With inflation of 1,000,000%, where is Venezuela going?

With an inflation of 1,000,000%, where does Venezuela go?

Social explosion? Will the government be forced to free the economy? With inflation now projected at 1,000,000% by the end of December by the IMF, all scenarios are possible in this country where living conditions are deteriorating rapidly.

To cope with this hyperinflation, President Nicolas Maduro announced Wednesday that Venezuela will soon remove five zeros from its currency, the bolivar. "August 20 starts (…) the plan of economic recovery with the conversion monetary, five zeros in less," he said.

At present, the minimum wage of a Venezuelan – $ 1.5 at the black market rate, the facto reference barely allows him to buy a kilo of chicken.

Public finances, they are bloodless. Venezuela derives 96% of its income from crude oil. Yet its oil production has collapsed by at least half in a year and a half for lack of cash to modernize the oil fields. According to OPEC, crude oil production fell from 3.2 million barrels per day (MMBD) in 2008 to 1.5 million barrels in June.

The lugubrious economic panorama of the IMF, for which all the seers are red – with a contraction in GDP expected to 18% in 2018 – does not surprise those who live these problems on a daily basis.

"Nothing surprises me anymore, day by day, prices go up, it's not gradual, it's exponential," AFP Marcos Salazar, who eats a hamburger in the street for the price of 'a minimum wage.

This 31 year old teacher survives through his three jobs and sending money from relatives residing abroad.

It is estimated that 1.6 million Venezuelans have emigrated since 2016 because of the economic debacle that has pushed 87% of the population into poverty, according to a study of the country's leading universities.

The International Monetary Fund anticipates an increase in departures, affecting more and more neighboring countries. The scarcity is widespread in Venezuela, where public services, such as electricity, water and transport, have deteriorated considerably.

– In Depth Reform –

"The only way to get out of hyperinflation is with deep economic reforms, and that's how it ended in all other cases "says Henkel Garcia, director of the firm Econometrica, who recalls that these phenomena do not last forever by giving the example of Zimbabwe.

The IMF also points out the release of a number ever larger banknote, which feeds hyperinflation.

Henkel Garcia also needs to save the Venezuelan industry, which currently operates at 30% capacity, put an end to exchange controls and prices, which gives the state a monopoly on foreign exchange

Finding other sources of financing will also be necessary, given the US financial sanctions against Venezuela and the state oil company PDVSA.

In November 2017, Venezuela and PDVSA were declared in partial default by several rating agencies.

To redress the situation, Econometrica estimates that it would be necessary to inject between 20 and 30 billion dollars a year for two or more years. three years.

Yet "the executive has no interest in changing economic policy," another cabinet, Ecoanalitica, said in a recent report.

Faced with such a situation, the socialist president Maduro, whose re-election in May until 2025 is not recognized by a large part of the international community, will have to play the equilibrists to avoid losing control.

Health workers, the electrical sector, retirees, teachers: social conflicts have multiplied in recent weeks to demand salary increases and improved working conditions.

These initiatives are currently isolated and the opposition, many of whose leaders are abroad or in prison, appears to be devoid of leadership.

But "the social discontent will continue to grow," said political analyst Michael Penfold AFP

"It is likely that only the worsening of the crisis will bring the necessary pressures to unbalancing "the coalition currently in power, or even" replacing ", warns Ecoanalitica, which provides for structural changes in 2019.

Recently, leaders of Chavismo, the movement in power, raised the tone to demand an economic turn

"For 19 years since the revolution took place, we are now responsible for good and bad things," said Freddy Bernal, influential collaborator of the president.

(© AFP / July 26, 2018 07:22) [19659028] [ad_2]
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