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Hyperinflation means out of control inflation or inflation happening at a very fast pace. Inflation means
the rise in prices and fall in the purchasing value of money. So, Hyperinflation is a situation when the
rise in prices is very wild and the purchasing value of money falls rapidly.
Hyperinflation can occur when the money supply has increased but GDP growth is absent, resulting in
an imbalance between money supply and money demand. It can also occur if the people have lost
confidence in the currency, resulting into rise in prices and hence hyperinflation.
Although a rare phenomenon, Hyperinflation has occurred about 56 times in the 20th century. Some of
the cases being Germany (1923), Greece (1944), Hungary (1946), Yugoslavia (1994) and Zimbabwe
(2008).
In recent times, Venezuela has been suffering from the worst economic crisis because of hyperinflation.
It is the 57th country which has experienced hyperinflation. The inflation rate in Venezuela has been
over 50 percent since 2014, with the annual inflation reaching 83000% in July, 2018. The IMF estimates
that the worst is yet to come and the country is going to face an inflation of 1 million % in 2018.
Economy of Venezuela
Venezuela officially called the Bolivarian Republic of Venezuela is a country located in the continent
of South America. It has a Federal Presidential Constitutional Republic form of government and is a
socialist economy.
Venezuela had a GDP of $320 billion in 2018 and ranks 47th in the world. Its economy is mainly based
on the petroleum and manufacturing sector. In 2014, the country’s exports accounted for 16.7% of GDP
and 95% of the exports constituted of petroleum products. Venezuela has the largest proven oil reserves
in the world.
The country has an estimated fiscal debt of about 35% of GDP in 2017. It is estimated that in 2017
about 87% of the population lives below poverty line as a result of the economic crisis. The
The Venezuelan economy has huge reserves of oil, while it should have been a boon to them, it has
actually become the reason for their nightmares. The economy is heavily reliant on the export of oil in
order to make money and so over the period the economy has not put efforts into anything else. The
economy basically works by exporting oil and using that money to import all the demands of the
economy.
Hugo Chavez became the President of Venezuela in 1999 on the backdrop of making big promises to
the poor and middle class. As the global prices were soaring in between 2005 and 2014, he used the
huge profits to increase public spending. The money was spent on welfare programs and building houses
for the poor. The results too were positive, unemployment and poverty rates halved and infant mortality
also fell.
This gave Hugo a lot of support from others and ultimately a lot of power. But this power started to be
misused as he started to dismantle the courts and democratic policies and became authoritarian. His
successor Nicolas Maduro took over the presidency in 2013 and followed the same principles and
policies.
All was well until the oil prices began to fall in 2014. This led to a huge fall in the government revenue.
However, Nicolas did not stop the government spending on welfare programs, in order to prevent the
fall of his government. Instead, he ordered huge amount of money to be printed in order to support the
programs.
There was a huge increase in money supply, the GDP was falling. Also, import of goods had reduced.
This scenario led to a rapid increase in the prices of goods leading to hyperinflation. Things got worse
when the government in order to control prices set price control measures on basic goods, medicine and
food. These prices were way below what prevailed in the market as a result of which the private
manufacturers cut down on production and even shut down production. This led to further reduction in
production has fallen about 35% on 2015 levels and 50% since 1999, owing to underinvestment in the
This crisis has led to a humanitarian crisis in Venezuela and has affected the people and the economy
People:
5. Hyperinflation has led to basic things like coffee costing a whopping a 2.5m bolivars.
6. There has been huge emigration of people, about 2.3 million have left since 2014.
7. There are huge power cuts and lack of running water in houses and businesses, this had led to
8. The lack of basic facilities has forced pregnant mothers to cross borders to give birth and to get
9. According to a study, in 2016 27,479 people were killed which is an all-time high, indicating a
10. Businesses face a huge problem because of the continuous increase in the prices, restaurants
don’t have printed menu and supermarkets do not display prices on shelves.
Economy:
1. The rapid rise in prices combined with a fall in oil production has led to the IMF estimating
that the economy will further shrink by a fifth in 2019 following two continuous year of
shrinkages.
2. The Scenario has reached a level where prices are doubling every 26 days on average.
3. The IMF also estimates that inflation could reach 1,000,000 percent by 2019.
4. The country has already defaulted on several loans and hence cannot expect further loans.
5. The foreign exchange reserves have fallen from a peak of $43 Billion in 2009 to less than $9
The Venezuela government has taken up several measures in order to reduce inflation and revive the
1. The government tried to anchor the Sovereign Bolivar to a new virtual currency, Petro which
The Petro was not able to solve the problem as it was not considered to be a credible crypto
currency. People do not have faith in the Venezuela economy and the government and hence it
was a failure. Also, the US banned any transactions linked to the Petro citing it as a scam,
2. The government announced that gasoline should be sold at international price in order to stop
While such a measure is normally suggested by economists but not in this case. Here such a
case would throw a lot of people out of jobs as the price of gasoline would increase. Also, in a
crisis hit country such a measure would leads to riots and further complications.
The already suffering businesses would not be able to support such a policy and hence would
This would negatively affect businesses who have already cut production as the economy is not
in good shape.
5. The government removed five zeroes from the “Strong Bolivar” currency and named the new
is a good idea only if it is accompanied by economic reforms. Alone it will not be able to solve
A new government which has the mandate of the people needs to be formed through fair elections. In
order to save Venezuela from the humanitarian crisis and recover its economy, the world at large will
Some measures that can be adopted to save the Venezuelan economy are:
1. The government has to get emergency financial and technical assistance from organisations
like IMF. Also, developed countries need to contribute towards its recovery.
2. The government needs to setup a regulatory board to regulate the currency and form policies
3. There has to be also the easing of price controls on fuel and other goods and their regulation
4. Medical treatment programs to help the people need to be initiated by international agencies
5. The oil sector which is a major resource needs to be revived through financial and technological
investments.
6. Going further, the government can also take long term loans to grow other sectors and move
https://www.thehindubusinessline.com/opinion/columns/the-cheat-sheet/hyperinflation-at-100000-
per-cent-and-eggs-for-bonus/article24811762.ece
https://economictimes.indiatimes.com/markets/stocks/news/inflation-in-venezuela-hits-42000-as-
investors-dump-bolvar-like-hot-potato/articleshow/64822383.cms
https://economictimes.indiatimes.com/news/international/business/imf-sees-venezuela-inflation-at-10-
million-per-cent-in-2019/articleshow/66139421.cms
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economy-crisis-oil-prices-explained-history-hugo-chavez-a8494696.html
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hyperinflation.html
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https://www.washingtonpost.com/news/worldviews/wp/2018/03/23/venezuela-hopes-to-tackle-the-
worlds-worst-inflation-by-deleting-zeros-from-its-
currency/?noredirect=on&utm_term=.8a15e295e9af
https://www.boeckler.de/pdf/v_2017_11_10_kulesza.pdf
https://venezuelanalysis.com/analysis/14037