Drastic drop in consumer spending is a heavy hit on the food security of Venezuelan families

Drastic drop in consumer spending is a heavy hit on the food security of Venezuelan families

AME9920. CARACAS (VENEZUELA), 20/01/2022.- Un vendedor ambulante cuenta sus ganancias en dólares y bolívares, el 17 de enero de 2022, en Caracas (Venezuela). Venezuela salió del ciclo hiperinflacionario tras cuatro años, una noticia que el Gobierno y sus seguidores celebran junto con los nuevos negocios que proliferan en todo el país, pero que los ciudadanos no perciben en los precios del mercado ni en sus devaluados salarios. EFE/ Rayner Peña R.





Inflation in the first half of 2023 reached 121.3% and annual accumulated inflation (July 2022 / July 2023) reached 398.2%, according to figures from the Central Bank of Venezuela (BCV).

Correspondent lapatilla.com

In the opinion of the economist, Rodrigo Cabezas, miserable wages, poverty, inequality and family fracture is the inhuman legacy of “madurismo”.

The Professor at the Faculty of Economics of the University of Zulia (LUZ) assured lapatilla.com that the rise in prices in Venezuela cannot be contained and drags the real wages of workers and pensioners deeply into negative territory.

This causes a drastic reduction in national consumption with adverse consequences for the growth of the Gross Domestic Product (GDP) and the food security of families.

The former Minister of Finance also considers that the behavior of prices in healthcare, education, housing, clothing, footwear, telephony and restaurants, were above the average of the inflationary index from January to June (121%), while the cost of food reached 112%.

What do you think has been the cause of the dollar’s rise in the first half of 2023?

From the month of January to August 7th, the exchange rate has slipped by 77%, which caused an unstoppable devaluation, which made the price of the US dollar jump from 17.49 bolivars per dollar, at the beginning of the year, to 31 bolivars per U.S. dollar as of this date.

The 77% devaluation of the currency makes imports more expensive, reinforces inflation and stops GDP growth.

The Government or whoever advised it to intervene in the exchange market, burning the significant figure of 2,665 million U.S. dollars so far in 2023, have failed. The cost of the exchange rate containment policy is destabilizing and contrary to the nation’s interest in preserving an adequate level of international reserves.

When the BCV (Venezuela’s Central Bank) sells 2,665 million dollars and does not obtain any profit or even stabilizes the price of the dollar, is reckless. It is liquidating an asset that belongs to Venezuelans. This is, without historical comparison, a tremendous technical-political irresponsibility in the management of the economy.

In his opinion, what causes devaluation in the country?

The monetary issue of the BCV which more than doubled liquidity in a semester: 123.8%. This is the great determinant of devaluation.

The lack of economic policy has allowed Mr. Maduro’s government to turn the BCV, during the last 10 years, into “a computer that produces bolivars” to finance the recurring fiscal deficit without caring or ignoring that this caused hyperinflation. And it is, at present, the great determinant of the exchange rate.

From January 6th, 2023 to August 4th, 2023, the monetary issue grew 123.8%, more than doubling liquidity from 19,602 million bolivars to 43,887 million bolivars. This monetary nonsense is a source of greater imbalance by artificially creating money without any real counterpart in production, generating inflation and devaluation.

As we are in a recession due to a lower supply of goods and services, their prices tend to rise, reducing the value of the bolivar in relation to the dollar, which has resulted in the persistent devaluation of the exchange rate by 77%.

Additionally, it happens that Venezuelan businessmen and consumers, anticipating that inflation will continue, seek to protect themselves by buying and keeping dollars, generating a greater demand for it and, therefore, causing devaluation.

Why did the economy enter or remain in recession?

GDP decreased by no less than -5%. The idle capacity of the Venezuelan industrial sector is greater than 70%.

As a consequence of the absence of credible economic policies, inflation and persistent devaluation, lack of bank credit, negative real wages, falling national consumption, stagnant oil production, failure to seek new foreign investment with the Special Economic Zones and the Anti-Blockade Law, among other relevant causes, have determined that the Venezuelan economy enters a recession in 2023.

Note that in terms of expectations of attracting foreign investment, investment risk rating agencies give the Venezuelan economy assess country-risk as being more than 43 thousand points. Meanwhile in Chile it is only 182 points; in Colombia, 396 points; Uruguay, 147; Brazil, 325.

This slowdown in GDP, by no less than 5% in this past semester, pulverizes the slight progress achieved in 2021-2022, reducing the size of our economy once more behind Mexico, Brazil, Colombia, Peru, Chile and Argentina.

Reports from the industrial sector place the drop in production at -7.5% and idle capacity at more than 70%. For SMEs it is more serious, it stands at 80%.

The industrial sector accuses a drop in national demand, lack of financing, unfair competition with legal and smuggled imports, precarious electricity, water and internet service supply, expensive and deficient fuel supply, precarious road infrastructure and excessive taxes.

The obligatory comment is to refer to the already serious deficit in bank financing. Let us point out that the Venezuelan banking system is subjected to the absurd measure of the Government of maintaining a legal reserve of 73%, to the compulsive purchase of dollar placements by the BCV and to the general economic crisis with a high inflationary and devaluation costs, has hit this sector enormously, particularly in the size of its credit portfolio available to the private sector.

In the first quarter of 2023, the amount of the credit portfolio in Venezuela was 916 million dollars. This figure is incomparable when we see that the bank loan portfolio in Colombia in 2022 reached 139 billion dollars, or that of Chile at 148 billion dollars.

The expert in economic matters assures that the regime applies measures in fiscal, exchange and monetary matters, which do not respond to a systemic economic policy or a macroeconomic stabilization program.

Cabezas assures that the madurismo is without a strategy, with an empty rhetoric that says nothing and without a positive impact on production, inflation or the exchange rate.