After ending a hyperinflationary cycle that lasted 48 months and making efforts to contain the devaluation of the bolivar, Venezuela recorded in March the lowest monthly inflation rate of the last 9 years and 8 months. According to data from the Central Bank (BCV), the variation of the INPC (National Consumer Price Index) in the month was 1.4%, the lowest since August 2012, when the rate was 1.1%.
The mark represents the seventh consecutive month that the country has registered single-digit inflation, a period that started in September 2021, and the fifth month in decline, moving further away from the state of hyperinflation that ended in January.
For the Venezuelan economist Juan Carlos Valdez, there is an evident deceleration in the country’s inflation and, although this process is still very fragile, it can be explained by the stability of the national currency, the bolivar, against the dollar. According to the official exchange rate at the beginning of April, the US currency is quoted at around 4.44 bolivars.
“We are convinced that inflation in Venezuela was inflation induced through manipulation of the exchange rate. This means that the exchange rate had nothing to do with the foreign exchange market. Some internet pages that appeared in Venezuela showed a dollar value parallel without any kind of relationship with reality”, he says.
The positive mark for the Venezuelan economy is different from indicators in neighboring countries such as Argentina, which registered the highest inflation in the last 20 years in March, and Brazil, which had the highest variation in prices since 1994 in the same month. USAalthough they registered a lower inflation than the Venezuelan one – 1.2% for the third month of the year – they had the biggest increase in the last 16 years.
The accumulated indices, however, indicate that the problem of rising prices in Venezuela is not yet completely overcome. According to the BCV, this year’s quarterly inflation was 11.1%, while the annual comparison was 284.4%.
For Carlos Peña, professor of Economics at the Central University of Venezuela (UCV), the Central Bank does not have a long-term anti-inflation plan and this makes “the expectations of economic agents regarding inflation remain very high.”
“We are still running the risk of hyperinflation appearing again and we must be aware of this. Although the exchange rate has been artificially kept stable, the war in Ukraine and important internal elements of Venezuelan politics have structural effects that continue to affect the inflation”, he says.
Given this situation, Valdez reinforces that the momentary stability that the country is experiencing, both in terms of the exchange rate and inflation, is still very weak and may depend on the results achieved in the resumption of dialogue between the government and the opposition.
“I consider that this stability is weak and could be the result of the political effort that the government is making to get the opposition to stop the attacks. it is the government of the United States. If we take advantage of this climate of tranquility, we can have policies that neutralize an eventual attack”, says the economist.
Can Venezuela grow in 2022?
In the same week that the March INPC was published, the investment bank Credit Suisse released a report forecasting a growth of up to 20% in the Venezuelan economy in 2022. “If we are right, this could end up being one of the strongest growth scenarios on the planet in recent years”, declared the bank, which also estimated that Venezuelan GDP should grow 8 % in 2023.
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A possible double-digit growth in Venezuelan GDP would not only represent a historic milestone, as this has not been recorded since 2005, but also a reversal of the downward trend that began in 2014, when the country entered recession. Second to ECLAC (Economic Commission for Latin America and the Caribbean), Venezuela’s GDP experienced a retraction of more than 62% between 2013 and 2019.
Regarding this latest growth, which would reverse the downward trend, although official GDP data released by the Central Bank were only published until 2019, President Nicolás Maduro said in January that the country grew 4% in 2021. The Venezuelan Finance Observatory (OVF), a non-governmental organization linked to the opposition, estimates that Venezuela grew 6.8% last yearan index driven by the expansion of oil production.
For Valdez, economic growth as predicted by Credit Suisse is possible if the magnitude of the recession and the negative impacts that sanctions and the blockade have had on the country’s productive capacity in recent years are taken into account.
“Growing 20% seems like a lot, but growing 20% in relation to what? If it is in relation to what we currently have, it would not be very difficult, but if it is in relation to the size of Venezuela’s economy in 2012, when the crisis began, on this projection would be a very important recovery”, he says.
