EFE Inflation in Venezuela, which fell to 1% in June, has slowed as a result of a policy to stabilize the price of the dollar – the currency used in the country to price goods and services – for which salaries and bank loans have also been “sacrificed”, experts warn.
The Executive claims that this is one of the “positive results” of a program launched in 2018 – when the country was experiencing hyperinflation – which led to a reduction in price increases from 130,060% that year to 189.8% in 2023.
Although President Nicolás Maduro assured that June inflation was the lowest in the country in 39 years, the historical data of the Central Bank of Venezuela (BCV) reflects that, in July 2012, it also registered 1%, while in March and April of the same year, inflation was 0.9% and 0.8%, respectively.
The challenge of leveling the dollar
Ecoanalítica chief economist Luis Bárcenas told EFE that authorities achieved greater stability in the price of the dollar through an “aggressive” sale of foreign currency, the vast majority of which comes from income from oil exports.
Between January and May of this year, an average of more than 350 million dollars were sold per month through banks, according to calculations by Ecoanalítica.
In this way, the expert explained, the national market is “flooded” with foreign currency to generate an oversupply of the US currency.
According to BCV, the price of the dollar rose from 35.9 bolivars to 36.4 in the first half of 2024, an increase of 1.3%, while in the same period of 2023, the currency rose from 17.4 bolivars to 27.8, an increase of 59.7%.
The other side of politics in Venezuela
The anti-inflation strategy also consists of keeping the issuance of bolivars at bay and, in this sense, Bárcenas indicated that the “first sacrifice” is the minimum wage – a reference for the rest of the remunerations in the public sector – and pensions, at 130 bolivars since March 2022, which since then went from regarding 30 dollars to 3.5 today.
He pointed out that, despite migration, estimated at some 7.77 million Venezuelans by the Interagency Coordination Platform for Refugees and Migrants (R4V) – a figure that the Venezuelan Government reduces to less than 2.5 million -, still “the size of the State is so large in terms of personnel and dependents” that “any salary adjustment would cause fiscal spending from one month to the next to increase significantly.”
Therefore, Bárcenas believes that a policy was developed “at the expense of the Venezuelan people’s pockets”, who have also been affected by the credit restriction.
The slowdown – he continued – is also due to the “reduced” purchasing power, since while “a sector of the population” has “still restricted consumption” and prioritizes its spending mainly on food, the prices of goods and services will remain “relatively stable.”
For its part, the Venezuelan Finance Observatory (OVF), an autonomous entity made up of economic experts, also assures that the The slowdown in inflation in Venezuela is a response to greater stability in the exchange market and to the “wage restraint” applied by the Government.
A “fragile” stability
Bárcenas said that today Venezuela depends “more than ever on oil” to maintain this exchange rate stability, with aspects that can play once morest it, such as the US sanctions, resumed in April following six months of relief, which “limit sales (of crude oil) in the international market.”
Furthermore, this stability is subject to global events that have an impact on the energy sector, such as a conflict or lower consumption by major economies, which “causes the price of oil to fall” and, consequently, the country’s income to fall, with the risk of facing a “currency shortage.”
“All this tranquility in terms of exchange rates (…) might be lost if, at a given moment, the economy begins to face problems in generating foreign currency,” said the economist.
Authorities expect Venezuela, which experienced hyperinflation between 2017 and 2021, to close 2024 with inflation below 50%.
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2024-07-13 16:56:04
