And the Inflation Winner is…..Venezuela

The Institute for International Finance is predicting that Venezuela will experience a 42 percent inflation rate this year, one of the highest in the world and the highest in the Latin America and Caribbean region. They report that this will have a heavy impact on the prospects for growth in the country for many years to come.

No kidding. Any economist will tell you that inflation has particularly severe consequences for the poor, which is why the Chavez government, like many predecessor governments, have introduced price controls for many basic foodstuffs. The Venezuelan people are no strangers to the impact of inflation on their daily lives. In the past, high inflation particularly combined with the release of price controls have brought down governments. Could that happen again? What is different now?

Probably the key challenge that Venezuelans face today is their government’s mismanagement of the economy, while at the same time simultaneous closing of much of the space for civil society dialogue. This includes the written and broadcast press, civil society groups and now possibly even the Internet. Combined with the government’s capture of nearly all public institutions, it is difficult to see exactly how Venezuela can arrive at an economic course correction. Polls show that upwards of 80 percent of the population do not want their country to follow the Cuban example, and yet that seems to be where the government is taking the nation.

There are still a few brave souls who risk their futures to dissent from current economic and political policies. Hopefully, they can mobilize what shreds of public debate that are still allowed in Venezuela in order change directions.



2 responses to “And the Inflation Winner is…..Venezuela

  1. As a follow up to my blog entry, I just read a BusinessWeek report that the Venezuelan government pays $605 million annually in food subsidies for the public in addition to shelling out $1.8 billion to operate the state-run Mercal grocery store where food items may be sold at up to 40 percent off the already government-mandated prices in private grocery stores. One wonders what could be done if those funds were redirected to helping the poor get decent job skills and jump start the economy to provide them with employment.

  2. Martin Friedl

    John. The numbers you point out are truly amazing. One comforting thought is that they do point out how inefficient Chavez’s new state run companies are. It highlights the fact that a functioning market economy, where companies are able to operate freely and serve their clients, is the best system for providing goods and services.