Where now for Venezuela, as it wrestles with 1,000,000% inflation?

AFP-JIJI, Bloomberg

Whether Venezuela’s projected 1 million percent inflation sparks a social revolution or forces the government to open up the economy, one thing is sure: It will heap more misery on a suffering population.

This week, the International Monetary Fund made the stunning projection, adjusting its previous inflation estimate to a figure more than 70 times higher.

Even the million percent figure may turn out to be too low. The price of a cup of coffee soared to 2 million bolivars ($20 ) this week from 1.4 million bolivars the week before. In late April, the price was 190,000 bolivars. That three-month increase equates to an annualized rate of 1,227,638 percent.

Already, poverty is reaching unprecedented levels, an estimated 1.6 million people have fled the country, social unrest is on the rise, salaries have become almost worthless, there are shortages of food and medicine — and yet President Nicolas Maduro clings to power.

Late Wednesday, Maduro announced the removal of five zeroes from the currency — two more than originally planned — in new bills that will enter circulation on Aug. 4. Maduro blames hyperinflation on a “war” against the currency, including exporting it to other countries such as Colombia.

“Nothing surprises me,” Marcos Salazar said after being told of the IMF projection as he munched on a hamburger while standing beside a street stall. That burger cost 5 million bolivars (around $1.50 on the black market), the equivalent to the minimum monthly salary, which is itself partly paid in food vouchers. “Week after week, day after day, things cost more. It’s not gradual, it’s exponential,” added Salazar, a 31-year-old professor working three jobs, which still isn’t enough to support him and his partner.

They survive thanks to money sent home from relatives who fled the country.

Hyperinflation has not only contributed to shortages of food and medicine but also to the collapse of public services, including water, electricity and transport.

Specialist Henkel Garcia of the economics consultancy Econometrica believes Venezuela desperately needs political and social reforms in order to maintain “a minimum of stability.”

“You can only escape from hyperinflation through a profound reform of economic policy,” he said, pointing to the examples of Germany in the 1920s and Zimbabwe in the 2000s.

Poverty climbed to 87 percent in 2017 and extreme poverty to 61 percent, according to a group of leading Venezuelan universities. They said 6 out of 10 people claim to have lost on average 11 kg (24 pounds) due to hunger. Maduro’s government rejects those numbers, claiming extreme poverty is at only 4.4 percent.

Venezuela is dependent on its oil exports that account for 96 percent of revenues, but output has dropped to its lowest level in 30 years — 1.5 million barrels a day, from 3.2 million in 2008 — according to the Organization of the Oil Producing Countries.

This has prevented the country from benefiting from a recovery in oil prices. The government’s decision to print more money due to lack of foreign exchange has provoked economic paralysis.

The IMF expects the government to continue printing more money, fueling “an acceleration of inflation as money demand continues to collapse.”

Garcia says that as well as reeling in the expansion of the monetary base, Venezuela needs to boost industry, currently running at 30 percent capacity, and dismantle controls over prices and the exchange rate, which give the government a monopoly on foreign currency.

Attracting funds is another imperative, currently thwarted by United States sanctions against the government and the state oil company, PDVSA.

Venezuela’s economy is expected to contract by 18 percent this year, the third consecutive year of double-digit declines.

Despite his re-election on May 20 in a poll widely condemned as a sham by the U.S. and the European Union, among others, Maduro faces a battle to hold onto power.

Demonstrations are becoming more commonplace among public employees demanding higher wages and citizens fed up with failing public services.

However, political scientist Miguel Martinez Meucci believes there is only one way Maduro’s grip on power will weaken: loss of support from the armed forces, which wield great political and economic power.

There have been rumblings of discontent emerging from within the Chavista ranks, some of whom recently demanded economic reforms.

These tensions could ignite during the governing United Socialist Party (PSUV) congress due to start on Saturday.

“The revolution has been going on for 19 years now. We’re responsible for the good and the bad,” admitted Freddy Bernal, an influential Maduro ally who acknowledge that “governance has been lost.”