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  HOME | Opinion (Click here for more)

VenEconomy: Venezuelan Government Gives Wings to Inflation, Shortages

From the Editors of VenEconomy

The Central Bank of Venezuela (BCV) reported on Thursday that inflation in the Metropolitan Area of Caracas stood at 5.6% in October, thus representing 44.5% of accumulated inflation from January through October of this year and an annualized inflation of 51.7% for the period October 2012-October 2013.

It is not only that inflation may look uncontainable, but this jump in inflation strongly affected prices of food and beverages with a 6.7% rise in October, which means inflation in this sector accumulated 57.5% and 72.3% over the past 10 months in the 12 months ended on October 31, the highest in 16 years. If we take into consideration that the Government decreed a 45.2% increase in the minimum wage for 2013, to be paid in three stages, the impact of such increase must have been felt quite hard in many, many Venezuelans households.

The BCV also reported that the Scarcity Index jumped to 22.4% in October of 2013, six percentage points higher than a year earlier. This means that consumers cannot get more than one in five products when trying to find them at grocery stores. Meantime, the diversity index dropped to 107.7 from 152.2 between October 2012-2013. It is worth noting that despite statements from the Government, and according to a recent poll, 65% of the country does not believe that shortages are owed to a so-called “economic war.”

The problem with inflation and shortages is not only their continued advance and that seem unstoppable, but that all indicates the Government has no idea, or it simply does not care, how to deal with this issue and correct the distortions as a result of its wrong economic policies.

As we all know, even those with little economic knowledge, if a household or a company spends more than it earns it goes broke. And, if it were the case of a government following the same practice, it would lead a country to a foreign exchange drought and generate a wage-inflation spiral. The case of the Castro-Chávez-Maduro trio administration is that it has embraced as a recurring policy to spend, say, $100 while it earns only $80.

Besides spending more than it earns, the Castro-communist revolution is also persisting on destroying national production from the private sector based on expropriations, confiscations, tight controls, penalties and lack of motivation to investment, which should be buoyed by that of the public sector due to inefficiencies, mismanagement and a terrible corruption. If no one is capable of producing anything, it is obvious that the outcome is a shortage of products that, in the wake of an increasing demand from the population, causes an increase in prices.

These two wicked practices from the Government make up an explosive cocktail, whose main ingredients are inflation and shortages.

If President Nicolás Maduro and his “comrades” keep doing as told by Cuba and follow the recommendations from Jorge Giordani, Venezuela’s current planning minister, they will still be stumbling around like with the “new economic order” announced on Wednesday, which goes the opposite direction to what it should be done to move the country out of the crisis: 1) Forge new alliances with the private sector rather than attacking it and destroying it; 2) Put the national government accounts in order. These are two actions that seem quite easy, but take a lot of effort, respect, transparency and clear rules of the game that comply with the Rule of Law.

VenEconomy has been a leading provider of consultancy on financial, political and economic data in Venezuela since 1982.

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