A decade ago, Venezuela had the highest per capita household consumption in South America according to the World Bank. It was also one of the most lucrative markets on the continent, luring business from far and wide.
It is hard to reconcile the Venezuela circa 2007 with the one of today: lack of access to basic consumables, queues at urban supermarkets with scant supplies, and working professionals struggling to provide two square meals a day to their families.
A broken economy
Inflation was high in the country even in 2007, ranging from 15% to 22.5% in the year. Economic growth was also not great that year, peaking at 3.6% in the third quarter, but it was still growing.
At present, it is nearly impossible to provide an accurate number for the aforementioned metrics as official figures are unreliable, and figures from multilateral agencies and private research firms have an extremely wide range. However, it is certain that inflation in Venezuela is in triple digits and the country is contracting.
Reuters recently reported that according to central bank data provided to the International Monetary Fund (IMF), annual inflation in Venezuela was 274% in 2016. The IMF itself has assessed that inflation had reached 720% last year with some private firms estimating it to be as high as 2,200%.
It does not have much cash left. The country has been rapidly depleting its foreign reserves in order to make good on its bonds payments. A central bank release showed that foreign reserves in March 2017 have nose-dived to about a third from $30 billion in 2011. Earlier in the year, the country had engaged in a strange bond transaction.
Its revenue streams have also dried up. Crude oil exports – which dominated the country’s external trade forming over 90% of revenues – have nearly evaporated as the country can’t pump enough oil because due to lack of financial resources.
In the next article, let’s look at crude oil and its implications on Venezuela.