Congratulations, Venezuela! Your inflation rate is down to 135,000%!


Over the years, we’ve written a good deal here about the western hemisphere’s cozy Commie tag team. We’re referring, of course, to the so-called Republic of Cuba and the so-called Bolivarian Republic of Venezuela, each of which, through various actions, helps keep the other’s totalitarian system in place. Now, however, both of these tyrannies are undergoing dramatic changes. On September 13, Reuters reported that Cuba was experiencing a fuel shortage. “Cubans,” wrote Nelson Acosta, “queued for hours for public transport on Friday at peak times in Havana, sweating in the heavy heat, while queues at gas stations snaked several blocks long.”

PDVSA headquarters

The Cuban government blamed this crisis on the Trump Administration’s enhancement of U.S. efforts to block imports into Cuba – including oil shipments from Venezuela – and Trump’s new sanctions on Venezuela’s famously corrupt national oil company, PDVSA. Acosta noted, however, that it can’t all be blamed on Trump: Venezuelan oil imports into Cuba have been on the decline for years, obliging the Havana government to ration energy. Which means, among other things, shutting off streetlights and reducing “the use of electricity in state-run institutions,” whatever that entails.

Nicolas Maduro

Meanwhile, what’s up in Venezuela? According to a September 17 article in the Wall Street Journal, the Maduro government has responded to that country’s economic death spiral – a consequence of socialist policies introduced by the late Hugo Chavez – by “quietly and cautiously begun implementing free-market policies” in order to “correct an economic contraction worse than America’s Great Depression.” That’s putting it mildly: the situation in Venezuela makes The Grapes of Wrath look like Keeping Up with the Kardashians.

What exactly has the Maduro regime done? It’s “scaled back its once frenzied printing of money, nearly ended frequent salary hikes, and largely stopped enforcing the price controls that had led to dire food shortages and a thriving black market.” As the Journal ‘s Kejal Vyas observes, these are significant actions “for a government that has publicly championed its state-led, socialist economic model as the country’s only salvation from greedy capitalists.”

Venezuelans in a supermarket queue

In any event, the new policies are having an impact – kind of. The hyperinflation rate, wrote Vyas, has dropped “from seven to six figures.” To be specific, “Inflation has fallen from a peak 12-month rate of 2.6 million percent in January to 135,000% in August.” Now, that kind of inflation rate is still terrifying, but, okay, it’s better than seven figures. Just like it’s presumably better to be hit by a car going 60 miles an hour than by a train going 200.

To be sure, it’s news that the Maduro gang is finally seeing the light – sort of. It remains to be seen whether this implicit acknowledgment of the power of the free market will lead to changes in the regime’s rhetoric. Somehow we doubt it. Maduro has been rhapsodizing over chavista ideology so ardently for so many years that it’s hard to imagine him actually admitting that he’s been wrong all along.

Sergi Lanau

In any event, Vyas quotes Sergi Lanau of the Institute of International Finance in Washington to the effect that Maduro’s new measures aren’t exactly leading Venezuela out of the woods. “Is this a turning point? I would say no, definitely not,” said Lanau. “Who knows in a few months if the decision will be ‘Well, we need money again. Let’s print some more.’” In any event, despite the significant drop, Venezuela’s inflation rate remains the world’s highest. Even as America’s economy goes from strength to strength, the economies of the two totalitarian enemies on its doorstep continue to be basket cases.

Venezuela: Weimar redux

A Caracas food line in January

Venezuela is blessed with magnificent natural resources and great promise, but thanks to chavismo, the reality-challenged socialist system imposed upon it by the late egomaniac Hugo Chávez and his torpid successor, former bus driver Nicolás Maduro, it has recently become, as we saw yesterday, the worst economy on earth. Inflation is so high, as Kejal Vyas reported on February 3 in the Wall Street Journal, that the government has been shipping in planeloads of newly printed money – at least five billion bank notes in all. The demand for more bolivars has been so urgent that the Venezuelan government has been forced to split the print job among several major international firms – including a subsidiary of Giesecke & Devrient, “which printed currency in 1920s Weimar Germany, when citizens hauled wheelbarrows of cash to buy bread.” In an unsettling echo of those days, Venezuelans are now carrying around giant rolls of cash, with supper at a fine restaurant costing “a brick-size stack of bills.”

