Venezuela: inflation erodes truths as well as wages

15 Oct 18

Venezuela’s agony illustrates that in Latin America there are two sides to every story, writes journalist Gavin O’Toole.


In the annals of hyperinflation, few countries have ever suffered the humiliation of price rises hitting , but earlier this year a senior IMF official claimed this is the catastrophic prospect facing Venezuela.

Its economy has been in freefall since 2016 and, for good measure, Alejandro Werner, head of the IMF’s Western Hemisphere department, compared its plight to that of Germany in 1923.

As a result, millions of Venezuelans have fled, adding “humanitarian disaster” to the hyperbole casually published about this troubled country.

There is no doubt Venezuela’s situation is bad, although a unveiled by President Nicolás Maduro in August may now keep the stats below Werner’s symbolic threshold.

But the widespread with which Maduro’s plan has been met highlights a key question that any truly objective effort to understand this crisis must consider: to what extent can it be blamed on his policy failings in the first place?

It is an important question because, viewed objectively, it is baffling how things have spiralled out of control in a once wealthy country enriched with the world’s largest oil reserves, second largest gas reserves, and largest freshwater, gold and coltan reserves.

Indeed, Venezuela’s predicament obliges us to consider all the theories seeking to explain it – no matter how preposterous.

While Maduro’s enemies say it is the classic outcome of “economic populism” under a reckless socialist maverick, his allies say it is the toll of an “economic war” being waged by international conspirators hell bent on ending a socialist experiment.

The crisis

It is without doubt that Venezuelans are enduring a textbook meltdown, with growth set to this year. Hyperinflation has hammered society, doctors report malnutrition, hospitals have run out of medicines, blackouts are frequent, taps are running dry, and crime is soaring. Poor conditions have provoked violent unrest, a brutal over-reaction by security forces, against Maduro, and .

The most visible response of Venezuelans to their distress has been mass migration: the UN estimates that since 2015 some 2.3 million have fled, mostly to .

Venezuela has all but lost access to foreign and drained its reserves, foreign investment has stalled, and the fiscal deficit is put at 20% of GDP.

In August, a desperate Maduro vowed to stop the rot through a “” plan that devalued the ailing bolívar, hiked the minimum wage, raised taxes, and curbed subsidies. He promptly flew to China with a begging bowl.

The blame game

While many Venezuelans blame Maduro, the former bus driver has never been more than the hand-picked successor of the charismatic Hugo Chávez, who led the country’s “Bolivarian Revolution” from 1999–2013 and proclaimed “21st century socialism”.

Chávez has a good legacy, whereby he overthrew a corrupt oligarchy to of the poor through a , and a bad legacy, which puts today’s macroeconomic woes in context.

Price controls bankrupted local producers, currency controls created a black market in dollars, and Chávez’s greedy dependence on oil to fund his revolution and buy friends drove Venezuela’s most productive sector to its knees.

If Maduro can justifiably state that he inherited this mess, his clumsiness has made it worse.

Yet while a global media turns him into the fall guy, the message coming from the Palacio de Miraflores fails to get an airing.

Maduro’s regime insists it is the victim of “economic warfare” led by a coup-mongering opposition bankrolled by an “imperialist” US that is viscerally hostile to socialism.

A string of Venezuelan ministers, intellectuals and activists have put flesh on this argument since 2016, Washington, ratings agencies, banks, and multilateral organisations of exerting a colossal .

They allege a conspiracy to attack Venezuela’s credit ratings and weaken its currency through speculation.

Economist says multinational corporations have orchestrated , hyperinflation is “induced” through foreign manipulation of the exchange rate, and US allies have flooded markets with cheap oil to drown revenues.

Even some UN officials say Venezuela is the target of .

Relations between Caracas and Washington have long been poor, and Chávez routinely accused the US of meddling. His death in 2013 is even by some aides .

US hostility persisted under Obama, but Trump has ratcheted up the pressure, from trading Venezuelan debt, , and even considering choking its .

A campaign of character assassination targets Maduro, , Trump has discussed , and senior US figures . All the while, a corporate US media nurtures a for all Venezuela’s .

Back to the future

It would be easy to dismiss talk of “economic warfare” as the mad bombast of unreconstructed “leftists” – were it not for the fact that there are historical precedents.

Just two weeks after the Marxist Salvador Allende won Chile’s election in 1970, the then US president Richard Nixon ordered the CIA to “”.

Declassified reports reveal “” US interference, while multinationals tried to or demanded .

US interventions in Chile were based on a remarkably similar toolkit to that alleged by Maduro, to .

Given this history, and the force of the hurricane encircling the Bolivarian Revolution, it is important to consider all the factors at play in Venezuela’s crisis.

Yet when he made his dire warning, Werner stuck to the script – attributing the country’s problems to “widespread micro-level distortions on top of large macroeconomic imbalances”.

Such are subtle doublespeak.

They either conceal coded antipathy towards an unloved socialist, or betray a technocratic disinterest in the bigger picture.

Either way, given suspicions that Venezuela’s agony is not entirely home grown, a failure to address this represents not only a sin of omission – but an effort to take sides.

  • Gavin O'Toole, expert on Latin America
    Gavin O'Toole

    A freelance journalist. He has written six books about Latin America and taught the politics of the region at Queen Mary, University of London.

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