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Venezuela’s Economic Freefall
Venezuela’s GDP shrank sevenfold, and country now second-poorest Latin America.
BY LATINVEX STAFF
One of the most dramatic events in Latin America the past decade has been the economic freefall of Venezuela, which has seen its gross domestic product shrink sevenfold. Worldwide, it is akin to the destruction of Zimbabwe under Robert Mugabe.
In 2012, Venezuela’s GDP of $352.2 billion ranked as the fifth-largest in Latin America. Today, its GDP of $49.1 billion ranks as the sixth-smallest in the region, according to a Latinvex analysis of data from the International Monetary Fund (IMF).In per capita terms, Venezuela went from being the six-richest country in Latin America in 2012, with a GDP per capita based on purchasing-power-parity (PPP) of $18,553 to the second-poorest today, with a GDP per capita of only $5,949, according Latinvex and IMF data. Only Nicaragua is poorer.During the past ten years, Venezuela’s economy shrank eight years. It is expected to grow by 1.5 percent this year, the first time since 2013 the economy doesn’t decline.
INFLATION
On the inflation side, Venezuela managed to stand out worldwide as the worst country during several years.
In 2018 alone, it was a whopping 65,375 percent. Even this year’s estimated 500 percent will be the highest in the world, according Latinvex and IMF data.Poverty rates have gone from 48 percent in 1998 – when Hugo Chavez became president – to 87 percent today, according to Venezuelan research quoted by La Republica.
After mismanaging the key oil sector (oil production is at its lowest level in 50 years), President Nicolas Maduro is only hanging on thanks to loans from China.
In 2017, Standard & Poor’s declared Venezuela in default after it missed two interest payments.
Virtually all foreign companies have left or stopped operations, while foreign airlines also abandoned the country, although they are now returning gradually.
The economic crisis, however, goes beyond issues like budgets and jobs. The country suffers from an unprecedented shortage of everything from food and toilet paper to medicines, largely as result of government restrictions on private enterprise and access to dollars, which importers need to buy goods.
LONG RECOVERY
This year marks a turning point in terms of actual growth and reduced inflation thanks to a change in economic policies, specifically dollarization, a short-term inflation control, and selective privatization.
Private companies have displaced the state as a dominant force in critical parts of the economy, points out Ryan Berg, senior fellow in the Americas Program and head of the Future of Venezuela Initiative at the Center for Strategic and International Studies in Washington, D.C.
Whereas just 25 percent of all raw material and food imports were handled by private companies in 2019, that number had risen to 90 percent by the end of 2020, he reports in a recent analysis.
While the economy is starting to grow – and one optimistic Credit Suisse forecast even talks about a 20 percent jump this year – it will take time before Venezuela can return to its previous size.
“Even assuming Credit Suisse’s best-case scenario of 20 percent GDP growth, Venezuela, which has experienced years of hyperinflation and a macroeconomic decline of about 80 percent since 2012, would require nearly a decade of such fantastic growth rates simply to recover its footing at the start of the Maduro era,” Berg says. “A Caracas-based economic analysis firm placed recovery time at 16 years, assuming an uninterrupted, continuous economic growth rate. Yet, since 1975, Venezuela has not seen more than five years of growth without a recession.”
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