Venezuela’s inflation ‘to hit 1,000,000%’
IMF: GDP to fall by 18% in 2018
MEDELLÍN, COLOMBIA: The prediction was eye-popping even for Venezuela’s collapsing economy: 1,000,000% inflation by year’s end, according to the International Monetary Fund.
On Monday, the IMF released a periodic estimate of growth and inflation rates around Latin America, a roundup that included neighbours like Chile (where inflation should be headed to 3%) and Peru (where growth is predicted to reach 3.7%).
But it is Venezuela that continues to chart a different course from neighbours — with an increasingly breakneck economic disintegration.
Real gross domestic product, the value of goods and services produced in the economy and adjusted for inflation, is expected to fall by 18% in 2018, the third consecutive year of double-digit declines, the IMF estimated.
And then there is the million-percent inflation.
“We are projecting a surge in inflation to 1,000,000% by end-2018 to signal that the situation in Venezuela is similar to that in Germany in 1923 or Zimbabwe in the late 2000’s,” the IMF stated in its report.
With Venezuela’s government not releasing official figures, the fund’s prediction gave a concrete number to a situation that the country has felt with increasing urgency this year.
On the streets of Caracas, the capital, prices have skyrocketed to levels so high that many vendors now refuse to take bolívar banknotes, the national currency, because their value is eroding so fast.
Some wealthy Venezuelans have turned to alternatives like bitcoin. Store owners guess the prices they should be charging for goods; restaurant menus change weekly; and the price of the dollar, sold on the black market, has reached 3.5 million bolívars.
The inflation crisis comes on top of deep political repression led by President Nicolás Maduro, who was declared the winner of a vote this year that will extend his term until 2025.
Lack of basic food and medicine has forced hundreds of thousands to flee the country.
The authorities in neighbouring Colombia said last week that 870,000 Venezuelans were now in the country.
In its report, the IMF blamed drops in oil production and “large macroeconomic imbalances” for the country’s financial problems. It painted a grim picture for the months ahead, predicting that government officials would run fiscal deficits paid for by printing more money, “which will continue to fuel an acceleration of inflation.”
For its part, Venezuela’s government says the woes are a result of an “economic war” waged on it by the United States and wealthy businessmen hoarding supplies and raising prices.
While the million-percent figure may be largely symbolic, the IMF’s prediction that the country would soon mirror some of history’s worst episodes of inflation caught the attention of analysts.
“At this point, the Titanic is at a 270degree angle from where it should be,” said Daniel Lansberg-Rodriguez, an economist at Northwestern University’s Kellogg School of Management.
The period after World War I ruined the economy of the German Weimar Republic. Before the war, the dollar was worth 4.2 marks; by 1923, a dollar cost 4.2 trillion marks. Germany eventually replaced its currency and stabilised it, but millions were financially ruined.
Zimbabwe faced a similar fate under Robert Mugabe after land confiscations and strongman rule precipitated a financial collapse. At one point the country printed a note worth 100 trillion Zimbabwe dollars. The country eventually scrapped its currency as well.
But Lansberg-Rodriguez said Venezuela
might be less successful in fixing its currency issues because of a history of botched attempts to replace the bolívar.
He added that Zimbabwe was in a better position to recover because it had a more diversified economy than Venezuela’s. “The level of chaos in Venezuela makes it that much more difficult to restore confidence and break out of this cycle.”