US military threat heightens economic uncertainty and worsens inflationary crisis in Venezuela

Every time he appears on television to address the nation, Venezuelan President Nicolás Maduro enthusiastically praises the growth that, according to the official narrative, the local economy has experienced in recent months. In fact, the Central Bank of Venezuela — controlled by Chavismo and devoted to the government’s rhetoric — reports a seven-point expansion in Gross Domestic Product (GDP) so far this year. The Economic Commission for Latin America (ECLAC) and other regional organizations accept this figure, but the International Monetary Fund (IMF) dismisses it without any qualification: growth is barely above 1% and inflation will approach 270% by the end of 2025.

“It must be said that the battered body of an economy that reached an extreme point of weakness a few years ago is experiencing good moments of recovery,” the Chavista leader recently stated. “We must continue to care for that body.” After the collapse of its economy and the drastic drop in oil production in the previous decade, Venezuela has been through four or five years of uneven economic activity, with ups and downs. It has become clear, in general terms, that the serious social and public service problems that have driven millions of citizens from the country persist, but at least some daily ills — such as shortages — were alleviated once Maduro agreed to introduce market reforms into his administration.

With an economy that is now barely 30% of its traditional historical size — the fifth-largest in Latin America decades ago, behind Brazil, Mexico, Argentina, and Colombia — Venezuela would need to grow at sky-high rates of more than double digits year-on-year with low inflation to recover its former shape in about five to 10 years. Venezuela currently has no access to international bank credit, yet the country managed to grow by 10% in 2022 alone.

The government’s 2025 growth figures are, however, highly qualified privately by independent economists, in a country where even a harsh assessment of reality could warrant sanctions for terrorism. But the most serious problem facing the battered Venezuelan economy, beyond its weak growth, is worsening inflation. This situation tends to become more complicated as political tensions with the United States increase and negative expectations expand.

From August to today, the official exchange rate (the dollar went from 133 bolivars to 217) has devalued by 60%. On the parallel or unofficial market, the dollar is available at 310 bolivars. The government penalizes speculative use of the dollar and requires formal businesses to charge the official rate for their services, but under the current circumstances, the tendency to close transactions at rates higher than the official rate is difficult to evade. The differential between the official rate, at 217, and the parallel dollar, at 310, is 43%, a circumstance that tends to complicate economic management when collecting payments, budgeting, or taking inventory.

The dollar remains the currency of choice for street vendors. People routinely pay the equivalent price in bolivars, increasingly at a rate higher than the official one. Those who can make digital transfers in dollars, which are widely accepted. Cash dollars are much scarcer on the streets these days.

There is no official information on inflation in 2025. However, some economists, such as José Guerra, former opposition congressman and professor at the Central University of Venezuela, go far beyond the IMF and estimate it at over 400% in December. Guerra does not rule out the return of hyperinflation. All of this with GDP growth that, “at most,” he predicts, will stand at 2%. The government, meanwhile, has reacted furiously to the monitors that report on alternative dollar exchange rates in the market, closing them all and prosecuting some individuals, accusing them of speculating against the economy for their own benefit and generating anxiety.

“The government’s attempt to foster stability by injecting dollars into a still-small market to close the gap between the official and parallel dollar yielded results for a time. Now, conditions and the expectations of the very agents who have made a living in this economic circuit have changed very abruptly,” says a local financial analyst who prefers to remain anonymous. This source believes that “the political situation and the issue of tensions with the United States, as well as international pressure, have revealed uncertainty about the country’s future and stability, which has led to the migration of dollars. The market has grown, and more are needed than what exists.”

Unlike in the past, the Maduro government has formalized a supervised alliance with national capital that has proven to be solid. The normalization of Chavismo’s relations with business leaders has translated into some results in certain economic sectors after the productive collapse that occurred between 2014 and 2020. Venezuelan oil production has been slowly recovering after the abrupt decline during that period, and today the country comfortably produces and exports more than one million barrels per day, for the first time in almost 10 years. However, the national treasury’s revenue from current Venezuelan oil shipments is suffering significant discounts on sales due to the effects of international sanctions.

“The Central Bank stopped publishing inflation figures in September of last year, when it was already on its way to monthly single digits,” continues Guerra, founder of the Venezuelan Finance Observatory. “The closest estimate to reality — I’ve seen several studies that confirm this — is 480%. This is happening in a context where there are no salary increases; Venezuelan salaries are symbolic. There are bonuses, yes, and increased public spending.”

Venezuela’s annualized inflation rate would still be one of the highest in the world today, at a time when hyperinflation is an economic disease that is already very rare on the planet. For at least seven decades of the 20th century, Venezuela experienced single-digit inflation rates.

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