When will Venezuela finally recover?
Signs of a slight economic recovery in Venezuela
Caracas. New economic indicators indicate that Venezuela has left the area of hyperinflation. The country's economy is suffering from US-led sanctions and the Covid-19 pandemic.
According to the Venezuelan Financial Observatory (OVF), which is close to the US-backed opposition, monthly inflation fell to an annual low of 9.1 percent in March. The cumulative inflation in 2021 is now 155.3 percent, that over the year at 3.867 percent.
OVF spokesman Alfonso Marquina said inflation numbers were lower in March due to "income tax payments", adding that many businesses and households are selling foreign currency to buy bolivars and pay taxes. Currency speculation has long been a major driver of inflation, according to economic analysts.
The March figure represents a significant decrease of 50.9 percent, after 55.2 percent in February and January. The threshold for hyperinflation is 50 percent.
The last official figure released by the Venezuelan Central Bank (BCV) is 46.6 percent from January 2021. In 2020, the BCV only registered hyperinflation in December (77.5 percent) and January (62.2 percent ).
Despite falling inflation, the International Monetary Fund (IMF) forecast a cumulative inflation rate in Venezuela of 5,500 percent by the end of 2021 in its World Economic Outlook report on Tuesday. The institution estimated that the longer-term perspective "of the development of the pandemic and developments in financial conditions remains dependent. "
The IMF also predicted that Venezuela's gross domestic product (GDP) will shrink by ten percent this year.
In contrast, the Swiss bank Credit Suisse expects a four percent growth in the current year, with a forecast inflation of 4,700 percent. The investment bank argues that the recovery is "not short-lived" and that it is due to Nicolás Maduro's government, which has "revived economic activity" by easing regulations. This would be the first real GDP growth in the South American country in eight years.
Between 2013 and the first trimester of 2019, the last available measurement, the BCV recorded an economic decline of 65 percent.
Venezuela's economy has been in a year-long crisis that has worsened significantly in recent years due to the expansion of US sanctions. In 2017, Washington imposed financial sanctions on the state-owned oil company PDVSA before imposing an oil embargo and a number of other measures on various Venezuelan economic sectors in 2019.
As a result, the Caribbean state's oil production fell from an average of 1.9 million barrels per day in 2017 to just 500,000 in 2020. According to the government, the country's revenue has fallen by 30 billion US dollars per year since 2015. At the same time, the US and allies have frozen billions of dollars worth of Venezuelan assets abroad.
Multilateral organizations have denounced that unilateral coercive measures severely impair the quality of life of the Venezuelan people and at the same time violate human rights and international law. Most recently, the United Nations Human Rights Council called for the abolition of all sanctions that are used as "tools of political and economic pressure".
The Venezuelan authorities, however, are trying to counter the economic downturn with increasingly liberal measures such as the lifting of price and exchange controls in order to attract foreign investment.
In October 2020, the Constituent Assembly passed the Anti-Blockade Law to create more favorable conditions for private capital to participate in state-owned companies. The new measures have reportedly attracted more than 200 bids in the past few months, with President Maduro reporting that most of the proposals come from private investors in Russia, China, Turkey and Iran.
Venezuela has intensified cooperation with allies such as Russia. In March, the joint high-level commission of the two countries announced agreements in 20 important areas of cooperation, in particular in the financial, energy, technical-military, pharmaceutical and transport sectors.
The Venezuelan authorities also recently held a meeting with Turkey’s Ambassador to Venezuela, Şevki Mütevellioğlu, to promote the bilateral cooperation program that focuses on tourism.
Caracas needs its international allies to fight the Covid-19 pandemic. China, Russia, Turkey and United Nations agencies have provided vaccines, PCR tests, ventilators, masks and other medical supplies. The Maduro administration has criticized the US for severely hampering its ability to respond to the pandemic.
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