What caused Venezuela’s economic collapse?

The President of Venezuela and other officials refuse to admit that the government is responsible for inflation, material shortages and famine, calling it a "conspiracy of US imperialism". Elias Eljuri, director of the National Bureau of Statistics, even said that "food shortages are due to Venezuela People eat too much.” In fact, a little analysis shows that the government bears the main responsibility for Venezuela’s economic collapse.

First of all, the government failed to understand the laws of the oil market and take precautions. As the blood of the economy, oil prices have historically fluctuated greatly. However, the Venezuelan government believes that with one barrel less oil being extracted and the world's increasing demand for energy, oil prices will only rise rather than fall. Because the country's economy is tied to the chariot of oil, the foreign exchange earned from exporting oil is used to import goods to meet residents' consumption needs, neglecting the development of local manufacturing. Oil prices plummeted, making it impossible to earn enough foreign currency to import goods, leading to a shortage of domestic goods.

Secondly, inflation further shrinks imports. During his administration, President Chavez proposed many huge socialist development plans to stimulate economic development through government investment, which required a large amount of monetary support. As a result, the government printed money without restraint and hyperinflation broke out. On January 1, 2008, in order to cope with inflation, Venezuela implemented currency reforms and issued a new currency, the strong bolivar (bolívar fuerte, abbreviated as BsF), to replace the existing currency bolívar (bolívar). The exchange of new currency and old currency The ratio is 1:1000, which actually devalues ??the currency by 99.9%.

But currency reform failed to prevent inflation from continuing. Because the Venezuelan central bank’s money printing machine lacks raw materials and is unable to print money, it has to let foreign private money printing companies print money. In December 2014, President Maduro secretly asked several private banknote printing companies in Europe to print 15 billion banknotes with denominations of 100 bolivars and 50 bolivars. An average of 500 banknotes per person. We press 100 bolivars and 50 bolivars. Calculating the bolivar bills divided equally, this is equivalent to the government looting 37,500 bolivars from each resident. The International Monetary Fund predicted in April 2016 that Venezuela's inflation rate would be 481% this year and will reach 1,642% in 2017. Venezuela has become the Zimbabwe of Latin America.

Residents do not trust the local currency and exchange it for US dollars. The government begins foreign exchange controls and companies must hand over foreign exchange to the central bank. Companies cannot import goods without foreign exchange, and Venezuelan residents rely on imports for daily consumer goods. In this case, a reduction in imports will inevitably lead to a shortage of goods supply. Even if some companies obtain foreign exchange to import goods through the black market, inflation will eat up trade profits, and no one will take the risk of engaging in unprofitable international trade. The scarcity of imported goods has pushed up prices, creating a vicious cycle.

Once again, eating up foreign exchange reserves has turned national debt into garbage. In 2011, Chavez shipped back $11 billion worth of Venezuelan gold stored in London, claiming that this was an exercise of sovereignty over gold. In fact, the government quickly ate up all the gold. Without foreign exchange reserves, it is difficult to issue bonds. Except for a few "old friends" who continue to generously assist Venezuela in US dollars, no country will lend it money anymore. Since bonds could not be issued and money could not be borrowed, the government began to plunder U.S. dollars from its residents in 2013. In a hyperinflationary economy, the absence of hard currencies such as U.S. dollars on the market makes trading goods more difficult because no one wants to receive payment in local currency.