Not communism: The real cause of hyperinflation in Venezuela

[The Ghoul]

These have nothing to do with communism, and there is no need for such a topic to cause opposition.
Enjoy comunism: Venezuela raises monthly minimum wage to $2.40
Enjoy comunism (II): Venezuela to cut 6 zeros from its currency

Venezuela has seen an increase in inflation since 2013, and fell into a super-inflation vortex at the end of 2016. At the same time, Venezuela's national economy began to decline in 2014, and the negative GDP growth rate in 2016 was as high as 18%. Venezuela has become the only country in the world that faces both super inflation and deep economic recession.

The two currently popular explanations-"the Dutch disease" and "abnormal trade theory"-are not sufficient to explain Venezuela's economic disease.

• the Dutch disease：

In economics, the Dutch disease is the apparent causal relationship between the increase in the economic development of a specific sector (for example natural resources) and a decline in other sectors (like the manufacturing sector or agriculture). The presumed mechanism is that as revenues increase in the growing sector (or inflows of foreign aid), the given nation's currency becomes stronger (appreciates) compared to currencies of other nations (manifest in an exchange rate). This results in the nation's other exports becoming more expensive for other countries to buy, and imports becoming cheaper, making those sectors less competitive. While it most often refers to natural resource discovery, it can also refer to "any development that results in a large inflow of foreign currency, including a sharp surge in natural resource prices, foreign assistance, and foreign direct investment".

The term was coined in 1977 by The Economist to describe the decline of the manufacturing sector in the Netherlands after the discovery of the large Groningen natural gas field in 1959.

Venezuela's economic structure does have the characteristics of "Dutch disease", that is, it is highly dependent on the exports of a single industrial sector. However, many economies that also have the characteristics of "Dutch disease" have only experienced an economic slowdown after the international oil price fell since 2014, and there is no such a serious economic recession as Venezuela. Moreover, Venezuela, like other countries with similar economic structures, has accumulated a large amount of foreign exchange funds during the period of high oil prices. These resources would have been sufficient to deal with the problems of falling oil prices and economic downturns.

• abnormal trade theory：

There is a view that an important reason for Venezuela’s current economic recession is Venezuela’s tensions with the United States and the United States’ trade sanctions against Venezuela.

By comparing the changes in bilateral trade between the United States and China and Venezuela in recent years, we can also see that the two are very similar. This shows that political factors or foreign relations are not the real reason for Venezuela’s serious difficulties in import and export trade. The decline in international oil prices in 2014 did have an adverse effect on Venezuela’s export growth, but the decline in Venezuelan exports was earlier than the change in oil prices. This once again shows that the changes in Venezuela's foreign trade and economic situation are mainly related to domestic factors.

The main reason for the Venezuelan economy to slip into the predicament of super-inflation and deep recession lies in the country, which lies in the mistakes of the Venezuelan government's economic policies, including excessive fiscal expenditure policies and improper foreign exchange control measures. The Venezuelan government may have placed too much emphasis on the positive effects of foreign exchange control measures in the short term, but has overlooked their long-term negative effects. When the foreign exchange resources held by the government are nearly exhausted, the depreciation expected by foreign exchange controls has rapidly increased, leading to an overall deterioration in domestic inflation expectations and actual inflation.

1.Continue to expand fiscal expenditure when the economy slows down, consuming the previous reserve resources.

2.Excessive and improper control of the foreign exchange market.


Improper control of the foreign exchange market is undoubtedly the main reason for the current dilemma in Venezuela. In order to eliminate inflation expectations, the huge difference between the official exchange rate and the market exchange rate must be narrowed. From this perspective, the Venezuelan authorities have two options if they want to overcome the emerging super inflation and economic recession.

1).Strengthen price control and even move towards full control, close the 2,000-kilometer border with Colombia, completely cut off all economic exchanges between the domestic private sector and the outside world, and cut off the private sector’s channels of contact with the market exchange rate; at the same time, further strengthen the control of prices , To weaken the public’s expectations of devaluation and inflation. The difficulty of this path lies in the effectiveness and stability of policy implementation.

