Venezuela: Reeling under Hyperinflation

Venezuela: Reeling under Hyperinflation
Case Code: ECON066
Case Length: 12 Pages
Period: 1999 - 2018
Pub Date: 2018
Teaching Note: Not Available
Price: Rs.300
Organization : -
Industry : oil
Countries : Venezuela
Themes: Hyper-Inflation
Venezuela: Reeling under Hyperinflation
Abstract Case Intro 1 Excerpts

Abstract

On December 3, 2016, Venezuela, once Latin America's richest country, entered the record book of historical events to become the 57th country in the economic history of the world to have experienced hyper-inflation. Its central bank reported the highest-on-record inflation of 180 per cent and 240 per cent in 2015 and 2016 respectively. The country was facing the world's worst ever economic disaster. The citizens were suffering from food shortages, hunger, death due to lack of medicines, and escalating homicide rates, which were turning the nation into the second most violent country in the world outside of open war. There was no sign of improvement in the year 2017 either; in fact, it was worse than 2016. The opposition party (Congress) in Venezuela claimed that the inflation level had risen further to almost 800% between the end of 2016 and the beginning of the year 2017. According to IMF projections, inflation was expected to reach 13000% by the end of the year 2018, which would reduce the size of the economy by 15%. Economists claimed that too much dependency on oil and not having made policy changes to adapt to the low petroleum price were the major reasons for the plight in which the country found itself. None of the steps taken by the government headed by President Nicolas Maduro to control inflation, like implementing price control or fixing currency exchange rates, were effective in improving the situation. It remained to be seen how Venezuela would come out of this economic crisis.

Issues

The case is structured to achieve the following teaching objectives:

  • Analyze the reasons for hyperinflation in an economy
  • Analyze the impact of hyperinflation on various sections of economy
  • Understand the concept of currency devaluation and its impact on consumer price index and purchasing power
  • Create a roadmap for Venezuela to come out of the crisis and improve various economic parameters

Contents

Keywords

Hyperinflation, Inflation, Price control, Dutch disease, Debt restructuring, Socialist Economic Policies, Petro state, Currency devaluation, OPEC, Oil reserves, Gross Domestic Product, Per Capita Gross Domestic Product, Poverty Rate, Current Account Balance, Foreign Exchange Reserves

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