How To Measure An Economic Crisis?Venezuela

As it becomes increasingly likely that Venezuela will default sometime this year on its foreign loans, the international press is warning of the “looming” economic collapse in the country. This provokes the question, will the default lead to an economic collapse, or is it simply another manifestation of a crisis that is already happening?

The economic numbers show a collapse in progress. Venezuela’s economy contracted 10% last year, and is expected to shrink another 8% in 2016. The IMF predicts inflation to reach 720%. As a result, Venezuela tops the list of the world’s worst performing economies.

It is at the personal level, however, where the consequences of the ongoing economic collapse are undeniable. People are dying from chronic shortages of medicine and food, provoking a humanitarian crisis. Water shortages are becoming more common. Furthermore, the lack of electricity has reduced hours at most stores to four hours a day.

For many decades, massive migration, primarily economic in nature, of Colombians to Venezuela was a source of friction between the two countries. Now, it is Venezuelans who are eager to flee their country. Over a million have already left, and according to polling from Datanalisis, anywhere from 10% to 30% are actively making plans to emigrate.

Given these circumstances, a default is unlikely to substantially alter Venezuela’s steady and dramatic economic decline. Instead, the consequences would be political, and the current president, Maduro, clearly knows it. I will analyze the political crisis in my next post.

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