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IMF: Venezuela inflation to reach 1 million percent

July 24, 2018

Venezuela's real GDP is expected to shrink by 18 percent in 2018, marking five consecutive years of declining growth. The IMF said that Venezuela's hyperinflation forecast is similar to that of post-WWI Germany.

Venezuelan president Nicolas Maduro holds a new Bolivar note
Image: Reuters/Miraflores Palace

Venezuela's million percent inflation

The International Monetary Fund reported on Monday that Venezuela's crippling inflation could top 1 million percent by the end of the year, as its economy continues to worsen. The South American nation finds itself in a political and economic crisis that has led to more than a million fleeing the country since 2015.

"We expect the government to continue to run wide fiscal deficits financed entirely by an expansion in base money, which will continue to fuel an acceleration of inflation as money demand continues to collapse," Alejandro Werner, head of the IMF's Western Hemisphere department said.

The once wealthy oil-producing nation of Venezuela has been struggling for years from an unrelenting rise in inflation, shortages of food and medicine, and declining oil production.

"We are projecting a surge in inflation to 1,000,000 percent by end-2018 to signal that the situation in Venezuela is similar to that in Germany in 1923 or Zimbabwe in the late 2000s," Werner said.

President Nicolas Maduro, who won a second six-year term as president in May despite the deep economic crisis, blames the poor state of the county's economy on an economic war that he says is being waged by the United States and Europe.

Read more: Sanctions or diplomacy? Venezuela election divides EU lawmakers

GDP continues to drop

Venezuela's real GDP is projected to fall by about 18 percent this year. The decline is being driven by a significant drop in oil production, widespread micro-level distortions and large macroeconomic imbalances, Werner explained. If true, Venezuela's economy would have seen a 50 percent contraction over the course of the last five years, putting it among the world's deepest economic falls in six decades.

OPEC data confirms that Venezuelan oil production reached a new 30-year low of 1.5 million barrels a day in June, despite having the world's largest reserves of crude. The health of Venezuela's oil sector is a key to its survival, as the country earns 96 percent of its revenue through oil sales.

Venezuelans rely on remittances to survive

Werner said the IMF projections are based on calculations prepared by the organization's staff and warned that the numbers could change, given the high degree of uncertainty. "An economy throwing you these numbers is very difficult to project," Werner cautioned.

Read more: Venezuela's worthless currency turns into bags of money

Venezuela's effects on the region

The IMF noted that the economic distortions, coupled with chronic shortages in electricity, domestic water and public transportation, and a high crime rate, plague the citizens of Venezuela and are the reason why so many have fled the country.

"The collapse in economic activity, hyperinflation, and increasing deterioration in the provision of public goods (health care, electricity, water, transportation, and security) as well as shortages of food at subsidized prices have resulted in large migration flows, which will lead to intensifying spillover effects on neighboring countries," Werner warned.

Read more: Can Germany be a new home for young Venezuelans?

Venezuela: Life with inflation

Venezuela's economic collapse has also dragged down growth forecasts for Latin America and the Caribbean to 1.6 percent this year, from 2.3 percent when Venezuela is excluded.

The region, excepting Venezuela, "continues to recover" amid a growth in consumption, with a 2.8 percent growth expected for 2019, the IMF said.

jcg/rt (AFP, EFE)

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