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Venezuela is on a complete economic and political collapse,
which has been building up since the early days of Bolivarian Socialism.
Hyperinflation In Venezuela Is a result of their socialist platform.
Lower oil prices and hyperinflation have had wide-reaching consequences for the entire population, which include government imposed limits
on food supplies, electricity black out.
In past ,the Venezuelan economy is driven by oil. It has the world’s largest oil reserves. But today, Venezuela is suffering due to low global crude oil prices.
In 2003, the Chavez government set price controls on about 400 food items , in an effort to “protect the poor”. Price controls led to supply shortages. A few of the supermarkets that could manage to get its hand on essential supplies charged a price higher than what was stipulated.
The current economic crisis is a direct result of economic mismanagement in the past decade. Price controls led to reduction in supply and export bans led to shortage of foreign exchange needed for imports. The result is empty shelves on most retail outlets and a severe shortage of food supplies and being on the route to sharply increasing inflation rates.
What are the economic problems in Venezuela?
which has been building up since the early days of Bolivarian Socialism.
Hyperinflation In Venezuela Is a result of their socialist platform.
Lower oil prices and hyperinflation have had wide-reaching consequences for the entire population, which include government imposed limits
on food supplies, electricity black out.
In past ,the Venezuelan economy is driven by oil. It has the world’s largest oil reserves. But today, Venezuela is suffering due to low global crude oil prices.
In 2003, the Chavez government set price controls on about 400 food items , in an effort to “protect the poor”. Price controls led to supply shortages. A few of the supermarkets that could manage to get its hand on essential supplies charged a price higher than what was stipulated.
The current economic crisis is a direct result of economic mismanagement in the past decade. Price controls led to reduction in supply and export bans led to shortage of foreign exchange needed for imports. The result is empty shelves on most retail outlets and a severe shortage of food supplies and being on the route to sharply increasing inflation rates.
What are the economic problems in Venezuela?
The crisis in Venezuela is the socioeconomic and political crisis that Venezuela has undergone since Hugo Chávez's tenure and which extended over the years into the current presidency of Nicolás Maduro. It is the worst economic crisis in Venezuela's history.Venezuela is experiencing with an inflation rate of over 400 percent and a volatile exchange rate. Moreover, heavily in debt and with inflation soaring, its people continue to take to the streets in protest.
What is the cause of inflation?
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| Bolivar, the national currency. |
When
oil prices have been falling, the government have faced with higher amount of spending
because of the government policies that were more socialistic. Moreover, values
of their national currency, the Bolivar, were near worthless at the black
market (free market) because the government is broke and
has been talking about defaulting on its estimated $185 billion in external
debt.
Instead of making difficult but effective choice, they just printing more Bolivares to pay off its debt. With the massive increase of the money supply, the money in circulation has not been enough to pay for basic goods that today cost a lot more, so the prices rise sharply and they have been facing with hyperinflation
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Graph of Money Supply (M2) in Venezuela.
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Why are there Black market for currency
exchange in Venezuela?
There are three exchange rates in
Venezuela. First, the
first exchange rate is called the official exchange rate which determines the
rate of the domestic currency (Bolivars) to be higher than the US dollar. Next, the second exchange rate is called
SICAD 1, which the government grants to specific business entities. Lastly, the third exchange rate which
used for most companies and most people is called SICAD 2 that is the exchange
rate that does not follow the marketing mechanism. When global oil prices decline, there is
a shortage of foreign currency which caused the exchange rate that actually can
be exchanged in this system is higher than the government expect, and further
led to the rising of exchange rate in the dark market.
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Consequences
From the extreme public policy, the government came out to call for voters like market intervention by controlling price of product, food and medicine but it destroys the manufacturing industry of the country because the price is lower than the cost of production. When the country does not produce goods, it is necessary to import from abroad. In addition, price intervention also causes blackouts and inflation.
In 2014, the price of oil is low. It affects Venezuela seriously. Price subsidies and price controls are problematic. Even more problem is when the government cannot use the Bolivar import bill. It causes shortage. Essential goods are smuggled to sell in black market over the price. In the financial exchange rate, Bolivar is extremely high but at the exchange rate of the black market, Bolivar is almost a scrap. When the income is not enough to buy goods and money is not enough in the domestic transaction. The government had to raise wages and print money. It probably makes the risk called "Hyperfunction". Today, the cost of basic household goods is higher than the minimum wage. It is a tragedy of Venezuela.
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Solutions
Here are some ways that Venezuela can
solve its current crisis.
1.Devaluation - Some have argued that all our woes would
be solved by devaluing the national currency or by unifying the exchange rates. This would promote a more rational use
of scarce foreign currency and eliminate incentives to overprice imports, the
argument goes. It is also
argued that a devaluation would reduce the fiscal deficit, because it would
increase the bolivar value of our oil exports. Even though they are right that these
two measures, a devaluation and a unified exchange rate, would usher in
efficiency in handling foreign currency, it is very unlikely that they will
help to get rid of the fiscal deficit.
2. Working with the international community
- The
current crisis is ravaging Venezuelans’ quality of life, and it’s affecting the needy above all. In order to leave this crisis behind and
mitigate the suffering as much as possible, Venezuela must grapple with two
possibilities that could allow us to get back on our feet and maintain the
influx of imports while increasing our own production. These options are to ask the
international community for help and to restructure our debts. These possibilities shouldn’t be evaluated ideologically, but rather
in terms of practical criteria to ease Venezuelans’ plight.
3. Diversification - Venezuela needs to diversify its economy
and stop its excessive dependence on oil wealth.
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Citations
What causes hyperinflation in
Venezuela?
Retrieved from https://www.quora.com/What-causes-hyperinflation-in-Venezuela.
Retrieved from https://www.quora.com/What-causes-hyperinflation-in-Venezuela.
Causes of Venezuela’s Hyper-Inflation.
Retrieved from https://townhall.com/columnists/bgascmetals/2016/06/07/causes-of-venezuelas-hyperinflation-n2174301.
Venezuela's worst economic crisis: What went wrong?
Retrieved from https://www.aljazeera.com/indepth/features/2017/05/venezuela-worst-economic-crisis-wrong-170501063130120.html.
Black Market in Venezuela
Retrieved from http://www.bangkokbiznews.com/blog/detail/637863
Consequences
Retrieved from http://www.bangkokbiznews.com/blog/detail/637863
Solutions
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