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Inflation and Shortages in Venezuela

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by

Gregory Wilpert

on 21 September 2015

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Transcript of Inflation and Shortages in Venezuela

Political destabilization
Coup attempt of 2002
Oil industry shutdown of 2002/3
Discrediting of government via international mass media
U.S. efforts to isolate government internationally
Currency
Exchange
Control
March 2003
To stop capital flight, to keep imports cheap, to keep inflation down
Only those who meet specific criteria may buy dollars
Inflation
Petro-$$ drive up prices
Cheap imports help keep inflation from getting too high, as long as the currency is overvalued
Products priced at black market dollar drive inflation up
Increasing
Pursuit of socialism 2000-2006
Nationalization of key industries
Worker self-management
Regulation of private capital
Investment rules
Workplace rules
Greater taxation
"Dutch
Disease"
Petro-$$ flood the economy
Increasing value of domestic currency (over-valuation of the bolivar)
Imports are cheaper than domestic products
Domestic industries can't compete and fail
Causes of Inflation and Shortages in Venezuela
Oil
Economy
Venezuela earns 95-98% of its export earnings from oil
Massive inflow of petro-$$ when the price of oil is high
Economic
Stability
2004-2009
as long as the price of
oil is high and brings in plenty
of petro-$$
Black
Market for
Dollars
Used by those who cannot access official exchange rate
Economic
Growth
Increasing per capita income
Decreasing inequality, due to social programs
Greater consumption
Chávez Dies
March 5, 2013
Capital
Flight
Global
Economic
Crisis
Oil price dropped from $140 to $40 per barrel between 2008 and 2009
Lower
Availability
of $$
ARBITRAGE & SMUGGLING
Buy $$ at
official
exchange rate
Use Official $$
to buy goods
to import
into Venezuela
Export
previously
imported goods
& sell them
for $$
Sell $$ for
bolivares
in the black
market for a
massive profit
SHOR-
TAGES
2004-2009
Central Bank of Venezuela borrows $$ (issues $$ bonds)
Increases bolivar money supply when these are purchased in bolivars
Greater money supply also contributes to inflation
Run on the black market dollar
Artificial scarcity via hoarding
Renewed opposition
effort for
destabilization
Businesses exchange bolivars for dollars through offcial exchange, Central Bank loses dollars
Businesses and individuals that cannot access official exchange use black market, bolivar loses value in black market
A] Structural problem with the
Venezuelan oil economy: Oil
B] Political and economic events that impact the Venezuelan economy:
1) Pursuit of socialism (2000-5)
2) Global economic crisis (2008-9)
3) Chávez's death (March 2013)
Full transcript