Venezuela has been sliding ever deeper into deadly chaos this year as President Nicolas Maduro tries to consolidate his party’s absolute power over the country. But the deterioration of democracy is only one of the problems facing Venezuelan citizens.
Along with the threat of kidnapping, murder, and robbery that comes with living in one of the world’s most dangerous cities, Venezuelans have been forced to watch helplessly this month as their country’s currency, the bolívar, dropped off a cliff toward the abyss of hyperinflation.
Francisco Rodríguez, the chief economist at Torino Capital, and co-author of Venezuela before Chávez, believes it’s inevitable the country will take that grim plunge.
“Our latest measure of inflation was 22.2 percent for June and the national assembly calculated 26 percent,” says Rodríguez. “These are the highest rates in Venezuelan history. The standard definition of hyperinflation is over 50 percent per month and given that we’re going from inflation of 10 percent per month to 20 percent and it seems to be accelerating, then 50 percent is not that far off.”
And in this critical environment, U.S. President Donald Trump managed to make things even worse with what may or may not have been an off-hand public declaration that a U.S. military intervention could be on the table as a means to solve Venezuela’s crisis.
Analysts quickly predicted that the words would be used as tailor-made propaganda for President Maduro and his party, who have long blamed the United States and imperialism for all of Venezuela’s problems. They have always used the specter of the malicious yanquí—a ploy they learned from the Castros—as justification for unpopular policies and repression of the opposition.
Sure enough, like clockwork the Maduro administration galvanized supporters in Caracas for an anti-imperialist march. He then asked his newly established and all powerful constituent assembly to probe the opposition for supposedly backing Trump’s threat of intervention. Maduro called the opposition traitors and threatened them with arrest.
Finally, Maduro leveraged Trump’s words to order snap military exercises, to be held on Aug. 26 and 27, and had Defense Minister Vladimir Padrino go on television with troops to warn the U.S. not to steal Venezuela’s oil reserves. Trump’s words even inspired a hashtag: #TrumpHandsOffLatAm.
If Venezuela’s economy spirals further, as Rodríguez predicts, it will become the first country since Robert Mugabe’s Zimbabwe to enter hyperinflation.
The painful effects of the plunge toward hyperinflation are evident everywhere on the ground. In half a dozen interviews with The Daily Beast, residents of the capital of Caracas described a rapidly deteriorating economic situation.
“The resellers are now selling 1 kilogram bags of rice for 20,000 bolívars a bag,” says one 29-year-old man from a Caracas slum. “That’s up from 12,000 last month.”
In a country where the minimum wage is just over 90,000 bolívars per month, that 1 kilogram bag of rice can cost more than 20 percent of someone’s monthly income.
Another man in his late twenties, from a middle-class background, says he simply stopped being aware of the constant price increases until they started doubling. He says the last one that caught him off guard was when he was buying a portable cellphone battery charger and managed to pick it up for 20,000 bolívars. Two months later, he saw the same charger selling in the same store for 160,000 bolívars.
The price increases are hitting everything, from food and electronics to home goods like kitchen faucets, which one man says he saw rise from 104,000 to 250,000 bolívars in just three days, to the price of a motorbike taxi, a very popular form of transportation in the dangerous city.
“A motorbike from my house to office was 3,000 bolívars at the start of this month and now it’s 6,000,” says Daniel Blanco, a photographer in Caracas.
A young student in the city says prices change at least once a week, and the same cigarettes which cost her 6,000 bolívars last week now cost her 8,000 bolívars.
A not-so-happy meal at McDonald’s is now upwards of 25,000 bolívars, or nearly 30 percent of a month’s income. To translate this to American purchasing power, it’s like a Big Mac meal costing the equivalent of $1,000 on a $35,000 per year salary.
One woman says the prices in the country are so high she’s actually seeing grocery store shelves full of products for the first time in a long time because no one can afford to buy.
“Now when you go to supermarkets, the shelves are full, you can find bread, sugar, rice, it’s because everything is really expensive,” says the 29-year-old Caracas native.
While these types of goods are rising, other things in the country remain unnaturally cheap due to government subsidies for gasoline, electricity, and other public services.
To understand the economic spiral, it’s critical to understand there are in fact two exchange rates. With the official government rate you can buy a U.S. dollar for 10.1 bolívars. But only a select few—the favored of the Maduro regime and the military—can access this rate. And they are widely viewed as manipulating the system, buying dollars at the official rate, then selling them at the black market rate for a huge profit.
The black market rate, which is the rate used by the vast majority of the population, is now 1,300 times the government’s official rate. Although it can fluctuate wildly by up to 15 percent a day, the bolívar’s black market rate is floating around 13,000 to $1 USD, according to the popular tracking sites Venezuela Econ and Dolar Today. But the currency has been falling precipitously in the past month and it’s anyone’s guess how low it can go.
One month ago, on June 14, the bolívar’s black market rate stood at around 7,700 bolívars to $1. The fall to 13,000 represents a 50 percent drop in the currency’s value in one month, which is actually a recovery from an early August low of 18,900 to $1. At that point, the currency had dropped 68.75 percent.
This sort of fall means that someone earning minimum wage would have been bringing home the equivalent of about $12 per month on June 14, but had been reduced to just $4.70 at the worst point on Aug. 5. To put it another way, $1,000 converted to Venezuelan currency when President Maduro came to power in April 2013 fell to a value of about $2.
“The bolívar depreciated very rapidly and now it’s come down from that but still there is a trend to very strong depreciation,” says Rodríguez of Torino Capital. “Even if you take out what happened in the last two weeks, you’re still talking about the exchange rate going to 9,000 whereas just one year ago it was 1,000. You’re talking about prices rising eight fold in one year. That’s pretty symptomatic of a country where inflation is just running away.”
If the trend continues, and there is no reason to believe any recovery is forthcoming, then Venezuelans are in for even harder days ahead says Henkel Garcia, a financial analyst at Econométrica IE in Caracas.
“Hunger would continue to spread, many more middle-class and upper-middle-class families would become part of the poor class. Company revenues would fall far more than they have so far. It would be an aggravated scenario,” says Garcia, “and consider that the situation was already critical.”
Carlos de Sousa, a senior economist focusing on Latin America for Oxford Economics says that what’s been fueling this collapse has been longstanding high level mismanagement of monetary policy.
“Until September last year, the total amount of money in the economy was roughly doubling every year,” says de Sousa, “but now there are more than five times more bolívars floating around than a year ago, even though the number of available goods in the country has greatly diminished.”
And then came the political upheaval.
And then came Trump.
And nothing good is likely to come next.