2).Implement major economic policy adjustments with international assistance, abolish foreign exchange controls, and shift to full relaxation. Comprehensive control cannot continue to play a role in the long-term, and the removal of foreign exchange control is the fundamental measure to eliminate the difference between the official exchange rate and the market exchange rate in the medium and long term.

Opinion Source:International Economic Review/2017/No. 6

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[Tim-BTC]

The main reasons for the general collapse of the Venezuelan economy are:

1. The collapse in oil prices and the government’s printing of money. And in the face of this economic crisis, brings us the biggest warning is that printing money can not solve any economic problems, will only make the crisis more serious;


20. The single structure of the economy prolongs the cycle out of the crisis;


3. Heavy dependence on foreign imports, lack of self-sufficiency, will lead to shortages of goods and materials, people living in poverty situation.

[Obito]

They don't have communism in Venezuela, they have socialism I think which is a bit different from communism. Their economic development wasn't put in the right place, they didn't invest in infrastructure but instead the individuals prosperity and they only have one way to make money back then which is their big oil reserves which got destroyed when the price of oil tanked.

[palle11]

They don't have communism in Venezuela, they have socialism I think which is a bit different from communism. Their economic development wasn't put in the right place, they didn't invest in infrastructure but instead the individuals prosperity and they only have one way to make money back then which is their big oil reserves which got destroyed when the price of oil tanked.

Their economic development wasn't put in the right place

I believe that when you have leaders who have self interest it drives the economy to the left. Venezuela has large oil reserves and that took away the focus of the leaders and they got corrupt to embezzle public money. Oil is a big business for Venezuela but when OPEC don't make oil more lucrative, it affects countries that depends on oil. Like there are other means to avoid the use of oil and countries are changing and diversifying which they are yet to do but they still rely on oil on a large scale.

Again Venezuela has faced some sanctions too.

[hugeblack]

Inflation is the disease and cancer that ravages the body of the economy, and the delay in taking solutions to it will make the possibility of solving any economic problem a real dilemma.
The Venezuela crisis is witnessing a mixture of many crises, the most prominent of which are many internal factors such as corruption and mismanagement, random printing of money and a decline in purchasing power. And many external factors, some related to the nature of the economy and the other political.

It's an extreme example of economic failure.

[oHnK]

Inflation is the disease and cancer that ravages the body of the economy, and the delay in taking solutions to it will make the possibility of solving any economic problem a real dilemma.
The Venezuela crisis is witnessing a mixture of many crises, the most prominent of which are many internal factors such as corruption and mismanagement, random printing of money and a decline in purchasing power. And many external factors, some related to the nature of the economy and the other political.

It's an extreme example of economic failure.

Yup, The problems that occur in Venezuela are not simple.  The hyperinflation that occurred was not only a bad economic condition, but a very chaotic political condition.  This is something that will not be easy to solve, even though any monetary and fiscal policies carried out by the government will not easily restore conditions to good because this is deeply rooted.

[wxa7115]

They don't have communism in Venezuela, they have socialism I think which is a bit different from communism. Their economic development wasn't put in the right place, they didn't invest in infrastructure but instead the individuals prosperity and they only have one way to make money back then which is their big oil reserves which got destroyed when the price of oil tanked.

Socialism is just the little brother of communism, however I agree that the problems of Venezuela are very complex, one of the issues is that their foreign investments are very low because companies do not really want to invest in a country which can steal their property and they will have no recourse to get that property back, which means that the state needs to provide for everything for their citizens and we know that governments have the tendency to be very inefficient and this is why we have so many images of empty shelves in Venezuela.

So even if that was not their intention the same scenario that happens under communism is happening there, in which the government has almost full control of the economy and this results in a disaster.

[mu_enrico]

Socialism is just the little brother of communism

Yep, it's actually a transition state towards communism (based on some definition somewhere on the internet).


Anyway, there's leading and lagging effect. It's like saying someone died because of lung cancer instead of smoking. Why the government made mistakes in its economic policy? If they have made mistakes, why the effect could be so massive? Is it because they have more power, more centralised planning that prone to blunder or unforeseen shock?

