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Why Are People In Venezuela Starving (Hyperinflation Explained)? - YouTube
Channel: The Infographics Show
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Venezuelaâs economic
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crisis
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has made headlines all over the world for
the past few years.
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Hunger is widespread there.
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Unable to afford the small amount of food
available in supermarkets, many Venezuelans
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have resorted to eating garbage to survive.
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Even zoo animals in Venezuela are starving
according to a report by the Daily Mail, and
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people have been breaking into zoos to eat
them.
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A recent survey found that the âfood crisis
has also created an education crisis, as more
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than 1 million children no longer attend school,
mostly due to hunger and a lack of public
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services.â
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Moises Rendon and Mark L. Schneider of the
Center for Strategic & International Studies
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provide a bleak assessment of Venezuelaâs
current situation, saying the country is suffering
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âan unprecedented man-made humanitarian
crisis.â
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They say Venezuela resembles âa country
at warâ and notes some of its major social
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problems, including âextreme food and medicine
shortages,â ârampant crimes in every city,â
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âconstant electric blackouts,â and âlooting
and repression.â
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When you see and hear these stories, you canât
help but wonder what went wrong.
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How could a country that was once one of the
most affluent countries in South America reach
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such a sorry state?
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One source of the misery in Venezuela is its
out-of-control inflation, which we will examine
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in this episode of The Infographics Show,
âVenezuelan Hyperinflation Explained.â
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Before we discuss Venezuelan hyperinflation,
letâs begin with a discussion of what hyperinflation
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is in general.
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Simply put, hyperinflation is very high, rapid,
and continuous inflation.
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In a hyperinflation situation, the prices
of goods and services in an economy quickly
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rise to a level so high that they become difficult
to afford for most people.
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While experts cannot agree what that exact
level is, economist Michael K. Salemi states
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that hyperinflation is generally used to âdescribe
episodes when the monthly inflation rate is
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greater than 50 percent.â
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He gives the example that âat a monthly
rate of 50 percent, an item that cost $1 on
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January 1 would cost $130 on January 1 of
the following year.â
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The hyperinflation in Venezuela is significantly
more than the rate cited by Salemi.
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According to an August 2018 BBC article, prices
of goods âhave been doubling every 26 days
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on average,â and the annual inflation rate
âreached 83,000% in July.â
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One source reported that a cup of coffee cost
450 bolivars in Venezuela less than two years
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ago.
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Earlier this year, it cost a shocking 2.5
million bolivars.
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But wildly high prices are not the only serious
effect of hyperinflation.
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As a Guardian article notes, the âproblem
comes when the supply of paper money in an
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economy outstrips demand for goods and services,
causing the value of the currency to fall.â
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Following in the footsteps of Zimbabwe, Venezuela
turned to increasing its money supply because
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it had no other means to pay its debts as
we shall see later.
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But ultimately Venezuela ended up in its current
hyperinflation situation due to a combination
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of several factors:
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Number 3: High Government Spending
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President Hugo Chavez ran Venezuela from 1999
until his death in 2013.
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Chavez and his administration implemented
social programs called the Bolivarian Missions
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that were supposed to improve living conditions
for the poor by redistributing wealth and
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reforming the way land was used.
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There was also an attempt to promote economic
democratization through the establishment
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of worker-owned cooperatives.
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Data from the Center for Economic and Policy
Research (CEPR) indicates that Chavez achieved
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a high degree of success with these programs.
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He was able to reduce unemployment from 14.5
percent in 1999 to 7.8 percent in 2011.
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The poverty rate also dropped from 50 percent
in 1999 to 31.9 percent in 2011, while extreme
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poverty dropped from 19.9 to 8.6 percent in
2011.
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Unfortunately, this prosperity came at a high
financial cost.
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The social programs were good for the people
but bad for the economy.
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Chavez spent more money on these social programs
than the country could really afford.
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According to CNBC, public spending accounted
for more than 50 percent of Venezuelaâs
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GDP in 2012.
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He also borrowed money from other countries
to keep the programs going.
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By 2013, Venezuelaâs foreign debt climbed
to a little over $106 billion.
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According to one source, Chavez had been warned
about the growing fiscal deficit as early
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as 2002, but he didnât pay attention to
the warnings.
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For Chavez, these social programs were a way
to win over the people.
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Maintaining his popularity with the people
was important to him because it was a way
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for him to maintain his power.
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An article in The Economist states that through
the Bolivarian Missions and the âflood of
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oil moneyâ he was able to ârebuff a referendum
in 2004 that would have removed him from office.â
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To make matters worse, Chavez and his administration
failed to save money for future economic crises,
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which quickly emerged due to an event that
happened in 2014.
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Number 2: Low Oil Prices
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Venezuelaâs economy is mainly based on selling
only one commodity: oil.
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Venezuela has the largest oil reserves in
the world.
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The World Atlas states that it has 300,878
billion barrels of proven reserves.
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According to Oil Sands Magazine, âmost of
Venezuelaâs proved oil reserves are located
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in the Orinoco Petroleum Belt,â which is
located on the eastern Orinoco River Basin.
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The Orinoco Belt is approximately 370 miles
(600 km) in length and has an area of about
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21,357 sq. mi. (55,314 sq. km.).
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It is estimated that the area contains about
1.2 trillion barrels of oil.
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Another oil-rich area in the country is the
area near Lake Maracaibo, which is actually
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a brackish tidal bay that is located near
the Caribbean Sea.
