World Economy

Life in Venezuela Unbearable as Inflation Tops 2,600%

In a country where oil contributes 96% of state income, millions of Venezuelans are facing acute shortages sparked by falling oil prices, political unrest and corruption
Empty supermarket shelves in Caracas. The government has forced more that 200 establishments  to lower prices in the middle of a hyperinflationary spiral.Empty supermarket shelves in Caracas. The government has forced more that 200 establishments  to lower prices in the middle of a hyperinflationary spiral.

Venezuela's opposition-controlled legislature said Monday that inflation in the economically struggling nation reached a staggering 2,600% last year. The figures underline the problems besetting Venezuela, where food, medicines and other basic goods are in extremely short supply. There have been recent instances of looting reported across the country.

Venezuela sits atop the world's largest oil reserves, but low production by the state oil monopoly and the global drop in crude prices has thrown the Latin American country into crisis, news outlets reported.

In a report released early January, S&P Global Platts, an energy data and research firm, said Venezuela pumped 1.7 million barrels of oil a day in December, its lowest level since late 2002. That's down from 2.3 million barrels a day in the summer of 2014, when crude prices hovered above $100 a barrel.

Opposition lawmaker Angel Alvarado posted the inflation figures on Twitter, saying that the only way to fix Venezuela's economic crisis is by changing its political course.

The government of socialist President Nicolas Maduro has released no official economic figures.

Tough Start to 2018

Luis Briceno built up a small bottle branding business over the last 25 years but in the maelstrom of Venezuela's economic crisis he and many like him are facing closure. "This New Year is criminal," he said reflecting the anguish of millions of Venezuelans facing acute shortages sparked by falling oil prices, political unrest and corruption, AFP reported.

But Briceno believes it will only complicate things for his and other small businesses.

Maduro last week decreed a 40% increase in the minimum wage to try to contain the crisis, after food protests broke out in several cities.

In the business district of the capital, 53-year-old housewife Raquel Benarroch said she was saddened by the closure of scores of businesses that "will never open again. Before, we saw the bottom of the abyss, now we see things much blacker than that."

Despite Maduro's announcement of a minimum wage increase, most Venezuelans will still earn only about $7 a month in salary and food vouchers, based on the commonly used black market exchange rate.

Bricelo said he pays above minimum wage to his employees, but he now has to increase the food voucher quotient, which represents 69% of the total wage. His costs will rise, and so will costs all along the chain of production, he said.

The government says 13 million Venezuelan workers earn the minimum wage or receive the vouchers, out of a workforce of 19.5 million. Ever-rising inflation means the basic income barely buys a basket of staples like a kilo of meat, 30 eggs, a kilo of sugar and a kilo of onions.

"Every time you go shopping you buy less and your budget is limited to food," 50-year-old tourism employee David Ascanio told AFP as he shopped in a Caracas market.

On Saturday, the government forced more than 200 supermarkets in the capital to lower prices, causing huge lines to form outside as Venezuelans jumped at the chance to stretch their meager incomes.

Experts say wage increases are needed to cope with hyperinflation, but they are useless without other government measures, such as reducing liquidity.

Monetary liquidity increased 1,100% in 2017, according to the analysts Rendivalores. "The problem is not the pill that you take, but the one you are not taking," said economist Luis Vicente Leon, adding that the government needed to free up and rationalize the economy and promote private enterprise.

The government said the increases are necessary to counter the runaway inflation, which it has long insisted is part of an "economic war" aimed at overthrowing Maduro.

"We Have Nothing"

Falling oil prices—in a country where oil contributes 96% of state income—political unrest, and corruption have decimated the country's economy under Maduro, leading to chronic food and medicine shortages.

The Fedecamaras employers' union says the industry is working at 30% of capacity due to state controls and expropriations.

Having once produced 70% of its food needs, the country with the world's largest oil reserves supplied barely 30% in 2017 and that was because they could still rely on stores of fertilizers and seeds, said Aquiles Hopkins, the head of the country's agribusiness sector Fedeagro. "For 2018, we have nothing," he warned.

The IMF forecast a drop in GDP of 12% in 2017 and 6% in 2018.

The state, as well as its oil company PDVSA, have been declared in default due to delays on capital payments and interest on the debt.

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