Venezuela's inflationary fire slowly dies out

After a historic hyperinflationary storm in Latin America, which unleashed an unprecedented price upheaval that destroyed the economy starting in 2016, price indices in Venezuela are finally beginning to lose ground. The Central Bank's tables average a rate of 3.2% in the month of November, the lowest in many months in the country, continuing an evident decline in October and September.

With these steps, Venezuela is on track to relinquish first place in the standings. The current annual average stands at 185%, still tremendously high, but a far cry from the crazy 4,000% and 6,000% years of 2016 or 2017.

The experts consulted, such as Henkel García, director of the consulting firm AlbusData, say that, if the political conflict does not get out of its way – which remains to be seen – the country could finally end 2024 with a double-digit inflation rate.

After a 2023 with a modest growth rate, the economy is also expected to expand in 2024 thanks to a recovery in tax revenue due to the lifting or easing of energy sanctions by the United States. Francisco Rodríguez, an academic at the University of Denver, estimates that the range of GDP expansion may be between 2 and 6 percent. Some make even more optimistic estimates.

A hostile policy of nationalizations together with the tightening of exchange, fiscal and commercial controls, promoted by Nicolás Maduro when he took office in 2013 to give continuity to the legacy of Hugo Chávez, in addition to widespread corruption in almost all its instances, produced in 2014 an exchange rate debacle that aggravated shortages and a serious bleeding of foreign currency in Venezuela.

For most of the 1980th century, the country enjoyed enviable exchange rate stability, lasting several decades and, until <>, some of the lowest inflation rates in the world. The international sanctions applied by the United States, the European Union, and other actors to Maduro's government ended up aggravating the storm created by Chavismo and tied the hands of the Executive, also precipitating the collapse of Petróleos de Venezuela (PDVSA), the state oil company already eaten away by corruption.

"After a tough adjustment of almost two years, inflation is finally subsiding. Society has paid a very high cost to mitigate this phenomenon because the adjustment executed by Maduro has been very contractionary and has greatly damaged the quality of life of wage earners," says economist Leonardo Vera of the Central University of Venezuela.

Vera points out that inflation is subsiding because – unlike what was done in the years 2014-2015-2016, in which joyful salary increases were decreed without fiscal basis – the government of Nicolás Maduro has been careful not to make the same mistake and has not moved the salary scale, at this time the lowest in Latin America.

"The reserve requirement, which remains at 73%, and which must be the largest in the world, ended up killing credit in Venezuela, but it had consequences. On the other hand, the exchange rate peg has had an effect, but it has limited local production, and it has an unstable framework," says Vera.

After years of hiding the figures of the economy and refusing to present accounts to the Parliament that dominated the opposition until 2020, Delcy Rodríguez, Vice President of the Republic, in charge of the economic area, has presented the 2024 Budget to the legislature, where an increase in national income is expected.

"Inflation has slowed down, it did so in November compared to October, it will do so in December, and also in January," says financial analyst Henkel Garcia. García agrees with Vera about not decreeing wage increases as one of the causes of the loss of vigor in the increase in prices. "The country's tax revenues have increased a bit and that has allowed for some exchange rate stability. Of course, that's being paid for by the worker."

The current Venezuelan economy, a very reduced expression of its traditional version, survives today with its oil revenues, in barely 800,000 barrels per day of production, gold production, income from remittances, and a tepid recovery in its production of iron and steel inputs, after disastrous efforts in which millions of dollars were lost. The industries today operate at 30% of their capacity and serve a much smaller market, after the massive diaspora of these years. The construction industry continues to decline. Bank credit had been pulverized by inflation and is only now appearing on the market again.

The realization of these economic expectations will depend on the performance of tensions between the Maduro government, the Venezuelan opposition, and the United States. The arrest of Roberto Abdul, director of the NGO Súmate, could end up cracking what was agreed in Barbados, and the restoration of full sanctions on Venezuela is a certain possibility.

Analysts consulted doubt the imminent return of sanctions, even despite this new crisis in dialogue. "My impression is that sanctions will be eased even if the Barbados agreements fail," says economist Francisco Rodríguez. "I believe that an important part of the current U.S. government wants to normalize its relations with Venezuela and is very aware of the failure of the sanctions policy. There are problems with the migration crisis and an interest in Venezuelan oil. There may be grey areas in the interpretation of the sanctions, between what was agreed in Barbados and some partial agreements."