Venezuela gets bogged down in the recession, its neighbors also suffer

Venezuela, plagued by a major crisis, will sink deeper into the recession this year with a historic hyperinflation of 1,000,000% by the end of December, says the IMF, a situation that affects more and plus its neighboring countries.

Venezuelan Gross Domestic Product (GDP) is expected to contract by 18% in 2018, the International Monetary Fund (IMF) said Monday. This is worse than what was estimated in April (-15%).

"We project a surge of inflation of 1,000,000% by the end of 2018, which means that Venezuela is in a a situation similar to that of Germany in 1923 or that of Zimbabwe in the late 2000s, "commented Alejandro Werner, one of the leaders of the Washington institution which, in the spring, anticipated inflation of some 13,000%.

In addition, neighboring countries are likely to be increasingly exposed to the impact of the collapse of the Venezuelan economy as food shortages, increasing difficulties in accessing healthcare, electricity, water, transport, combined with the problems of insecurity, have caused the population to flee en mbade, taking refuge in Colombia and Brazil.

Falling oil production

"Venezuela remains stuck in a profound economic and social crisis ", Alejandro Werner. And in 2018, the oil country will record a double-digit recession for the third year in a row, he said.

The contraction in GDP will be more marked than in 2017 (-16.5%) as oil production, the main resource of the country, collapses, he said.

Venezuela draws 96% of its gross revenues. But its oil production has dropped by at least half in a year and a half for lack of cash to modernize the oil fields.

Crude oil production continued its decline in June to 1.5 million barrels per day (MMBD), its lowest level in 30 years, the Organization of the Petroleum Exporting Countries recently revealed.

The IMF also points to the circulation of an ever greater number of banknotes, which fuels hyperinflation.

The accuracy of the forecasts remains doubtful, however, the institution, which It has 189 members, having been unable to carry out an economic mission since 2004. Since then it has only received partial data.

Whether inflation is 1.2 million or 800,000%, this does not change the "vast humanitarian crisis ", to the catastrophic situation of the country which" lack of everything, medicines, food, prey to contagious diseases ", reacted Alejandro Werner during a press conference.

Table heterogeneous

The Chief Economist Maurice Obstfeld noted last week that it was difficult for neighboring economies to welcome Venezuelans fleeing their country and integrate them into their own economy.

More than a million people migrated From Venezuela to Colombia in the last 16 months, the majority to flee the political-economic crisis, estimated the Colombian government mid-June.

In the spring, the Brazilian government estimated that 500 to 1,200 Venezuelans were crossing each the Brazilian frontier.

For the entire region, Latin America and the Caribbean, Alejandro Werner points out that the economic recovery is continuing but that the picture is very heterogeneous.

"If growth accelerates in some countries (such as Chile and Peru), others face weaker demand, "he comments.

Also the 2018 forecast for the region has been revised down to 1, 6% (-0.4 points) and for 2019 to 2.6% (-0.2 points).

The resumption of expansion in Brazil, the largest economic power in South America, should also be less solid (1.8% against 2.3% estimated in April), due especially strikes.

The growth forecast for Mexico, the second largest economy, remained unchanged at 2.3%, but the Fund notes the major uncertainties related to the renegotiation of the North American Free Trade Agreement (NAFTA) with the Canada and the United States. This should weigh on the growth of 2019, now estimated at 2.7% (-0.3 points).

As for the third economy of Latin America, Argentina, forecasts are much less optimistic to 0.4% in 2018 (-1.6 points) and 1.5% in 2019 (-1.7 points) after 2.9% last year. The country, which has recently received IMF support, suffered a sharp currency devaluation in the spring and worsened investor confidence.

Alejandro Werner, however, anticipates "a gradual recovery in 2019 and 2020 which will be supported by renewed confidence with the Fund's support program. "

23/07/2018 23:28:30 –
Washington (AFP) –
© 2018 AFP