Venezuela, the country where 193% inflation can be seen as good news

The consumer price index in Venezuela stood at 193% during 2023, a little lower than expected, according to figures offered by the Venezuelan Finance Observatory (OVF). The inflation index for December (3.9%) and November (1.9%) are the lowest recorded by the Venezuelan economy in many months, after a prolonged hyperinflationary period that the Venezuelan government of Nicolás Maduro has never recognized.

Data from recent months suggests that price growth has lost momentum. The annual average inflation rate in 2023 remains the highest in the world, but everything indicates, according to experts, that more moderate levels are coming, along with a degree of economic expansion. Other countries such as Lebanon and Argentina are on their way to surpassing Venezuela, which for years had the highest average annual inflation rate in the world, with figures of several thousand percent. Henkel García, finance specialist and director of the Albusdata firm, predicts that inflation in 2024 will only be double digits, a milestone for the country’s battered economy.

The figures from the OVF — a specialized observatory that analyzes the behavior of the national economy, trying to fill the official information gap — indicate that the most critical month of 2023 was January, with inflation at 39.4%, followed by February, with 15.4%. The trend tended to be downward, except for a high peak in August, with inflation significantly lower in the last quarter. “Although it is still very high, it is the fifth year in a row of declining prices in the country,” says the OVF report, which in 2022 placed inflation at 305%.

“The behavior of the Venezuelan economy was generally a little less traumatic in 2023,” says economist and consultant Antonio Paiva, who attributes part of the slowdown in prices to dollarization. “People are running away from bolivars, everyone wants the possibility to earn in dollars, they look for immediate conversion to get out of the local currency as soon as possible. Supply has improved significantly, there are enormous investments in the commercial sector, but there are still serious problems for the average citizen. The deterioration of salaries is alarming and public services have collapsed,” he explains. Stability in oil production thanks to a special license granted to Chevron has also helped.

During the first seven decades of the 20th century, with single-digit month-on-month inflation rates and high economic growth, Venezuelans did not really know what inflation was. The decline began to become evident around the 1990s, as the country’s democracy cracked amid corruption scandals and misguided public policies. In 1996, a serious financial crisis in the private banking sector led to an average monthly inflation rate of more than 100%. Until then, and for a long time afterward, that was the highest the country had ever recorded.

The death of Hugo Chávez, in 2013, and the arrival to power of an inexperienced and radicalized Nicolás Maduro, set the scene for an economic storm of historic dimensions. The economic crisis wiped out salary and social guarantees, while systemic corruption ran rampant. The situation was aggravated by the government’s Draconian control over private companies, anarchic salary increases, aggressive policy of nationalizations and nonstop questioning of the legitimacy of private property. The Maduro administration maintained exchange controls on currency that led to the bankruptcy of the state-owned oil company PDVSA and a monetary and fiscal imbalance that was so extreme that economists still can’t agree by how many zeros prices increased each year, in the 2014-2018 period.

Once the total bankruptcy of the economy became a reality, around 2019, the Maduro government began a silent and progressive return to the domains of the market economy to stabilize the country. Dollars were admitted and decriminalized; the combative discourse against capital ceased; “the bourgeoisie” was no longer held responsible for the increase in prices, salary raises were considered with greater caution, and a classic anti-inflationary strategy was developed, with the help of a group of Ecuadorian advisors working closely with Vice President Delcy Rodriguez.

“Inflation has eased as a result of an undeclared economic adjustment that has had a devastating effect,” comments Leonardo Vera, professor at the Central University of Venezuela and member of the Venezuelan Academy of Economics. “The three pillars of its deceleration have been the wage freeze; the legal reserve that has curtailed bank credit; and the attempt to anchor the exchange rate, which has made imports cheaper and domestic products more expensive.” Like Paiva, Leonardo Vera believes that dollarization has had a key effect on prices.

After years of not publishing anything on the state of the economy in the midst of a supply crisis and price increases, the Central Bank of Venezuela — until the arrival of Chavism to power, an institution respected for its accuracy and equanimity — has begun to publish, in a selective and filtered manner, some information on the state of the nation’s finances.

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