by CNBC also have
a dire outlook for Maduro’s monetary plan. They think it will make the hyperinflation
in Venezuela even worse: “Amid this aggressive devaluation and monetary
expansions due to salaries and bonuses, we are expecting a much more aggressive stage
of hyperinflation. All the more so in a context where the elimination
of excessive money printing is not credible. The worst of all worlds, said Venezuelan economist
Asdrubal Oliveros of consultancy Ecoanalitica. A large number of Venezuelans have decided
that they no longer want to live in this world where all of the social gains of low poverty
and low unemployment recklessly bought by Hugo Chavez have been wiped out by incompetent
leadership, poor financial planning, and widespread corruption. They are fleeing from Venezuela in droves. According to the Guardian, “nearly two million
people have fled Venezuela’s economic and political crisis since 2015.” The exodus will continue unless some drastic
monetary and political changes are made. How long do you think Venezuela’s hyperinflation
will last? What do you think needs to be done to fix
it? Let us know in the comments! Also, be sure to check out our other video
called Why You Will Soon Be Eating Crickets and Other Insects! Thanks for watching, and, as always, don’t
forget to like, share, and subscribe. See you next time! v
Above all else, it was probably a bad idea to put a provision in Venezuela’s constitution that essentially allowed the Assembly to make the President a Dictator
OP, why is the Philippines dirt-poor?
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