Venezuelan crisis deepens!
You might be surprised to know which country has the most number of millionaires in the world. No, it’s not the USA, it is actually Venezuela. But the only problem is that their money is not worth much at all.
Venezuela has been struggling with rampant corruption at the moment. There is a severe shortage of food, medicine and basic essentials such as toilet paper. Organized crime is getting worse day by day.
The Venezuelan government has seemingly no idea on how to deal with this critical situation.
Recently, Venezuela introduced new bank notes ranging from 500 to 20,000 bolivars and rendered all the earlier bank notes as illegal. This scheme, called as demonetization, was earlier implemented by India with some success.
The inflation in India is now under 4%, very much under control and the Indian rupee is one of the best performing currencies among emerging economies. Currently, 68 Indian Rupees are worth $1 USD.But it has been a different story in Venezuela. Here, 1000 bolivars will fetch you just $1 USD.
As Chris Sabatini, a professor at Columbia University’s School of International and Public Affairs explains, the situation in Venezuela is desperate.
“That won’t get you very far. It’s like the government has almost given up. They are just adding zeros to the end of these bills and they don’t mean anything. There’s going to come a time when they’re going to run out of space on the bill for all those zeros,” Professor Sabatini said in an interview with Fox News.
“There is clearly no strategy in Venezuela but to surrender,” Prof. Sabatini added.
Venezuelan President Nicolás Maduro has seemingly no idea about what’s going on in his own country. He said that the new bills were introduced to curb smuggling at the border, because international gangs held “entire warehouses full of 100-bolivar notes in the [Colombian cities of] Cucuta, Cartagena, Maicao and Buaramanga”.
The government says that carrying such bills with such big denominations would make it easier for ordinary people to shop, but that’s not what we are seeing.
A Venezuelan citizen said, “I think it is more of the same. Effectively what we are doing is putting more money on the street, attracting more inflation.”
Sonia Schott, who earlier worked for the Venezuelan news network Globovisión, said, “The pressure that Venezuelans face every day is tremendous because of all the uncertainty. Nobody knows what will happen the next day.”
The bolivar is doing so badly because the Venezuelan government keeps printing currency. This adds to the inflation. Plus, there is no income coming in because of the fall in oil prices. So Venezuela is running out of foreign exchange.
It faces a balance of payment deficit of $38 billion at the moment, and it is only getting worse, according to Siobhan Morden, head of Latin America fixed-income strategy at Nomura Holdings Inc. in New York. “It’s not going to improve. This is just the beginning. The question is will this economic stress cause change,” Mr. Morden said.
Author: Raghav Hegde – India