Hyperinflation in Venezuela: recent events and current outlook

December was not a good month for the Venezuelan people. The power political reverberations of former President Hugo Chavez’ death have reached a new climax in the last month of 2016. A widespread financial crisis sparked by governmental mismanagement; runaway hyperinflation and a severe drop in oil prices has ultimately led to major civil unrest and public violence. The current situation led the UK Foreign Office and US State Department to issue travel warnings for a country which has not been in this much turmoil for a long time. The month started on a bad note after Venezuela was expelled from MERCOSUR, the regional trading bloc. Following a decade in which strong growth and leftist policies across South America led the bloc to embrace Venezuela, the suspension now underscores the ideological split in a region struggling with plummeting commodity prices and weakening economies. It further isolates the administration of Venezuelan President Nicolas Maduro, who is accused of exacerbating the political, economic and humanitarian crises battering the country.

Meanwhile Maduro sent his Foreign Minister Delcy Rodriquez to Buenos Aires to attend a bloc meeting. Being expelled, Rodriquez was physically prevented from entering a meeting room, which led to the Minister becoming ‘gravely hurt’, according to Maduro. The removal of MERCOSUR put the Bolivar, the national currency, under increased pressure. Devaluation and soaring inflation led to the issuing of new higher-value notes. A backpack full of cash is often required to pay bills at a restaurant or supermarket. The central bank said that six new bills ranging from 500 to 20,000 bolivars would come into circulation halfway through the month. The largest note used to be 100 bolivars and worth about two US cents. Over the past month, the currency has tumbled by 60% against the dollar on the black market. In order to facilitate the use of higher denominations, Maduro pulled the 100 bolivar note creating a national cash shortage on top of the brutal economic crisis. After two days of unrest over the measure – including one death and dozens of shops ransacked – Maduro postponed the measure until 2 January. That helped stem violence, though there were still reports of more lootings in other parts of the country. The border between Venezuela and Colombia was closed for 72 hours in order to prevent the flow of cash out of the country. The Venezuelan crisis has also strained its relationships with allied countries and businesses.

The Chinese Foreign Ministry spokeswoman Hua Chunying said that it has asked the Venezuelan government to take measures to protect Chinese people and their property. Multiple Chinese-run business have suffered from looting. Ford Motor Company has halted auto production in Venezuela and will not resume it until April: “It is a measure to adjust production to demand in the country.” The pressures on the Venezuelan people and economy are not likely to alleviate soon, although it is a realistic possibility to see an extension of the current rise in oil prices in the coming year, perhaps the country’s only hope amid a folly of bad news.