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Venezuela Economy Spiraling Down
World Economy

Venezuela Economy Spiraling Down

With 68% inflation, the highest across the globe, Venezuela comes in just ahead of war-torn Sudan.
US companies like Ford and Pepsi are quickly losing profits there due to inflation. US airlines have drastically reduced their flights to the capital, Caracas. Some European airlines have already stopped flying there altogether, CNNMoney reported.
Here are five reasons why Venezuela’s economy is spiraling down.
Political Instability: The Venezuelan government, led by Nicolas Maduro, who succeeded Hugo Chavez after his death, has become increasingly authoritarian.
In February his government has taken over a supermarket chain, and arrested the mayor of Caracas, Antonio Ledezma. Maduro alleges that Ledezma was trying to overthrow him. Ledezma, a vocal critic of the government, joins Leopoldo Lopez, another incarcerated opposition leader in Venezuela.
A food crisis: Venezuelans wait for hours in lines outside supermarkets to buy milk, sugar and flour. There are food shortages at grocery stores across the country because the government can’t pay to import food. Sugar, flour and other basic imports, account for 70% of Venezuela’s consumer goods, according to the Brookings Institution.
Oil: Venezuela is getting crushed by low oil prices. A barrel of oil now costs about $51 on the global market, losing about half its value from just six months ago. That’s exacerbating the economy’s acute problems. Venezuela has the largest oil reserves in the world, and once flourished on its treasure chest of crude.
Now Maduro appears to be hitting the panic button. He recently visited China, Russia and several OPEC nations, asking for funds to shore up his government.
Maduro said on Venezuela’s state-owned television that China has offered aid. But in return, Venezuela is giving China free oil. Experts say that Venezuela isn’t selling enough of its oil for profit, given these agreements. Plus, Venezuelans pay next to nothing for gas. One US penny now pays for about five gallons of gas in Venezuela.
Dead money: Venezuela’s currency is losing value faster than any other in the world. Most Venezuelans now exchange money on the unofficial black market. One US dollar equaled about 88 bolivars a year ago. Today, one dollar is worth 190 bolivars, on the black market.
The process of simply exchanging money is very confusing. Venezuela has four exchange rates: two that the government uses to pay for its imports, the unofficial (black market) rate and a new one Maduro introduced Thursday.
The latest exchange rate allows Venezuelans to legally buy US dollar for the first time in over a decade. But there’s a limit: Venezuelans can only buy $2,000 dollars a month.
Default: The country owes $11 billion in debt payment this year. Some experts see Venezuela defaulting in October, when the country must pay $5 billion.
CAPTION
Venezuela is getting crushed by low oil prices.

 

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