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  HOME | Venezuela (Click here for more Venezuela news)

TalCual: When Will Venezuela Recover from the Economic Catastrophe?
Despite all the gloomy forecasts, Venezuela stands a good chance of recovering from the terrible economic crisis, fueled by skyrocketing hyperinflation, in only a few years provided that it applies the appropriate policies without wasting any time

By TalCual

The Venezuelan society is making progress. Let us hope that it does, as fast as possible, toward a new direction and a totally different orientation. The aim should be to achieve the highest level of democracy and well-being.

It is important to find out how long will it take to reverse this immense economic catastrophe the country is going through. First of all, because society should know about the possibilities and restrictions. Knowing about the possibilities allows them to be realistic, but also more demanding. And knowing about restrictions makes it easier to anticipate the aspects that must be considered, to take appropriate measures, to avoid the mistakes made by others. And second of all, because leadership, especially the political one, should convey such possibilities, and exercise the informative and motivational role that is required.

In order to assess what is possible and what will be more complicated, the experience of other countries becomes useful. That way it is possible to learn from the successes and failures. That is why it is necessary to compare with past experiences. Each one different, of course, but valuable for learning.

Let’s assume initially that Venezuela, as a result of different policies being applied throughout this year, avoids a negative growth in 2019 (already forecast provided that current policies are still applied). In this case, the Venezuelan economy would have five years without growth (2014-2018), the last of them in hyperinflation. This means that Venezuela would join the group of six countries that in the past forty years have experienced five-year recessions, according to the International Monetary Fund (IMF). In this group, Sierra Leone had the largest drop in economic activity (an average of 12.27% during five years of recession). Venezuela would come in second place with an average drop of 11.71%.

Considering that overcoming the economic downturn takes place during the year of which the purchasing power prior to the start of the recession is reached (purchasing power in dollar terms, Purchasing Power Parity or PPP per capita), the most successful country in this group has been Guyana in achieving to recover the GDP per capita prior to the recession in two years’ time. That is to say, the GDP per capita was $3,360 in 1985. In 1986 the recession starts and ends in 1990. In 1992 the GDP per capita exceeded that of 1985 ($3,393).

It should be noted that recession in Guyana reached an average of 2.86% (nearly four times lower than that of Venezuela). That is the good news, although it should be noted that not only the recession in Guyana was less profound than that of Venezuela, the country did not experience hyperinflation, either. The remaining countries of this group took a lot more time for recovery. In Turkmenistan and Bolivia, for example, both countries with hyperinflation, the recovery took 15 and 18 years, respectively.

Now, let’s have a look at a worst-case scenario. Let’s suppose that the IMF is right and Venezuela has also an economic decline of 5% this year. In that case, it would be a recession with a duration of six years. Here the scenario is more complicated. Croatia was able to recover the GDP per capita prior to the recession in three years’ time. The other five countries took more than ten years. For instance, the Democratic Republic of the Congo could take more than 30 years (the only country with hyperinflation in the group).

Comparative experience shows that it is not impossible to overcome such a long recession in only a few years. It takes the appropriate policies to do so in the shortest time possible and at the lowest cost, as well as the leadership with human teams and the necessary institutional conditions. From that perspective, if Venezuela had those requirements – and of course it can! – it may be able to recover the GDP per capita that it had in 2013 by 2021. And, from there, is closer to recover the GDP per capita that it had in 1980 (a little less than $300).

Let us build with decision an agreement of that nature to steer a different course for Venezuelans.

 

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