• KareenaK

Just Keep Printing!


Maduro's infinite supply of money trees


Nicolas Maduro, the President of Venezuela, has waved his magic wand yet again and has released the 'big red package' featuring the new currency. The saviour, i.e., the new currency has knocked off five zeroes of the previous meaningless Bolivar.


Venezuela has been announced as one of the world's worst performing economies not at war. In essence, their economy is in shambles. Just a little footstep into their economy; GDP has fallen by a third in four years, it estimated that inflation will exceed one million % this year (according to the IMF).


Despite Venezuela being the promised land with the world's largest oil reserve, Venezuela is unable to provide sufficient food and medicine, water shortages, blackouts and plague cities. This is just the beginning.


It is easier to pass on the baton of blame rather than to deal with it. Maduro passed on the baton to "imperialist powers"[1] such as the USA who are "waging economic war."[2] However, what Maduro fails to see is that the socialism brought in by his predecessor Hugo Chávez has ruined the economy. The price controls have crippled private firms due to the lack of competition resulting in minuscule yields in production lines. Corruption has shattered any hope left for the country and with the mismanagement of PDVSA- a locally owned oil company has resulted in the nearly half the oil output slowly strangling the economy.


As of recently, President Maduro has recognised the urgency for change in the country. Hyperinflation is caused by the endless printing of money to finance the government's budget deficit which currently stands at 30% of the country's GDP. Government spending will be slowing by reducing fuel subsides and by raising taxes, it seems as if the economy is on the road to recovery, a very long road.


It is not all sunshine and rainbows. Venezuela needs a stable currency, and not enough is being done. With the "sovereign bolivar"[3] pegged to the petro- a unit of account backed by oil reserves. Due to the volatile price of oil and the information gap present with the lack of knowledge on how the petro will work, this peg has not provided the injection of confidence that was expected. To top it off, the "tax break" for the oil sector and rise in minimum wage although beneficial for the welfare system is detrimental to both a healthy government budget and inflation rate.


Venezuela is no longer looking for another trouble maker. A competent president would keep certain aspects of Maduro's plans but more importantly release the shackles that have been placed on the country. Businesses would not only be given legal security but also freed from the price controls. Besides, the central bank would recognise the Bolivar as a truly independent

[1] https://www.economist.com/leaders/2018/08/25/hocus-pocus-economics-in-venezuela


[2] https://www.economist.com/leaders/2018/08/25/hocus-pocus-economics-in-venezuela


[3] https://www.economist.com/leaders/2018/08/25/hocus-pocus-economics-in-venezuela



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