Waiting on line for price-controlled toilet paper

Venezuela’s currency was already close to worthless; this influx of fresh bolivars is virtually guaranteed to reduce the value of the bills even further, increasing inflation (which is already expected to hit 720% this year, currently the highest rate on earth) and sending Venezuela’s economy totally down the tubes. As of early February, the bolivar, which seven years ago was worth about fifty cents, had dropped to a tenth of a penny on the black market. “The flood of money has led some sectors of the economy,” notes Vyas, “to effectively price their goods in U.S. dollars,” in violation of Venezuelan law. Even criminals have switched to greenbacks, with “professional kidnap-and-ransom teams often demand[ing] U.S. currency instead of bolivars.”

CNN’s Patrick Gillespie, in another February 3 report, threw in an additional tidbit. How screwed up is Venezuela? So screwed up that although it has 298 billion barrels of proven oil reserves, more than Saudi Arabia or Iran and eight times the reserves held by the U.S., the country is now importing oil. Its oil sector is so incompetently run that it’s not capable of profitably refining its own crude So it’s been shipping in oil from Russia, Angola, Nigeria, and the U.S.

The former bus driver, driving his country off a cliff

Is Maduro taking urgent action to pull his country up out of its economic nightmare? Of course not. That would mean recognizing the folly of the current economic policies. And for the true believer in the Bolivarian Revolution, that’s simply not an option. Better to betray the people than abandon chavismo. Better to blame Venezuela’s economic woes on capitalist conspiracy, presumably masterminded by the U.S., than to acknowledge that socialism is a formula for self-destruction.

Thus Maduro “has changed the law so the opposition-controlled National Assembly can’t remove the central bank governor or appoint a new one.” Also, he’s “picked someone who doesn’t even believe there’s such a thing as inflation to be the country’s economic czar.” How can this be? How can someone not believe in inflation? According to this new “czar,” when prices go up, it’s not inflation; it’s profiteering by “parasitic” businesses.

In short, the Venezuelan people are at the mercy of rulers whose devotion to chavista thought compels them to deny the basic laws of economics. For them, ideology trumps reality. Better a mind crammed with utopian ideas than a full stomach.


Venezuela: still plummeting

For years, many members of the U.S. news media treated the chavista regime in Venezuela with far more respect than it deserved. Hugo Chávez, Americans were told, might not be perfect – he might not, for example, be as devoted to democratic principles as some of us might prefer – but he was a true hero, using his power (albeit quite ruthlessly at times) to bring fairness and equality to his country.

A cockatoo in every pot?

If there’s anything good about the current economic decline of Venezuela, it’s that such glowing reports are now rather thin on the ground – almost as thin, indeed, as many an indigent Venezuelan who goes to bed hungry every night because there’s nothing on the grocery shelves.

One prominent instance of the new media frankness about Venezuela was a January 29 article in the Washington Post, in which Matt O’Brien explained that both that country’s government and its economy “are well into their death throes.” Experts, he noted, now “expect Venezuela to default on its debt in the very near future. The country is basically bankrupt.” This, even though it has “the largest oil reserves in the world.” But as O’Brien pointed out, that’s the genius of chavista socialism.

The recipe for this disaster? Hand out freebies you can’t pay for. Replace skilled officials at the state-owned oil company with incompetent friends of the regime. And when the money runs out, just start printing more. Quoth O’Brien: “Lenin was wrong. Debauching the currency is actually the best way to destroy the socialist, not the capitalist, system.”

At least the supply of grocery carts seems undiminished.

Thanks to the wisdom of chavismo, Venezuela’s supermarkets have empty shelves, the breweries don’t have “enough hops to make beer,” its factories have insuffienct “pulp to produce toilet paper,” and so on. “The only thing Venezuela is well-supplied with are lines,” wrote O’Brien. Long, long lines of people waiting to buy things that are in short supply – if they’re in stock at all. Readers will recall that we’ve already discussed this socialist triumph on this site; the one new twist here, identified by O’Brien, is that the Venezuelan government has actually started rationing spots on those grocery-store queues, “kicking people out of line based on the last digit of their national ID card.” 

A February 3 article by Kejal Vyas in the Wall Street Journal provided some more illuminating details.“Millions of pounds of provisions, stuffed into three-dozen 747 cargo planes, arrived here from countries around the world in recent months to service Venezuela’s crippled economy,” reported Vyas from Caracas. But the “provisions” to which Vyas was referred weren’t food items or medical supplies – they were shipments of currency, “at least five billion” freshly printed bank notes, which reportedly doubled the amount of cash in circulation.

What does this stunning development portend? We’ll talk about that tomorrow.