How Bad Is Venezuela’s Economic Crisis?

Venezuela’s already struggling economy has been devastated by declining oil prices. In a recent article Jason Mitchell explained, “Venezuela has one of the worst managed economies on the planet and its bonds are trading at levels that suggest a default is priced in.” The country depends on oil revenues for more than 95% of its foreign income and its reserves have dwindled to $20 billion. Bondholders are increasingly worried that the country will fail to service its debt. According to Fernando Losada, an economist at AllianceBernstein, “the availability of macro and financial information on a timely basis is essential for figuring out where to put your money.” And in Venezuela, the challenges for investors and analysts are exacerbated by the reluctance of President Nicolas Maduro’s government to publish timely economic data.

Bank of America BAC and Barclay’s have been forced to create their own ways of measuring Venezuela’s economic health. “We’ve had to build these series based on everything you can imagine,” Francisco Rodriguez, a Venezuela analyst at Bank of America, explained. “I feel like a private detective. You have to try to find the data. At least the police have power to gather evidence — I don’t have any,” he added.

It’s been five months since Venezuela published inflation data. The most recent figure of 68.5% is the highest in the world.

Economic chaos is beginning to erupt all over the planet, and the depression that we are entering into will truly be global in scope.

Barclays economist Alejandro Grisanti now estimates that Venezuelan inflation is over 100%. ”Now it seems that President Maduro has changed this into a state policy of not publishing data,” he explained.

Data from Deutsch Bank indicates that Venezuela cut down imports to $3 billion in January a drop from around $4.5 billion in the previous year, a reduction that possibly helps explain how the country was able to pay down a $1.1 billion bond payment in March.

In mid-April Maduro announced the implementation of additional capital controls, reducing the amount of dollars Venezuelan travelers can bring out of the country from US$2500 to US$750. The unofficial dollar exchange rate then fell to 260.7 on April 14.

According to a report from FocusEconomics, “The parallel dollar has lost just over half its value this year alone as recession, runaway inflation and the sharp fall in oil prices have combined to push Venezuela into its worst economic crisis since former President Hugo Chávez came into power.”

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