The IMF forecasts Venezuela’s economy will shrink 10% this year, worse than its previous estimate of 8%. It also estimates that inflation in Venezuela will catapult to 700% this year, up from the earlier guess of about 480%.
Massive inflation and a depression. That requires special skills – generally known as socialism.
The numbers are just the tip of the iceberg. Venezuela is deep into a humanitarian crisis — people are dying in ill-equipped hospitals and many live without basic food items. Venezuela can’t pay to import goods because its government is desperately strapped for cash after years of mismanagement of its funds, heavy spending on poorly-run government programs, and lack of investment on its oil fields.
They have the largest oil reserves in the world but natural resources don’t always lead to wealth – look at Zimbabwe.
It’s all even more tragic given that despite Venezuela’s oil abundance, its state-run oil company, PDVSA, is broke. Venezuela’s oil production fell to a 13-year low in June, according to OPEC, of which it’s a member.
It’s cash and gold stockpile are dwindling too. Veneuzuela’s foreign reserves are now a mere $11.9 billion, according to its central bank. Two years ago it had $20 billion. The country has had to ship gold to Switzerland this year to help pay down its debts.
Venezuela could be quickly approaching an economic judgment day. It owes about $5 billion in a string of bond payments between October and November. Many experts believe the chance of default is very high.
I suspect the Government will be toppled in 2017. Either through a popular uprising, or when they can’t afford to pay the Army. But sadly by then the country will be in such dire straits, that it will take many years to recover.