Hyperinflation in Venezuela
Hyperinflation in Venezuela is the currency instability in Venezuela that began in 2016 during the country's ongoing socioeconomic and political crisis.[3] Venezuela began experiencing continuous and uninterrupted inflation in 1983, with double-digit annual inflation rates. Inflation rates became the highest in the world by 2014 under Nicolás Maduro, and continued to increase in the following years, with inflation exceeding 1,000,000% by 2018. In comparison to previous hyperinflationary episodes, the ongoing hyperinflation crisis is more severe than those of Argentina, Bolivia, Brazil, Nicaragua, and Peru in the 1980s and 1990s, and that of Zimbabwe in the late-2000s.
Date
2016–early 2022
Large decline in real wages despite continuous nominal wage increases,[1] unemployment, rising prices in goods, redenomination of the Venezuelan bolívar fuerte to the bolívar soberano and then again to the bolívar digital, dollarization,[2] decrease of tax revenues and shortages of foreign currency reserves and goods
In 2014, the annual inflation rate reached 69%,[4] the highest in the world.[5][6] In 2015, the inflation rate was 181%, again the highest in the world and the highest in the country's history at the time.[7][8] The rate reached 800% in 2016,[9] over 4,000% in 2017,[10][11][12][13] and about 1,700,000% in 2018,[14] and reaching 2,000,000%, with Venezuela spiraling into hyperinflation.[15] While the Venezuelan government "had essentially stopped" producing official inflation estimates as of early 2018, inflation economist Steve Hanke estimated the rate at that time to be 5,220%.[16] The Central Bank of Venezuela (BCV) officially estimates that the inflation rate increased to 53,798,500% between 2016 and April 2019.[17] In April 2019, the International Monetary Fund estimated that inflation would reach 10,000,000% by the end of 2019.[18] Several economic controls were lifted by Maduro administration in 2019, which helped to partially tame inflation until May 2020.[19]
In December 2021, economists and the Central Bank of Venezuela announced that in the first quarter of 2022, Venezuela would reach more than 12 months with monthly inflation below 50% after more than four years of a hyperinflationary cycle. This would technically indicate its exit from hyperinflation, but the consequences would remain.[20][21]
Background[edit]
Pérez and Caldera administrations[edit]
When world oil prices collapsed in the 1980s, the economy contracted, and inflation levels (consumer price inflation) rose, remaining between 6 and 12% from 1982 to 1986.[22][23] In 1989, the inflation rate peaked at 84%.[23] The same year, following a cut in government spending and the opening of markets by President Carlos Andrés Pérez, the capital city of Caracas suffered from looting and rioting.[24] After Pérez initiated liberal economic policies and made Venezuelan markets more free, Venezuela's GDP increased from a −8.3% decline in 1989 to 4.4% in 1990 and 9.2% in 1991, though wages remained low and unemployment remained high among Venezuelans.[24]
While some claim that liberalization was the cause of Venezuelan economic difficulties, an over-reliance on oil prices and a fractured political system have been identified to have caused many of the problems.[25] By the mid-1990s under President Rafael Caldera, Venezuela saw annual inflation rates of 50 to 60% from 1993 to 1997, with an exceptional peak of 100% in 1996.[23] The percentage of people living in poverty rose from 36% in 1984 to 66% in 1995,[26] with the country suffering a severe banking crisis in 1994. In 1998, the economic crisis had worsened, with GDP per capita at the same level as it was in 1963 (after adjusting 1963 dollars to 1998 value), down a third from its peak in 1978; the purchasing power of the average salary was a third of its 1978 level.[27]
Chávez and Maduro administrations[edit]
Following the 1998 Venezuelan presidential election, the inflation rate, measured by consumer price index, was 35.8% in 1998, falling to a low of 12.5% in 2001 but rising to 31.1% in 2003. In an attempt to support the Venezuelan bolívar, bolster the government's declining level of international reserves, and mitigate the impact of the oil industry work stoppage on the economy, the Ministry of Finance and the Central Bank of Venezuela (BCV) suspended foreign exchange trading on 23 January 2003. On 6 February, the government created CADIVI, a currency-control board charged with handling foreign exchange procedures. The board set the USD exchange rate at 1,596 bolívares to the dollar for purchases and 1,600 to the dollar for sales.
The Venezuelan economy shrank 5.8% in the first three months of 2010 compared to the same period in 2009,[28] and had the highest inflation rate in Latin America at 30.5%.[28] President Hugo Chávez expressed optimism that Venezuela would emerge from recession[28] despite International Monetary Fund (IMF) forecasts that Venezuela would be the only country in the region to remain in recession that year.[29] The IMF categorized the economic recovery of Venezuela as "delayed and weak" in comparison with other countries in the region.[30] Following Chávez's death in early 2013, the country's economy continued to fall into an even greater recession.
The annual inflation rate for consumer prices has increased by hundreds and thousands of percentage points during the crisis.[31] Inflation rates remained high during Chávez's presidency. By 2010, inflation had removed any advancement of wage increases.[32] By 2014, it was the highest in the world at 69%.[33][5][34] By 2016, the media reported that Venezuela was suffering an economic collapse.[35][36] The IMF estimated a 500% inflation rate and a 10% contraction in GDP.[37]
Inflation rate[edit]
BCV estimates[edit]
Under President Maduro, the inflation rate has been increasing at the highest levels, with the BCV estimating that inflation was at 56% in 2013, 69% in 2014 (highest in the world), and 181% in 2015 (highest in the world and the country's history). In 2016, Venezuela entered hyperinflation. The inflation rate reached 274% in 2016, 863% in 2017, 130,060% in 2018 and 9,586% in 2019.[101] Since 2016, the overall inflation rate has increased to 53,798,500%.[17]
Effects[edit]
Unemployment[edit]
Unemployment has been increasing in the years of hyperinflation with the 2019 rate seen as Venezuela's highest since the end of the Bosnian War in 1995 and the biggest contraction since 2014 start of Libyan Civil War, according to the International Monetary Fund (IMF).[149] In January 2016, the unemployment rate was 18.1%[150] and the economy was the worst in the world according to the misery index.[151] Venezuela has not reported official unemployment figures since April 2016, when the rate was at 7.3%.[152]
In October 2019, the unemployment rate reached 35%.[153] By the end of the year, it was estimated that it would increase to 39% to 40%, and that 60% of the economically active population belong to the informal sector, which influences the low salary that has caused many young people to emigrate to other countries.[154]
Solutions and adaptations[edit]
Change of inflation rate calculations[edit]
In September 2014, the BCV reportedly changed its inflation rate calculation methods from the more common Laspeyres price index to the Fisher price index. This changed the government's June inflation data from 5.7% to 4.4%, July's 5.5% rate to 4.1%, and August's 4.3% to 3.9%.[158][159]< It was also stated in the BCV's August report that it was an "economic war that hindered the normal course of production activities and distribution of essential goods demanded by the Venezuelan people".[160]