January 24, 2022

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How did Venezuela emerge from high inflation and what does it mean for the country’s economy to suffer | The world

Four years and after two currency conversions, This comes out of the hyperinflationary cycle that has existed since 2017.

See: “I was detained and raped for 25 nights”

Venezuela’s central bank (BCV), the country’s public sector bank, released inflation figures on Saturday: According to the National Consumer Price Index, The monthly price variance in December was 7.6%.

This means that Venezuela has fulfilled exactly that Twelve months with variation of less than 50%, Considered by experts to be the gateway to high inflation.

Not only that, but Venezuela has already had single-digit inflation variance for four consecutive months. Inflation was 7.1% in September 2021, 6.8% in October, 8.4% in November and 7.6% in December.

This is not surprising to many. Nicolas Maduro, the same national leader, said in an interview with the Telesur channel days ago that Venezuela had closed its high inflation cycle.

“As a result of inflation management between September, October, November and December, there is a one-digit downward trend and I can politically declare that Venezuela is coming out of high inflation,” the president said.

(Photo: Getty Images)

But what does this mean? What are the consequences for the Venezuelan economy of having to face one of the longest hyperfusionary processes in modern history?

Good and “not so good” message

For Luis Oliveros, a professor and economist at the Metropolitan University, the end of the hyperinflation cycle represents “good news.”

He tells BBC Mundo that Venezuela has been “100% and higher for four years with variations. It (inflation) was very high”.

This cycle began In the last quarter of 2017 When monthly inflation of 56.7% was recorded, it exceeded the limit. That year, according to the BCV, annual inflation was 862.6%.

But that is only a prelude to what is to come. 2018, the year of high inflation, closed at 130.060%; And the economy between 2013, when oil prices fell and in 2018 contracted by 47.6%.

Prices have been rising since the first quarter of 2019, recording variations above the 50% limit only at certain times.

Venezuela last recorded a monthly variation of over 50% in December 2020, When prices increased by 77.5%. From January 2021 to date, Venezuela has not recorded monthly variations above 50 points.

Economists like Oliveros have already seen this trend and have confirmed that Venezuela will emerge from high inflation between the end of 2021 and the first few months of 2022.

However, this is not good news for the oil nation.

Even without the prefix “hyper” already, it belongs to Venezuela. Inflation is still high in the world today. According to the same BCV, 2021 ended with annual inflation of 686.4%.

“In the context of Venezuela the variance may be as low as 7% on average per month,” Oliveros emphasizes. “But it is still higher than the average annual inflation in the region and in the world.”

For example, Colombia’s annual inflation for 2021 was 5.62% and December inflation was 0.73%, according to the National Statistics Office (DANE).

Venezuela’s high inflation This is one of the longest in modern history, Surpassed only by Nicaragua (1986-1991) and Greece (1941-1945).

BCV reports that Venezuela ended with 2020 inflation of 2,968.8%.

Why is this happening?

Good and “not so good” message

For Luis Oliveros, a professor and economist at the Metropolitan University, the end of the hyperinflation cycle represents “good news.”

He tells BBC Mundo that Venezuela has been “100% and higher for four years with variations. It (inflation) was very high”.

This cycle began In the last quarter of 2017 When monthly inflation of 56.7% was recorded, it exceeded the limit. That year, according to the BCV, annual inflation was 862.6%.

But that is only a prelude to what is to come. 2018, the year of high inflation, closed at 130.060%; And the economy between 2013, when oil prices fell and in 2018 contracted by 47.6%.

Prices have been rising since the first quarter of 2019, recording variations above the 50% limit only at certain times.

Venezuela last recorded a monthly variation of over 50% in December 2020, When prices increased by 77.5%. From January 2021 to date, Venezuela has not recorded monthly variations above 50 points.

Economists like Oliveros have already seen this trend and have confirmed that Venezuela will emerge from high inflation between the end of 2021 and the first few months of 2022.

However, this is not good news for the oil nation.

Even without the prefix “hyper” already, it belongs to Venezuela. Inflation is still high in the world today. According to the same BCV, 2021 ended with annual inflation of 686.4%.

“In the context of Venezuela the variance may be as low as 7% on average per month,” Oliveros emphasizes. “But it is still higher than the average annual inflation in the region and in the world.”

For example, Colombia’s annual inflation for 2021 was 5.62%, compared to 0.73% in December, according to data from the National Statistics Office (DANE).

Venezuela’s high inflation This is one of the longest in modern history, Surpassed only by Nicaragua (1986-1991) and Greece (1941-1945).