[DooMAD]

Socialism is just the little brother of communism

Yep, it's actually a transition state towards communism (based on some definition somewhere on the internet).

That's like suggesting capitalism is a transition state towards crony-capitalism.  That outcome is certainly possible, but doesn't always turn out that way.  Depends who is pulling the strings.

[el kaka22]

The biggest main reason was the simple fact that nation didn't had anything to recover, that is the problem. When you are facing a problem and then you can do something to change that, even if you end up failing and not doing it at least you had a chance and you blew it and it is your fault.

Venezuela didn't even had that chance, they became very bad and they had no way out, how could they fix it? Oil is still not as high as it should be to help them, and all the solutions are based on the past and not right now, so they did something wrong back in the day like not putting enough emphasis on other sectors and all but that doesn't change the fact that they had no Plan B, which is the main reason.

You can call the fall anything you want, give any reason you want, but the fact that they screwed up big time and couldn't get better and kept getting worse all happened because they had no Plan B, no way to recover.

[The Ghoul]

Inflation is the disease and cancer that ravages the body of the economy, and the delay in taking solutions to it will make the possibility of solving any economic problem a real dilemma.
The Venezuela crisis is witnessing a mixture of many crises, the most prominent of which are many internal factors such as corruption and mismanagement, random printing of money and a decline in purchasing power. And many external factors, some related to the nature of the economy and the other political.

It's an extreme example of economic failure.

Yes, as I said in the topic. The reasons for Venezuela’s economic nightmare are complex.

Whether it is the Dutch disease caused by a single industrial structure or the economic sanctions imposed on Venezuela by the United States and other countries, they have a certain impact on this inflation.

But these are not the most important reasons. Venezuela could have survived this crisis steadily by relying on the foreign exchange reserves accumulated by previous oil sales.

During the international financial crisis (2009-2010), as the Venezuelan government continued to expand fiscal expenditures on a large scale, its foreign exchange reserves were gradually depleted, and the market exchange rate accelerated its tendency to depreciate. Beginning in 2013, coupled with domestic political turmoil, the tendency of market exchange rate depreciation has become more serious, which in turn promoted domestic inflation. As mentioned earlier, after the surge in domestic inflation, the growth of foreign trade was further frustrated and the growth of fiscal revenue was weak. The Venezuelan government had to resort to monetary policy to maintain fiscal expenditures, which in turn triggered a rise in inflation expectations and actual inflation, which eventually became out of control.

[Lily Garver]

2).Implement major economic policy adjustments with international assistance, abolish foreign exchange controls, and shift to full relaxation. Comprehensive control cannot continue to play a role in the long-term, and the removal of foreign exchange control is the fundamental measure to eliminate the difference between the official exchange rate and the market exchange rate in the medium and long term.

Opinion Source:International Economic Review/2017/No. 6

Asking for international assistance, their current national conditions, what kind of national assistance is more conducive to their long-term development?
Should they carry out domestic industrial transformation? Just like China 10 years ago, it built a world factory, stepped up its domestic infrastructure, and found another way out.

To increase the utmost efforts to carry out the quality education of the people, we must have the spirit of hard struggle and change the national economic level and spiritual realm.

Finally, the most important one is a far-sighted government team, not when oil prices were high before, for so-called political purposes, they actually used price-limiting policies to destroy Venezuela’s private economy and used some internationally imported commodities to do so Directly replacing the industrial and agricultural products of their own countries, this approach is too short-sighted.

[Assface16678]

It's a combination of socialism and corruption of their government and over reliance to oil that has caused this hyperinflation that they have been experiencing now and if the leaders of this country invested on infrastructures like hospitals, schools and other public infrastructure then we would've seen something different, they got too complacent that they didn't expect oil to go down in prices.

[Coyster]

It is hard to stop such a downward spiral with a falling economy and rising inflation. Relying on one export good like oil is not enough to sustain a whole country. Another big factor in Venezuela is corruption, it prevents that necessary funds are actually used for investment into education and infrastructure within the country.