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One source estimates that the âlakeâs
basin supplies about two-thirds of the total
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Venezuelan output.â
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With the discovery of oil in Venezuela in
the early 1900s, the country relied more and
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more on it as a revenue source.
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Today, Venezuela âderives over 50% of its
GDP from petroleum exports which represents
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about 95% of total exportsâ according to
a Forbes article.
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This meant that when oil prices were high,
life was good.
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For instance, Venezuelans enjoyed a high standard
of living when oil prices spiked in the 1960s
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and 1970s.
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An online magazine called Foreignpolicy.com
describes how âVenezuela was considered
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rich in the early 1960s: It produced more
than 10 percent of the worldâs crude and
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had a per capita GDP many times bigger than
that of its neighbors Brazil and Colombia
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â and not far behind that of the United
States.â
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Conversely, when oil prices went low, life
was bad, and this is what happened to Venezuela
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starting in 2014.
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That year, the price of oil dropped sharply
from $100 to about $70 a barrel, and the price
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decline continued âto a low of around $33
dollars a barrel in early 2016â according
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to the American Institute for Economic Research
(AIER).
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The slump in oil prices sent Venezuela into
an economic downward spiral.
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Lower oil prices brought with it a reduction
of Venezuelaâs foreign reserves, and AIER
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states that this in turn reduced the governmentâs
ability to âsubsidize basic goods and services
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for its people.â
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Number 1: Continuing Economic Mismanagement
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The Venezuelan government, now under the control
of Chavezâs successor Nicolas Maduro, dealt
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with the budget gap the way other countries
in a similar situation did in the past when
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they had no other way to pay their debts â print
money.
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AIER notes that printing money set the wheels
in motion for hyperinflation: âThe budget
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shortfall was closed by printing money.
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Hyperinflation took hold, destroying the savings
of individuals and making productive business
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investment nearly impossible.â
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A comment made by a nurse named Maigualida
Oronoz helps you understand what living with
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hyperinflation is like for the average citizen
living in Venezuela.
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In an interview with the Guardian, she says,
âWe are millionaires, but we are poor . . . We
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can just about eat, but if some health emergency
happens weâll die because the prices of
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medicines are sky-high and rise every day.â
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According to economist Theodore Cangero, hyperinflation
continues under Maduro because âhe is continuing
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the disastrous economic policies of the late
President ChĂĄvez.â
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Earlier this year, Reuters reported that Maduro
seemed to be in denial about Venezuelaâs
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hyperinflation.
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In an interview with Reuters, Rodrigo Cabeza,
Hugo Chavezâs former finance minister, said
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that âVenezuelan President Nicolas Maduro
has refused to recognize the countryâs hyperinflationary
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problem and has no plan to address it.â
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Now it seems that he has come up with course
of action.
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President Maduro has decided to play games
with the value of Venezuelaâs dying bolivar
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currency in a desperate effort to give the
appearance that hyperinflation is disappearing
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from his country.
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The Peterson Institute for International Economics
(PIIE) outlines his current plans for the
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bolivar: âHis proposed monetary reform has
three pillars: (1) slash five zeros from pricesâso
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a product that costs 100,000 bolĂvares would
now cost 1 bolĂvarâand give the currency
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a different name, the âsovereign bolĂvarâ;
(2) devalue the currency by 95 percent; and
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(3) peg the bolĂvar to the petro, Venezuelaâs
digital currency backed by oil introduced
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in February 2018.â
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He then plans to combine these monetary reforms
with yet another round of questionable government
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interventions.
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CNBC reports that he will âhike the minimum
wage by over 3,000 percent, boost the corporate
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tax rate, and increase highly-subsidized gas
prices in coming weeks.â
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PIIE and other economic experts are skeptical
that these measures will work to reduce hyperinflation
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because they donât address the underlying
problems that are causing the hyperinflation
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in the first place.
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PIIE argues that âthere is no substantial
fiscal reform in the works, no attempt to
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rebuild dismantled institutions, and no announced
shifts in economic policymaking.â
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PIIE even forecasts that Venezuela âlooks
set to beat Zimbabwe, a country that managed
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to have an annualized inflation rate of 79
billion percent in November 2008.â
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The economists interviewed by CNBC also have
a dire outlook for Maduroâs monetary plan.
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They think it will make the hyperinflation
in Venezuela even worse:
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âAmid this aggressive devaluation and monetary
expansions due to salaries and bonuses, we
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are expecting a much more aggressive stage
of hyperinflation.
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All the more so in a context where the elimination
of excessive money printing is not credible.
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The worst of all worlds, said Venezuelan economist
Asdrubal Oliveros of consultancy Ecoanalitica.
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A large number of Venezuelans have decided
that they no longer want to live in this world
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where all of the social gains of low poverty
and low unemployment recklessly bought by
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Hugo Chavez have been wiped out by incompetent
leadership, poor financial planning, and widespread
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corruption.
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They are fleeing from Venezuela in droves.
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According to the Guardian, ânearly two million
people have fled Venezuelaâs economic and
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political crisis since 2015.â
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The exodus will continue unless some drastic
monetary and political changes are made.
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How long do you think Venezuelaâs hyperinflation
will last?
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What do you think needs to be done to fix
it?
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Let us know in the comments!
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Also, be sure to check out our other video
called Why You Will Soon Be Eating Crickets
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and Other Insects!
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Thanks for watching, and, as always, donât
forget to like, share, and subscribe.
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See you next time!
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