Guayaquil, Ecuador, April 8, 2021 (venezuelanalysis.com) – New economic indicators revealed Venezuela has left hyperinflation territory as the economy struggles under US-led sanctions and the Covid-19 pandemic.
According to the Venezuelan Finance Observatory (OVF), an economic office that responds to US-backed opposition, monthly inflation dropped to a years low level at 9.1 percent in March. The accumulated inflation in 2021 now stands at 155.3 percent, and interannual at 3,867 percent.
OVF spokesman Alfonso Marquina explained inflation figures are lower in March due to “income tax payments”, adding that many companies and households sell foreign currency to buy bolivars and pay their taxes. Currency speculation has long been one of the main inflation drivers according to economic analysts.
The March figure represents a significant decrease from 50.9 percent and 55.2 percent in February and January, respectively, both above the 50 percent hyperinflation threshold.
For its part, the latest official figure released by the Venezuelan Central Bank (BCV) corresponds to January 2021 when inflation reached 46.6 percent. During 2020, the BCV registered hyperinflation only in December (77.5 percent) and January (62.2 percent).
Despite the decreasing inflationary tendency, the International Monetary Fund (IMF) released its World Economic Outlook report on Tuesday, forecasting an accumulated 5,500 percent inflation rate by the end of 2021 in Venezuela. However, the entity warned that the longer-term perspective “remains dependent on the trajectory of the pandemic and the evolution of financial conditions."
The IMF went on to predict that Venezuela’s GDP will contract by 10 percent this year.
In contrast, Swiss bank Credit Suisse said the opposite with a four percent GDP growth in the present year, alongside a projected inflation of 4,700 percent. The investment bank argued that the economic uptick “is not just a dead cat bounce,” and that it is owed to Nicolás Maduro's government relaxing regulations which has "rekindled economic activity”. This would be the South American country’s first real GDP growth in eight years.
The BCV has registered an economic contraction of 65 percent between 2013 and the first trimester of 2019, the last available measurement.
Venezuela’s economy has been mired in a years-long crisis which has severely worsened in recent years with the ramping up of US sanctions. In 2017, Washington hit state oil company PDVSA with financial sanctions, before imposing an oil embargo in 2019 and a host of other measures against different Venezuelan economic sectors.
As a result, the Caribbean nation’s oil output fell from an average of 1.9 million bpd in 2017 to just 500,000 bpd in 2020. According to the Maduro government, the country’s income fell by US $30 billion a year since 2015. At the same time, the US and allies have frozen Venezuelan assets abroad worth several billion dollars.
Multilateral organizations have denounced that unilateral coercive measures severely affect the quality of life of the Venezuelan people while also violating human rights and international law. The United Nations Human Rights Council was the latest organization to call for the elimination of all sanctions used as “tools of political and economic pressure.”
For their part, Venezuelan authorities have looked to address the economic downturn through increasingly liberal measures such as the lifting of price and foreign currency exchange controls in a bid to attract foreign investment.
In October 2020, the National Constituent Assembly approved the Anti-Blockade Law to provide more favorable conditions for private capital participation in state companies. The new measures have reportedly drawn more than 200 offers in recent months, with Maduro reporting that the largest number of proposals come from private investors from Russia, China, Turkey and Iran.
Venezuela has likewise ramped up cooperation ties with allies such as Russia. In March, the countries’ joint high-level commission announced and signed agreements in 20 important areas of cooperation, among which the financial, energy, technical-military, pharmaceutical, and transportation sectors stand out.
The Venezuelan authorities have additionally held a recent meeting with the Ambassador of Turkey in Venezuela, Şevki Mütevellioğlu to advance the Bilateral Cooperation Program, centered on tourism.
Caracas has also been forced to rely on its international allies to tackle the Covid-19 pandemic. China, Russia, Turkey and United Nations agencies have provided vaccines, PCR tests, ventilators, masks and other medical supplies. The Maduro government has blasted the US for severely hampering its ability to respond to the pandemic.
Edited and with additional reporting by Ricardo Vaz from Mérida.