The current situation in Venezuela makes me think about my own country, which is one of the largest oil producing/exporting states and yet one very corrupt country in the world, concentrating solely on oil may be counterproductive, but it's not really too bad, what's worse is when the revenue being generated from it isn't put into good use, it then becomes a situation were the country is using up it's only valuable resource, but Instead of the proceeds to be used for the development of the country, it is going straight into the pockets of a few 'privileged' individuals.

It's a pretty difficult situation Venezuela finds themselves presently, and tbh, I do hope things in my own country do not get as bad as that, corruption is really the bane of many countries and their economies, if people in power can more often than not, put the needs of their people first, then many countries would prolly not be struggling economically today.

[just_Alice]

You’re thinking too good of the Venezuelan government. The Dutch disease may be present (at least comparing the description you gave and some of their issues tells so), but it’s only half of the problems.

What about the insanely corrupt government? And outright economic ignorance. They have the biggest oil reserves in the world and the governments can’t even implement it on the global market, and create appropriate conditions for small business development. On top of that, they print money like crazy, which results in hyperinflation.

[blckhawk]

It's a combination of socialism and corruption of their government and over reliance to oil that has caused this hyperinflation that they have been experiencing now and if the leaders of this country invested on infrastructures like hospitals, schools and other public infrastructure then we would've seen something different, they got too complacent that they didn't expect oil to go down in prices.

I think from what I've read, it's more of an oil thing and it's more on the side of the successor of the late president in which the corruption just got more bigger I think. I think what they failed to do is that they didn't have the right people in their cabinets to deal with different situations.

[teosanru]

Well, what I heard about the reason for the crisis in Venezuela was pretty simple, it was the oil pricing going rock bottom due to global supply increase as well as later due to onset of covid. In this situation, while the expenditure of government was pretty high, the incomes and foreign exchanges of the country shrank a lot leading to a terrible fiscal deficit for which the country had no option other than to print a lot of money and therefore leading to this hyperinflationary scenario. Very simple speaking there is no way that this fiscal deficit could be filled until there is an increase in oil prices once again, but even then there could still be issues with the Venezuelan currencies, I think it's just another Zimbabwe in making.

[uneng]

I don't understand. You say the failure of Venezuela has nothing to do with communism, although you literally explain how communism works in practice from your second point (abnormal trade theory) on. If negotiations with foreigner nations were disturbed it was due to the ideology, if the government became heavily interventionist in economy it was also due to the ideology.
You just forgot mentioning the human rights violations, unrestrained corruptionl, power abuse and close connection with another communist countries. All these factors also lead foreigner countries and investors to stay away, harming the local economy even more.

[LUCKMCFLY]

Well, in reality communism is fully to blame for the catastrophe that Venezuela is now going through, is it a fallacy to say that this absurd policy did not end the country? OP is Venezuelan? the only way to speak like this is because he is obviously a supporter of the government, the elimination of small and medium industry, the total of the whole disaster began when unsustainable economic decisions were made and full of impulses.

It does not make any sense to say that the disaster did not come after being in a communist system, now the only solution that can be seen is for that whole system to be destroyed, or for them to adopt BTC for everything, so that hyperinflation ends, and that is what I say properly since every economic study points it out. The source was obviously made by an economist who has no idea about the situation in Venezuela nor did he experience it.

[mindrust]

The main reasons for the general collapse of the Venezuelan economy are:

1. The collapse in oil prices and the government’s printing of money. And in the face of this economic crisis, brings us the biggest warning is that printing money can not solve any economic problems, will only make the crisis more serious;

Norway and Saudi Arabia also depend on the oil exports but they didn't collapse.

I think the situation of Venezuela has nothing to do with the oil prices.

The country is just corrupt.

Some people just cannot differ right from wrong and they cannot think for the long term.

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Look at Afghanistan... The US gave them guns and training so they can fight Taliban, built their infrastructure, educated them, spend trillions of Dollars. In the end when the US left, all surrendered to Taliban. ¯\_(ツ)_/¯