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image to illustrate high inflation in Venezuela
The economy of the South American country has had to juggle a lot to survive. Photo: Pixabay.

Will Venezuela's economy recover in 2022?

These are the open wounds of harsh hyperinflation in a situation that doesn't have a definitive solution in sight.

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After four hard years of hyperinflation that has drowned the Venezuelan economy, experts and the Central Bank of Venezuela (BCV) announced that in the first quarter of 2022, a year will be completed with monthly inflation of less than 50%, a figure not technically considered hyperinflation.

Although the government of Nicolás Maduro will not publicly acknowledge this phenomenon in its weakened and limited economy — reducing itself to blaming the United States — the recovery amid a pandemic is a source of pride for his administration.

Symptoms of Venezuelan hyperinflation

Unlike other similar cases, which have been limited to a monetary phenomenon and the weakening of its currencies, the most critical cause in Venezuela is the loss of its productive capacity, especially due to government controls that have allowed capital generators to leave.

The flight of human capital is another sign that exposes the seriousness of its economic crisis, with more than 6 million Venezuelans leaving their country due to the impossible task of sustaining themselves. This resource will be one of the most difficult to recover, at the same time, leading to a destruction of the demand for money.

Poverty in Venezuela went from 87% in 2017 to 96% in 2021, a direct consequence of hyperinflation and unemployment. Added to this is an eighth consecutive year of economic contraction. Despite the BCV's figures, it will make Venezuela continue to have the highest inflation in the world next year.

ilustración de hugo chavez

The virtual disappearance of its currency, the Bolivar, and the informal 'dollarization' of the economy as a natural consequence of these processes of monetary contraction, are also some of the most serious consequences of the economic situation. It would be the only country to adopt the dollar as its currency after a hyperinflationary period.

The liberalization of prices, as well as an injection of American currencies to artificially alter the exchange rate has generated a total restriction of credits, a measure that will not allow significant growth.

Outlook for 2022

Maduro's administration is expected to reach a series of agreements to create legal certainty that will allow it to bring more investors to the country, and try to rescue the poorest economy in Latin America and the most lagging in the world.

Several financial analysis firms are betting on a moderate contraction to end the year, as well as a slight growth if more tools are given to the private sector, a panorama that will only be cleared if there are true flexibilities in State policies that lead to an economic turnaround of significance.

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