CARACAS, Venezuela – Venezuela has not been able to rebound from the economic problems that accrued under Hugo Chavez’s leadership. An economic breakdown looks inevitable. Inflation is still on the rise. The black market has caused the bolivar, the Venezuelan currency, to lose a great amount of value. Foreign currency reserves are also on the decline. The Venezuelan energy sector has lost its vigor due to not enough investors. Consumer prices have shot up and product shortages have persisted.
The Venezuelan economy is under state control. President Nicolás Maduro maintains the inflation spikes are caused by retailers, not government policies. Chavez placed state control on the economy when he was in power. Maduro will not lessen that control. He has instead tackled the inflation problem by sending the military to occupy stores and carry out aggressive inspections of the premises. Chavez implemented the same policy. Venezuela has an annual inflation rate of 54 percent and a shortage of basics.
Maduro has accused political opponents supported by the United States of trying to sabotage the economy. He detailed that those individuals have purposely hiked prices, hoarded products and siphoned off foreign currency. However, it is Maduro’s policies that have contributed to the high inflation and resulting product shortage. The tight price controls implemented by the government are a contributing factor. Instead, Maduro ordered troops to force stores into lowering their prices. Maduro alleged that the Daka chain overcharged its customers by 1,200 percent. He has begun a pre-Christmas policy to compel businesses into dropping their prices. Failure to abide will result in prosecution for price-gouging.
The lowered retail prices forced by Maduro have led to a surge of customers at electronic stores. Consumers have been purchasing appliances before Christmas for the discount prices. Venezuela has double the inflation rate it had at the beginning of the year. The dollar shortage has limited its access to imports. This is problematic because 70 percent of Venezuela’s goods are bought from abroad, hence the product shortage.
Venezuela had a 22.4 percent scarcity index in October. January 2008 marked the last time the scarcity index reached that high. Venezuela is running out of options as it falls deeper into economic failure. China is Venezuela’s major financier, but it has been tighter with its money when it comes to Venezuela. The loan China used to promote oil production in Venezuela was not productive. China may be wary of future investments in Venezuela.
The Venezuelan people are not convinced by Maduro’s blame on retailers and political opponents for the economic woes. Barclay’s Plc conducted a survey that found that 72 percent of Venezuelans think that the country is in a negative situation. Only 52 percent felt the situation was negative back in April when Maduro was first elected. Maduro experienced a six point drop in his approval rating in September at 41 percent.
Maduro has dedicated himself to applying more of the same policies that Chavez enforced. Despite the serious economic issues in Venezuela, the poverty rate had a 20 percent drop last year. Venezuela had the greatest poverty reduction in the Americas and possibly the entire world for 2012. That is a major milestone, especially in the event of economic downturn. While Venezuela battles with hyperinflation and ineffective economic policies, it still managed to lessen poverty by a large margin. Poverty reduction is certainly one way Venezuela has improved.
– Brittany Mannings
Sources: Reuters, CNBC, Bloomberg, The Guardian