When will hyperinflation stop in Venezuela?

An inflation of 1 million percent - a touch of Weimar wafts over Venezuela

The International Monetary Fund compares the hyperinflation in Venezuela with the Weimar Republic in the crisis year 1923. The comparison is justified. But Venezuela's President Maduro is unwilling to learn the lessons from it.

The Latin American economy is actually looking up. After consumption picked up in many places over the past year, the upswing is now also noticeable in investments. The International Monetary Fund (IMF) therefore expects growth to accelerate from 1.6 to 2.6 percent in 2019. But Latin America is a heterogeneous area. Some countries are out of the ordinary, especially Venezuela. If the IMF's forecasts are correct, the gross domestic product of the socialist country will collapse by 18 percent this year. It would be the third year in a row with a double-digit percentage decline in economic power.

Inflation is completely out of control. Nobody in Venezuela knows exactly how high the inflation is. The central bank instrumentalized by the regime has long since stopped publishing data. According to the IMF economists, inflation should climb to 1 million percent by the end of the year. Certainly, this estimate will hardly be too precise; in April the forecast was “only” 13,000 percent. But once you have reached the level of economic neglect that has been observed in Venezuela for years, a few thousand percent more or less hardly play a role. The fact is that the currency is no longer trusted. In Venezuela, money is no longer counted, but weighed.

With the Monetary Fund, comparisons are already being made between the situation in Venezuela and the collapse in prices in the Weimar Republic in the crisis year 1923. The comparison is economically justified. After the defeat in the First World War, Germany financed its follow-up costs primarily by starting the printing press. In October 1923, 99 percent of government spending was paid for in newly printed paper money, and only 1 percent was paid for with tax revenues. The situation is similar in Venezuela, where attempts are being made to fill an ever deeper hole in the public budget with ever more central bank money, with the same hyperinflationary consequences as in 1923.

There are further parallels between today's Venezuela and historic Weimar. Today, as then, it shows how the crash of a currency can lead to the collapse of a society. When the official national currency no longer has any value, respect for the state order ceases, as it were. Anarchy and chaos are spreading. Lenin already recognized this state-destroying effect. The revolutionary's slogan was therefore: "Whoever wants to destroy the capitalists and bourgeois society must destroy their currency." The most effective way of doing this is through hyperinflation. Because those who are not able to provide halfway solid money, mostly forfeit the loyalty of the people.

Hyperinflation doesn't come out of the blue. They are man-made, a result of undesirable political developments. It almost always starts with the financing of government deficits through uncontrolled money creation. The socialist regime around President Maduro is therefore wrong when it thinks it can solve the problem by removing three zeros from the currency. It's not that simple. The country, which is unable to convert its huge oil reserves into national wealth and is struggling with famine, needs more radical reforms, above all more democracy and a more market economy. Maduro fears both like the devil fears holy water. As long as it stays that way, there is no end in sight to hyperinflation and the humanitarian crisis.