July 24, 2021

Venezuela enters the history of major crises | Economy

Venezuela enters the history of major crises | Economy

On video, the statements of Filippo Grande, high commissioner of UNHCR, during his visit to the border between Venezuela and Colombia. EFE

It starts to be a sad habit. In each meeting that it celebrates, the International Monetary Fund publishes statistics that point to Venezuela as an exceptional case, foreign to the surrounding countries. And it's always bad.

In its report six months ago, the Monetary Fund calculated that, in just two years, the country was going to face astronomical inflation, almost impossible to imagine, of 1,800,000%. And it predicted for this year a collapse of the GDP of 15%, the second largest in the world, only slightly exceeded by the tiny island of Dominica. Well, this annual meeting of the IMF also places Venezuela in a separate group: that of the countries that have suffered the most brutal recessions in recent decades.

The list is long and includes a catalog of the great hardships of the 20th and 21st centuries. Among others, the civil war in Lebanon that caused GDP drops of over 60% in the eighties or the crisis that in the nineties followed the collapse of the Soviet bloc, which cost countries like Georgia or Tajikistan plummeting around 70% .

Venezuela enters the history of major crises

But if the analysis is limited to the 18 years of this century, few countries have experienced falls as deep as that of Venezuela: 37% of its GDP between 2013 and 2017. And, if the forecasts of the Fund are met, the collapse will come up to 60% counting the black decade that goes from 2013 to 2023.

In total, the IMF has collected 133 major depressions suffered by 92 countries -some repeat- between 1960 and 2017. But if only the cases of this century are analyzed, the list is reduced. And there, Venezuela rubs shoulders with countries such as the Central African Republic, Equatorial Guinea, Zimbabwe, South Sudan, Libya, Yemen, the United Arab Emirates, East Timor and an unexpected guest: San Marino. The majority of these countries have passed these years by war episodes or natural catastrophes. The case of the tiny -and very rich- San Marino is explained by the strong effect that the financial crisis of 2008 has left in this country in Italy with only 33,000 inhabitants.

Venezuela enters the history of major crises

The IMF cites four causes, usually intertwined, that explain these plummets of GDP: conflicts -wars or armed rebellions-, shocks caused by the fall in the price of raw materials, financial crises or the transition from a planned to a market economy. "Erroneous decisions on economic policy also play an important role. The best examples are the cases of hyperinflation, including the current case of Venezuela, "says the document. World Economic Perspectives, of the IMF.

10,000,000% inflation

The Venezuelan records do not end here. This annual meeting of the IMF also brings bad news for the Bolivarian Republic. According to the data presented this Monday, inflation will be of a breathtaking size: 10,000,000% annually. At this rate, the rise in prices in two years would be 1,000,000,000,000%, that is, one trillion percent. Figures already at ungovernable levels.

"We foresee a rapid worsening of hyperinflation in Venezuela, fueled by monetary policy financing of large fiscal deficits and loss of confidence in its currency," the IMF continues in its report.

In terms of economic activity, the body led by Christine Lagarde no longer expects a 15% drop in GDP, as it did half a year ago, but 18%. And another 5% for 2019; and another 1.5% by 2020. There is not a single country among those analyzed by the IMF with such negative forecasts. Another sad record that returns to Venezuela.

The economy of Latin America does not recover its breath

The World Bank did it last week (still harder), and now the International Monetary Fund confirms it. The recovery in Latin America is going to be longer and more painful than anticipated. The IMF cuts the growth forecast for Latin America and the Caribbean this year to 1.2%. Its GDP, forecast, will rise next year by 2.2%. But in both cases it is a recovery four tenths below what the Fund itself predicted in July.

The problems accumulate in the American subcontinent. Argentina, after growing by 2.9% last year, will return to the fall of GDP in 2018, this time with a decline of 2.6%. Thus, the IMF corrects with pessimism its previous projection, which pointed to a growth of 0.4%. And he believes that it will remain negative in 2019. Fund technicians explain this bad evolution by a mixture of "tensions in financial markets, high real interest rates and the toughest fiscal adjustment approved last June".

Mexico will give good news instead, with a rise in GDP of 2.2% this year and 2.5% next, favored by the good performance of the US. These increases are, however, lower than those that the Fund anticipated until very recently. And Brazil, with the prospect of a new president ultra in the social but more orthodox in the economic, will grow by 1.4% in 2018 and 2.4% in 2019, according to IMF forecasts, thanks to a recovery in domestic demand. These forecasts are, however, nine tenths lower than those of spring. This downward revision is mainly due to the effects of the national strike of truck drivers and the hardening of financial conditions abroad, especially in the United States.

The rise in the price of money decreed by the Federal Reserve affects the entire continent, making fixed-rate investments more attractive in the US and adding strength to the dollar. Thus, some central banks of emerging countries are forced to come out in defense of their currencies, raising the cost of their debt more.


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