Venezuela. The path to Hyperinflation

Alina Böhm

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Essay from the year 2019 in the subject Economics - Case Scenarios, grade: 1,3, University of Applied Sciences Berlin, language: ...

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Essay from the year 2019 in the subject Economics - Case Scenarios, grade: 1,3, University of Applied Sciences Berlin, language: English, abstract: This paper aims to explain the reasons behind the upcoming hyperinflation of Venezuela. A country, which contains one of the biggest oil reserves in the world. The question, which I m discussing here is, how can it happen that a country with so many opportunities falls in such a big hole of poverty and famines. One of the major challenges the country faces is the strong dependence on their oil reserves. This based on the poorly managed political and social situation within the country in the past. The Venezuelan economy depends almost completely from the oil revenue is currently in a heavy crisis. Marked by Hyperinflation, which led among other things to supply bottlenecks, famines and a high poverty rate. The poverty rate increased from 2014 above 50% percent and in year 2016 it has reached about 80%. The prices for goods rose steadily from year to year, in 2013 the prices increases were about 41%, in 2016 already at 481% and in 2018 it reached 2,880%. Forecasted for 2019 is a price increase of 3,497%. The analysis of Venezueläs development includes the economic, social and political environment, to understand the path the country went to the hyperinflation. The rich oil-based country will reach an inflation rate above one million percent in 2018, according to the International Monetary Fund. They also announced that the low GDP continued to shrink by around 18%. The collapse of the economy, the scarcity of food and public goods like health services and electricity, as well as public transportation caused a huge wave of migration, wherefore other neighboring states also threatened to slide into a crisis. Therefore this paper has the intention to provide a better understanding of the process leading to hyperinflation in Venezuela. It s the best example to show how a country should not behave. An interplay between many different parameters, which causes grievances, where is everyone has been asking himself, how should a country emerge from this crisis?