When the president of a country devalues a currency, it is usually done when the country has few options on the table. The general population in Venezuela is suffering from widespread riots in the streets, food shortages (Venezuelans reported losing an average of 11 kilos in 2017 – or 24 lbs), while 90 percent of the population lives in poverty. And now with hyperinflation, the oil-fueled welfare policies implemented by the late President Hugo Chavez, are tearing the country apart. Venezuela has invested little in its oil infrastructure in the past 10 years, and now plants and refineries are breaking down. With more oil than Saudi Arabia, Venezuela has trouble getting oil products to market.
The Chavez successor, President Nicolas Maduro, who has ruled since 2013, is now devaluing the currency by 96 percent in an attempt to remedy the state-led economic policies that continue to drag this country deeper into a black hole. Hyperinflation is eating into salaries, making it difficult for the average person on the street to buy flour and basic foods – now currency controls restrict imports. Food scarcity is getting much worse, much worse.
Many economists are concerned that policy changes by Maduro who is running a cash-strapped government, are too little, too late. Mr Maduro, said in a TV speech in which he addressed the nation, that he has a formula – but he has not given details. Now we have experienced people in our world at Classiarius, and they are all in agreement – Venezuela is breaking a lot of basic rules in economics. The economy, the oil industry and other state-controlled assets are more or less being run into the ground. There seems to be no financial discipline, again all starting with Hugo Chavez.
Higher salaries, monetary expansions due to these salaries and bonuses, and now economists are expecting even more aggressive hyperinflation. But the government is talking about a peg of salaries and pensions to the petro cryptocurrency. The threat of external attacks come in the form of President Donald Trump imposing sanctions, one being that US entities are not allowed to trade the petro, a cryptocurrency launched by the government in which some have attached high hopes. No one really knows how the government will implement the cryptocurrency.
The fear now is that the government is losing control of the narrative, that waves of Venezuelans are crossing the borders of neighboring countries including Colombia. This is of course causing borders to close, while political exchanges are heating up.
Think about the Socialists experiments that have not world in the past 100 years. Why do Chavez and Maduro think this time it is different?