Two years ago, shoppers in Venezuela would pay fruit sellers like José Pacheco with boxfuls of 100 bolívar notes – then the currency’s highest denomination. Now, thanks to rampant hyperinflation, even those are useless.
“It’s crazy to accept notes of 100, 500, or 1,000 bolivares,” said Pacheco, a wiry 61-year-old, whose humble stall clings to the fringe of one of the major markets in Ciudad Guayana, a city in Venezuela’s southern Bolívar state.
He now only accepts newly minted 100,000 bolívar notes, which due to demand are hard to come by. “Otherwise it’s a box [full of notes] that afterwards we have to take to the bank,” he said.
Inflation in the embattled South American country could reach one million per cent by December, the International Monetary Fund (IMF) warned this week, reflecting an economic crisis comparable to Germany’s after the first world war and Zimbabwe’s at the beginning of the last decade.
The prediction marks a drastic jump from just last April when the IMF predicted inflation would reach a mere 13,000%.
Venezuela, which has the largest proven oil reserves on the planet, is in the midst of a five-year crisis that has left many of its people unable to afford food and medicine, with shelves bare in supermarkets. Crime rates continue to set records, with local residents fearful to leave the house at night.
Alejandro Werner, the head of the IMF’s western hemisphere department, elaborated on the grim prognosis. “We expect the government to continue to run wide fiscal deficits financed entirely by an expansion in base money,” he wrote in a blogpost on Monday night, “which will continue to fuel an acceleration of inflation as money demand continues to collapse.”
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Under the late Hugo Chávez, who ushered in Venezuela’s socialist revolution in 1999, a new constitution and numerous elections placed nearly all government institutions under the control of the ruling Socialist party.
This concentration of power was aided by a feuding opposition which carried out ineffectual campaigns and electoral boycotts. After Chávez died of cancer in 2013, he was succeeded by Nicolás Maduro who is even less tolerant of dissent.
Growing political authoritarianism has coincided with greater state dominance over the economy. But expropriations, price controls and mismanagement have led to a 40% contraction of the economy in the past five years.
Oil accounts for 96% of Venezuela’s export income but many foreign companies have been driven out and production has dropped to a 30-year low.
The resulting fiscal crisis has prompted the government to print more money, which has led to hyperinflation and a collapse of the currency.
It also means that the government can’t import enough food and medicine to meet demand.
Maduro has rejected economic reforms out of loyalty to socialism and because many government officials are allegedly getting rich off the economic distortions – through exchange rate scams and by selling scarce food on the black market.
For Venezuelans, everyday life has become a struggle to survive. The minimum wage is 5m bolivares a month, which at the official rate is approximately £31 ($41). But very few people have access to that rate in practice, and resort to the black market where they get about £1.
“We are millionaires, but we are poor,” said Maigualida Oronoz, a 43-year-old nurse, who says her minimum wage is barely enough to buy a kilogram of meat to feed her children. “We can just about eat, but if some health emergency happens we’ll die because the prices of medicines are sky-high and rise every day.”
Many blame the country’s woes on President Nicolás Maduro, who in turn alleges that Venezuela is on the receiving end of an “economic war” waged by the United States and Europe.
Despite spiraling hyperinflation, Maduro has continued to tighten his grip on the power he inherited from Hugo Chávez, Venezuela’s late leader, whose charisma carried him through tough times.
Maduro, who lacks his mentor’s charm, won a second six-year term in elections held in May, though opposition politicians and many countries say the result was illegitimate.
Maduro has alleged that private bankers are smuggling cash into neighbouring Colombia as part of an elaborate conspiracy to sabotage the economy, and he has rejected calls to lift currency controls.
One of Maduro’s plans to alleviate inflation is to issue new banknotes with the last three zeros lopped off, though economists say that will do little to help.
“It’s a cosmetic solution that won’t do anything,” said Asdrubal Oliveros, director of Ecoanalítica, a Caracas-based economics consultancy. “With inflation this wild, in a few months we’ll be back in the same situation.”
Unlike in 1920s Germany, people in today’s Venezuela are not carrying wheelbarrows of cash to buy groceries. Instead, they have turned to electronic transactions. But 40% of Venezuelans do not have bank accounts, while others are unwilling to use credit cards or bitcoin to pay for smaller items, so bartering has become common.
“The paradox is that this is a country undergoing a deep inflation crisis and yet nobody actually has any cash,” said Geoff Ramsey, assistant director for Venezuela at the Washington Office on Latin America, a DC-based thinktank. “You’re seeing wealthy people pay for parking with granola bars.”
Hit particularly hard are pensioners who receive their monthly payments in cash. Saúl Aponte, a 73-year-old retiree, currently buys half a carton of eggs with 20 100,000-bolívar notes. “At the end of the year, if they pay the pension in cash we will have to go with a wheelbarrow to buy the same half a carton,” he said outside a shopping mall in the city centre.
Fed up with economic despair, masses of Venezuelans are simply fleeing. More than a million have arrived in Colombia, where, in the border city of Cúcuta, some entrepreneurial Venezuelans have begun weaving valueless banknotes into handbags that sell for 20,000 Colombian pesos (approximately £5).
Experts say that Venezuela’s vast potential oil wealth will not give the country a lifeline: the country’s oil industry is beset with bad management, a lack of investment, cashflow problems and a crumbling infrastructure.
The US Energy Information Administration (EIA) predicts that oil production could fall to 1m barrels per day (bpd) this year, and again to 700,000 by December 2019.
“Venezuela’s problems are so profound that even the increase in crude prices can’t improve its industry’s situation,” Lejla Villar, an EIA analyst told a local website on Tuesday. “They don’t have trained personnel, they don’t have rigs or parts.”
Back in Ciudad Guayana, Elisa González, a homemaker, relies on handouts sent from a sister that moved to Peru. “I don’t know how much longer we can survive like this,” González said, adding that she had to put two daughters through school. “With or without a job, what you earn isn’t enough to pay your kids’ school fees … and feeding yourself is mission impossible.”
Some analysts are hoping that the dizzying inflation rates could precipitate an end to Maduro’s regime. “History tells that the governments that bring us inflation aren’t usually the ones to get us out of it,” said Oliveros at Ecoanalítica.
“Venezuela is regrettably headed for a lot of economic and political instability, even towards ungovernability, but there could be a political transition at that point,” said Oliveros. “It would be very disorganised, of course, but in the end it would be a transition.”