BCV reports that Venezuela ended with 2020 inflation of 2,968.8%.

Why is this happening?

This process from high inflation to “extreme inflation” is not possible without it “Cocktail” of results provided by the government As the director of Ecoanalitica Asdrúbal Oliveros (who has no relationship with them) explained, is central.

Like his colleague, Astrobal Oliveros acknowledges that this change has had a positive impact on the economy, but they need to be viewed in context.

Due to the fall in oil prices in 2013, the contraction of the economy and sanctions imposed by the United States, Canada and the European Union, the Maduro administration made significant reductions in government spending, restrictions on bank credit and lower spending on bolivars. To maintain exchange rate stability.

Fiscal deficit is the balance of a state’s revenue minus its expenses. If the result is positive, the state has a financial surplus. But having a negative result like what happens in Venezuela means you are spending more than you earn.

Maduro promised that Venezuela would leave the cycle of high inflation.  (Photo: Getty Images)
Maduro promised that Venezuela would leave the cycle of high inflation. (Photo: Getty Images)

In 2017, the general deficit exceeded 20% of gross domestic product (GDP), the highest in Latin America. But an independent study by Andres Bello Catholic University found that in 2020 it was 7.9%.

Other measures were used Stop the petrol subsidy (Cheapest in the world for many years, cheaper than a bottle of mineral water) We need to loosen price controls and open up the foreign exchange market, Which has been under tight state control for more than 16 years. This allowed for more imports and a smaller revival of the private sector.

What about dollarization?

But there is an important point in everything, that is Dollarization. For years, the Venezuelan people have been using the dollar as currency for most transactions.

(Photo: Getty Images)
(Photo: Getty Images)

This represents an oxygen balloon for many Venezuelans who have seen their incomes decline during the devaluation of the base Bolivar, which has undergone a total of three currency reversals since 2008 (two since the onset of high inflation). 14 zeros.

From Caracas, people promise that the dollar is here to stay. If the picture of Venezuela in 2017 is empty supermarkets, 2021 dollars. And experts, as consulted by BBC Mundo, point out that this dynamic will continue in 2022.

Ecoanalitica reports that still lifes, supermarkets and clothing stores now mark their prices in foreign currency and that the dollar is used for almost two-thirds of all transactions.

This dollarization has many properties: First it is In practice This was not part of a formal government strategy, but was considered by the Venezuelan people.

Second, no matter how devalued, the dollar has not been replaced by the dollar. That’s why researchers say so The dollarization area is, Because the government holds the national currency, for example, pay for public servants or fees for services.

“We have two Venezuelans,” promises Ostrubal Oliveros. On the one hand, the social class that accepted the dollar as the most frequently used currency; And on the other hand Dollars are hard to access and a class that needs to be modified to get them anyway, To explain.

Dollarization, while positive in some respects, has created inequality.  (Photo: Getty Images)
Dollarization, while positive in some respects, has created inequality. (Photo: Getty Images)

“So you have to see what the real impact of inflation is,” he continues. “You have an increase in the cost of living in dollars, which, though low, is more significant (than Bolivar).”

“In fact, dollarization has brought about inequality,” says Louis Oliveros. “There are losers in this story who can’t access dollars right now.”

What is the position of the government and what challenges does it face?

“I focus on the monetary sector, protecting Bolivar, wages, and income through the national card. Evaluate how this process, called dollarization, will help the country’s forces recover and use it. It’s an exhaust valve. Thank God it is.”

Maduro said this phrase in front of TV cameras on November 17, 2019.

Since then, the dollar has been circulating more and more freely. But that does not mean that the government accepts the full dollarization of the economy.

Vice President Delzi Rodriguez said last December that accepting the dollar as a currency was a “terrible mistake” for Venezuela. “2022 will be the year of Bolivar’s firm recovery as a national currency,” he added.

Chargers in Bolivar are severely affected.  (Photo: Getty Images)
Chargers in Bolivar are severely affected. (Photo: Getty Images)

But Venezuela continues to face significant challenges, says Luis Oliveros. Not only will inflation continue to fall, but it will also correct the high rate of inflation.

“The government has focused more on the exchange rate and in the last four months it has not moved in practice,” he says. “But if the exchange rate does not move, there is still inflation, and then this overestimation will appear.

At higher valuations imports will be cheaper than production. It is translated as stimulating the internal economy.

“Big work is economic growth. Venezuela has had an economic downturn for seven years. But if we continue to overestimate, inflation will continue,” Luis Oliveros concluded.

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