Economics Case Studies, Economic Crisis Case Studies

 

Code : ECC0058 Year : 2016-17 Industry :Macroeconomic analysis			Region : Venezuela Teaching Note: Available Structured Assignment : Not Available
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MASSIVE PRICE INFLATION: The main feature of the Venezuelan economic meltdown was the runaway hyperinflation. The inflation rate, according to unofficial estimates (in the absence of official estimates), during the latter half of 2015 was hovering around 370 percent. However, the IMF estimates (World Economic Outlook data) put the figure at 475.80 percent for 2016 and 1660 percent in 2017. Venezuela’s price inflation had been the highest in the world for the period 2014 to 2017. The inflation rate rose from 12.53 percent in 2001 to 62.19 percent in 2014 to 1660 percent in 2017 (Figure 1). Focus-economics panel economists projected the inflation, ending 2017 at 905.9% and in 2018 it was expected to touch 884.4%..	Case Studies on Best Practices - Vol. I	Case Studies on Aviation Industry
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CURRENCY MISMANAGEMENT:

President Maduro made a surprise announcement in December 2016 that the 100-Bolivar note would go out of circulation amid the world’s highest inflation. Besides, he also temporarily sealed the border with Colombia and Brazil to thwart money laundering by the “mafias” who hoarded the Bolivars..

THE VENEZUELAN BOLIVAR COLLAPSE:

The Venezuelan macroeconomic crisis hit a new low when the country’s foreign currency reserves plunged to just $10 billion in March 2017 (Figure 2). The country also owed $7.2 billion in debts, a part of which it had paid in the past using gold. The left over tiny reserves could cause Venezuela to default on its debt, which could worsen austerity, further stoking up the misery of Venezuelans. The government gross debt levels rose to alarming levels 142150 VEF in 2017 from a comfortable level of 950 VEF in 2012..

OIL CRASH:

Venezuela’s economy depended heavily on its vast oil reserves. It was all well during the period of oil boom when the crude oil was sold at $100 a barrel in 2013 and 2014. As the oil prices began to dive down to as low as $28.36 a barrel, Venezuelan economy was in jittery. The stunning fall in oil prices, from a peak of $115 per barrel in June 2014 to $28.36 a barrel in January 2016, had a severe impact on Venezuelan exports..

WORSENING ECONOMIC GROWTH:

Socialist President Nicolas Maduro continued the massive public spending and welfare programs that his predecessor, the late Hugo Chavez , introduced over a decade ago. However, the country which is overwhelmingly dependent on oil to power its economy can ill afford them. With the oil prices persisting at low levels, Venezuela’s problems continued to mount. The country could not pay for adequate basic food or medical imports, leaving many people without basic food items and medicines..

THE WAY OUT:

Analyzing the Venezuelan crisis, Ricardo Hausmann observed four fundamental ingredients of the man‐made disaster: repression of the market, suppression of information, systematic persecution of dissent, and attribution of blame for the disaster to the victims . He feared that particularly, Chavista creed could destroy Venezuela and would most likely end up collapsing under the weight of its own cataclysmic failure. The important lesson from the crisis was that how costly it is to adopt a potentially dysfunctional belief system and how devastating such experiments may turn out to be..

EXHIBITS: Exhibit 1: Venezuela - Macroeconomic indicators, Exhibit 2 Corruption Perception levels

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