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Venezuela Moving Toward 1,000% Inflation
World Economy

Venezuela Moving Toward 1,000% Inflation

Venezuela is suffering the deepest economic crisis in its history with output expected to contract 9.1% this year, Barclays Plc says.
The economic contraction will likely reach 16.5% between 2014 and 2016, while inflation over that period will exceed 1,000%, Barclays wrote in a note to clients, Bloomberg reported.
“It is impossible to understand why the government is not reacting to this reality, why it has not taken measures to alleviate the economic distortions that are destroying the real income of Venezuelans,” Barclays said.
President Nicolas Maduro will not likely announce any changes in economic policy before congressional elections Dec. 6, the bank said. With support for the ruling Socialist party at around 19%, the country is politically divided as it also battles low prices for oil, which accounts for 95% government export revenue.
“A weak president who will have lost an election in the middle of a very strong economic crisis will not be able to take any fiscal measures,” Barclays said. “The probability of a political transition in Venezuela seems to be much higher than what the market has been pricing.”
Instead of taking fiscal measures, the government is selling all its liquid assets to maintain an “extremely inefficient” exchange rate system and pay the external debt, Barclays said, adding that it would likely have enough money to pay its foreign debt at least through the first quarter of next year with a moderate increase in oil prices and further cut in imports.
“All the main political actors appear to be thinking only of the near term, and there is no clarity about what they will do after the elections, leaving a very uncertain scenario for 2016,” the bank said.

 

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