In March 2021, one of these 200,000 Venezuelan bolivares bills was worth 0.1 cents in US dollars.
Photo: dpa/Jesus Vargas
“We have overcome the burden of hyperinflation – with a lot of discipline, work and effort.” Venezuela’s head of state Nicolás Maduro recently announced not only this good news, but also that the economy had grown by more than four percent in 2021. “After five years of economic war, boycott and blockade, Venezuela has regained the path of growth,” he said in his annual report to the National Assembly in Caracas.
Earlier, Venezuela’s central bank announced inflation rates for the last quarter of 2021: 7.1 percent in September, 6.8 percent in October, 8.4 percent in November and 7.6 percent in December. The annual inflation rate for 2021 will add up to 686 percent in 2021. In 2020, the central bank reported an inflation rate of almost 3000 percent.
When it comes to monetary depreciation, Venezuela has been synonymous with hyperinflation for years. The start is November 2017. Since then, no other currency in the world has lost purchasing power as rapidly as the bolívar. But that’s over for now. According to the central bank, the inflation rate has remained below 50 percent in each of the past twelve months – this is the definition of the end of hyperinflation. In December 2020, the rate was 77.5 percent for the last time above the 50 percent mark.
The Observatorio Venezolano de Finanzas (OVF) confirms that the figures are realistic. The independent institution, to which several economic analysts belong, reports an even lower rate of six percent for the month of December. However, the hyperinflation is not over yet, as the rate has only stayed below the 50 mark for ten straight months, the panel said. “Nevertheless, there was a significant slowdown in late 2021, as price growth slowed from 3713 percent in 2020 to over 660 percent in 2021.”
The government’s rigid budgetary policy, with cuts in the salaries of public employees and pension payments in particular, as well as the cuts in subsidies for petrol and diesel, are given as reasons for containing inflation. As a result, the central bank had to print less money to plug holes and not expand the money supply as endlessly as in previous years. This significantly eased the devaluation pressure on the bolívar.
At the same time, the process of dollarization of the economy and trade, tolerated by the government, continues. Almost everything has long been available to buy once more, but only once morest the US currency. The dollar prices are rising in rhythm with the devaluation of the bolívar, which the central bank supported last year with an aggressive intervention policy. She sold dollar reserves in the hundreds of millions. While US currency is a scarce commodity and the circulating Bolivar money supply is constrained, the potential volume of credit is shrinking. What is thriving is trade, especially with imports. Production in the country itself is still not getting off the ground due to a lack of credit-financed investments.
While the inflation percentages reflect reality, Maduro’s statements on economic growth should be treated with great caution. The central bank has not released any statistics since the first quarter of 2019. At that time, the economy had collapsed by 26.8 percent compared to the same period in 2018. If you take the global trend since the beginning of the corona pandemic, then Venezuela’s economy is likely to have shrunk further. The four percent growth announced by the head of state is little more than a rebound effect.
It remains to be seen whether inflation can continue to be successfully curbed. It is clear who has benefited from it so far. And there the population splits into two groups: those who own dollars or have access to them, and those who only have bolívares or are dependent on government aid programs. The poor statistics show the size of the second group. According to the latest survey by the Andrés Bello Catholic University, 94.5 percent of Venezuelans live in poverty.
Despite reducing inflation, Venezuela was the undisputed leader worldwide in 2021. In the South American region, Argentina follows at a clear distance with 50.9 percent, followed by Brazil (10 percent), Uruguay (almost 8 percent) and Chile (7.2 percent). Bringing up the rear is Bolivia with less than one percent.
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