Outside forces making it hard for Venezuela to pull economy out of hyperinflation

The biggest obstacle to Venezuela’s economic recovery is political in nature, say analysts.

As long as there is a sustained attempt from abroad to oust the left-leaning government through sanctions and exchange rate manipulation, “it is going to be tough to resolve the situation of hyperinflation,” said Luis Delgado, professor at the north-central University of Carabobo.

Domestically, the “business boycott measures” led by the conservative opposition have thrown up more obstacles to the government’s program of “economic recovery, growth and prosperity,” which was unveiled on August 20.

Although the recovery plan has achieved some success in alleviating shortages of basic goods and other problems, said Delgado, given that “there is greater access to cash, a larger supply of products and, despite acute inflation, an improvement in purchasing power,” it’s still too soon to deliver a full verdict. “Because we won’t see the concrete scope of the measures until the medium term, as it requires the recovery of national production, of supply and of the people’s purchasing power,” he added.

Delgado thought recovering the oil sector’s output levels is crucial and the government’s energy agreements with other countries should help spur production. “International experience shows us that only through industrialization and stronger science and technology can countries forge economic independence and global competitiveness,” he said.

As time passes, Venezuelans will see their economic situation improve, “because they will begin to note [the impact of] most measures and development progress,” the analyst added. “However, political stability will be vital to achieving recovery,” Delgado noted.

He believed that the ruling United Socialist Party of Venezuela needs to pursue more dialogue with the conservative opposition to ensure a stable political environment.

How effective the economic recovery plan will be ultimately hinges on the effects of sanctions announced by the US and the European Union, he said.

Venezuelan President Nicolas Maduro has denounced what he described as the “international financial persecution” of Venezuela, including measures to block its financial transactions and disrupt trade.

The government fought back by unveiling the Petro, the world’s first cryptocurrency, backed by the country’s rich oil and mineral reserves.

Delgado said it was the right move, and the gradual strengthening of the Petro would help bolster the economy.

Economist Luis Salas isn’t as sanguine about the impact of the economic recovery plan as Delgado. “Hyperinflation skyrocketed [and] wages are almost at the same levels of loss of purchasing power as before August 20,” said Salas, adding that assessing the measures is no easy task due to a lack of official figures.

Salas, who was also the economy minister in 2016, said that the single biggest obstacle to recovery is hyperinflation, which undermines everything else.

“It’s paradoxical, because hyperinflation is a symptom of deeper problems,” he said. “But there comes a point when it’s like a fever that has gone up too high: Despite it being a symptom, if left untreated, it creates its own problems and won’t let you solve the problem that caused it in the first place”.

As opposed to relying on exports, Venezuela’s push to diversify production and spur the domestic economy is positive, he added. But “in the short term, the only source of wealth that we should rely on and that will allow us to recover is oil. Everything else, in the best case, is long term,” said Salas.

According to a report released on Tuesday by the Organization of the Petroleum Exporting Countries, Venezuela’s oil output fell for the third consecutive month, producing 69,000 barrels per day less than that in August.

The author is a writer with the Xinhua News Agency. opinion@ globaltimes.com.cn