External issues: oil, relations with the US and the war in Ukraine
According to Credit Suisse, the projected growth for Venezuela in 2022 is mainly due to the effects that the talks held in March of this year between representatives of the US government and President Nicolás Maduro may have on the production and marketing of Venezuelan oil, the main source of foreign exchange for the country.
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Although Washington has not yet promised the lifting of sanctions and the end of the trade blockade, this was the first public contact between official delegations from both nations since the White House, still led by Donald Trump, decided to recognize former congressman Juan Guaidó. as Venezuela’s “interim president” in 2019 and the country’s only “legitimate authority”.
In addition, the ban on imports of Russian oil by the US, ordered by Biden in early March as a way of sanctioning Moscow for the war in Ukraine, raised the possibility that Venezuelan oil could be traded on the US market again. Until 2015, when the first sanctions were applied, the country was the main buyer of oil produced by Venezuela.
Valdez, however, does not believe that the country could meet the needs of the US market because “the size of the Venezuelan economy and the levels of production we have are very low and do not replace what Russia supplied to the US”.
“The approach of the United States government with Venezuela, so that we can sell oil to them again, is simply to separate Venezuela from Russia and not because they are interested in the amount of oil we currently produce”, ponders the economist.
According to data from OPEC (Organization of Petroleum Exporting Countries), Venezuela closed the year 2021 producing around 636 thousand barrels of oil daily, an increase of more than 10% compared to 2020 production. report the organization’s most recent, the country produced in March this year around 728,000 barrels a day. Despite the increase, the figure is still far from the 3 million barrels a day it produced before the crisis and the 2 million pledged by the government for the year 2022.
According to Peña, there is no doubt that the country’s growth in the coming years will depend on oil revenues and on relations with North American companies. However, the professor warns that other factors such as the effectiveness of public spending and the technical renewal capacity of PDVSA, the Venezuelan state-owned oil company, may also have an impact on the proportion and distribution of expected growth.
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“In order to have good oil revenues, we need strong investments in oil fields, in drilling rigs, etc. That is why the government is trying to get US companies to return to Venezuela, because it knows that they will invest This does not mean an oil opening, but a search for partners in order to reach good levels of production”, he says.
Internal issues: wages, retirees and social welfare
The economic recovery and strengthening of a social welfare state in Venezuela has been one of the main promises of the government of President Nicolás Maduro since, after years of economic sanctions, recession, hyperinflation and currency devaluation, the purchasing power of workers was greatly reduced by the effects of the crisis.
In March of this year, the government announced a 1200% increase in the minimum wage, from 7 to 128 bolivars (about 29 dollars), which, added to the food bonus, amounts to 39 dollars. However, according to the OVF, the basic basket value for the month of March it was 187 dollars and the current minimum wage can only afford 10.5% of the products listed.
For Professor Peña, salary increases will only have an effect on the purchasing power of Venezuelans if they are accompanied by monetary policies that fight inflation.
“We can raise the salary every month, but if we can’t contain inflation and reduce annual inflation levels to at least double digits, there is no salary increase that can stand”, he says.
At the beginning of April, the Venezuelan president promised “a plan to recover the purchasing power of retirees”, arguing that it is necessary to “sustainably improve wages and collective agreements”. “It is impressive how Venezuela is recovering, adjusting, step by step, that no one can claim victory now because there is still a long way to go, but we will make it,” Maduro said in a speech during the celebrations of the 20th anniversary of the defeat of the coup d’état. April 2002 against Hugo Chavez
For Valdez, it is possible to increase the purchasing power of Venezuelan workers even within a crisis scenario, a factor that would be fundamental to increase demand and reactivate production in the country.
“I believe that we can substantially improve the satisfaction levels of Venezuelans through wages and other sources of income. important aggregate demand is a stimulus for the producer and this strengthens the economy”, he says.
Editing: Arturo Hartmann
