The Causes, Consequences and Management Strategies
Venezuela, a tropical country in the Latin America, has recorded high inflation rates since the 1950s. The inflation rates have been at the peak with the highest record being 99.9% reported in 1999 (Muñoz, 2007). However, the country is rich in terms of the natural resources and talented citizens. The inflation is, therefore, a problem by the country’s and international definition.
Causes of the High Inflation Rates
The high inflation rates in Venezuela are caused by various factors such as hoarding, high community spending, calamities, increased money supply and speculations that the prices of goods and services may rise with time. These factors will be discussed in details in the next paragraphs.
Calamities have built a home in Venezuela. This considering the fact that the country is facing serious problems year in year out. An instance of this is the climate, which is unreliable. The climate change has lead into the country’s unstable planning, thereby greatly affecting the economy. The World Bank report shows that country was hit by a catastrophe in 1989 (Dure, 1991). In December 1999 other calamities reported, floods and landslides, which led to the death of many citizens and ruined the economy. The floods are historical and have been observed even in the previous years. Moreover, the country is never an exception to industrial unrest, hailstorms and earthquakes among other calamities. These have led into the reduction of the supply of goods and services, while the available ones are offered at high prices. This is a potential cause of inflation.
The other cause of high inflation rates in Venezuela is the increased supply of money. The politicians print a lot of money during the campaigns and give them to the citizens in exchange for their votes. This money supply is not matched by an equivalent increase in the production of goods and services. The people, thus, have a lot of money to spend than the available goods and services. This has rendered the currency useless and led to high prices of goods and services.
The increased money supply has also led to an increased total community spending. This has consequently led to the increase in the total demand for goods and services, which are scarce. The producers, thus, take the advantage of the demand to fix high prices for their goods and services.
Some business persons in Venezuela practice hoarding. They cause the shortage of goods and services with an intention to gain, when the prices are high. Through this practice, the prices increase drastically, thereby leading to inflation. This has been noted more, especially for the milk products, sugar and other agricultural products.
Consequences of Inflation in Venezuela
The inflation rate in Venezuela has led to the investors (both local and international) running away from the country’s economy. They claim that it’s a risk to invest in the country. The country’s economy has never been stable for a long period of time and for this reason, it has found itself on the list of World Bank and International borrowers and calls for the aid programs. The high inflation rates have also affected the employment in the country. Many skilled workers are raised only to find it hard to get an employment opportunity. Some have, therefore, turned out to be self-employed but still fighting the consequences of unstable economy.
The food prices are too high for the citizens to afford. This has led to the depriving of the most basic needs. Many people are forced to adopt new lifestyles.
Most banks and other lending institutions have sorted to work on non-fixed lending rates. However, the inflation rates are unreliable; hence, the institutions lose in the long run. The amount lent, in a year’s time could be useless, considering that the interest rates are maintained. Borrowers, however, find it advantageous to borrow over a long period of time. They can borrow much and they pay little as compared to that they could pay if there was no inflation.
The other positive consequence of inflation in Venezuela is the stimulated production. The high prices, set by the market, motivate people to produce more goods and services that do them good in the market.
Inflation Management Strategies
To manage the inflation in Venezuela, there are various factors that need to be taken into deep considerations. The first question concerns the causes. What are the causes of the inflation in the country? Knowing the source of the problem is an important factor in finding the solutions to the problem.
So, in solving the calamities problem, it will be most appropriate to find a solution to the calamities (both natural and human caused calamities). After analyzing and realizing that the catastrophes are recurrent after a given period, the government officials should work on forecasting and informing the citizens of the forthcoming misfortune. This can help in avoiding earthquake attack effects. Calamities that can be controlled should be eliminated from the history through control measures (for instance, floods can be controlled and brought to an end by the construction of dams, reservoirs, levees and diverting the flood source). The water can be as well used to provide energy and food, thereby increasing the productivity.
The government of Venezuela should work on training the citizens and investors to take an advantage of the natural resources to improve the living standards. This can be conducted through workshops and seminars. It should reduce the revenue spent to develop the infrastructure and work on generating more income. It’s through these developments that the government is borrowing a lot from the international bank.
The other strategy is to tighten the lending and come up against those politicians who are after printing money for their own good. Once these controls and others are in place, the excessive money supply will no longer be a problem (Chhibber, 1989).
Another strategy is to take legal measures against those, who practices hoarding. The government should implement strict policies that ensure that the situation is curbed. The last move is price control, which the government is already at. The government should improve on the policies and make price control an option, while ensuring that production is taken into deeper considerations (Muñoz, 2007).
The other solution to the inflation is to encourage the citizens to save their incomes. Through this, there will be less money supply in the economy, thus, stabilizing the circular flow of income and consequently solving the inflation problem.
The inflation in Venezuela is one of the worst recoded. Measures need to be taken to curb the situation. The natural and human influences of the inflation need to be taken into deeper consideration so as to salvage the country’s economy.