Taken from our blog,”Brinks of economic thoughts”
Languishing Socialism of Venezuela
Hugo Chuveg took office after 1998 as President of Venezuela, he started its punitive injections of socialism in entire economy, eliminating private enterprises, blocking foreign investment, converting big industries who are earning plethora of profits into government enterprises, fixing and monitoring output by government officials, redistributing wealth, tinkering with prices of commodity.Venezuela has a dominant-party system, dominated by the United Socialist Party of Venezuela.
Venezuela Present President, Nicolas Maduro government has tried to ape India’s Demonetization drive on 12 November 2016 but unfortunately it resulted unprecedented for Maduro government. Venezuela according to IMF report bears world highest inflation rate of more than 475%, this implies, Venezuelans are facing daily resurrection in food and other essential commodities price. Venezuela also blessed with the bounty of world highest crime rate also acquiring second last position on list of ease of doing business. But the question pertains, why Maduro government had chosen to scrap 100 Bolivar denomination as a panacea to track Venezuela economy.
- Smuggling on borders
Basically Venezuelans shares its boundaries with Columbia and Brazil, the primary cause to disintegrate 100 Bolivar note was due to daily smuggling of Bolivar and dollar across the country and selling it at subsidised price to smuggler for buying drugs and other illegal stuff. After the announcement on 12 November to demonetise 100 Bolivar within 10 days, Venezuela converted into chaos, every mall, every shop has looted by lynch mob, serpentine queues front of banks to exchange their 100 Bolivar, repercussion finishing life essential commodities like medicines and important drugs became fewer, number of crime ignited over night, as compare to India situation remain under pontificate, Venezuelans are not willy-nilly supporting Maduro government, repercussion of which Maduro decided to retrograde his decision of 2ndJanuary 2017.
- Currency Exchange rate System
In every country is strictly band to purchase anything from foreign currency, but in Venezuela many of the trading have started in dollars (this was showing distrust in Bolivar), due reduction in value of Bolivar as dollar (less than 15 cent of 100 Bolivar). Unanimously Venezuela has operating three standards to rate his currency, first ‘Dipro standard’ reckon by government (100 Bolivar per USD), ‘Dicom standard’ by private player (800 Bolivar per USD) and Black market value (1600 per USD).Due this multiple standards confidence in Bolivar has almost vanished, as economic student I have learned the most imperative asset in economy is Confidence, “confidence of people in government, confidence of domestic and foreign investors in government”. The fair of smugglers incumbent Venezuela central bank official to print new currency in abroad(Spain).
- International oil prices
The reduction in oil price from 2013 resulted cascading effect on Venezuela revenue account it further negatively deviated growth numbers for Venezuela oil industry, Venezuela is blessed with bonanza of oil reserve, near 98 per cent of its economy operated on oil export. Hipper inflation caused to stop oil production because demand of food products was resurrected. Maduro government have not saved oil revenue while oil export boom before 2013, despite of this, huge amount of 300 billion dollar scam was executed by Maduro official on oil revenue. Venezuela export industry primarily based on oil export. Therefore it acquire 80 per cent of GDP from its oil industry, tapering of oil prices globally started reduction in revenue earning and increment in deficit of Maduro strain started booming up. Due to affirmation reasons Maduro government financial backbone was completely dislocated, this impinging proliferation for losses was reckoning on almost every sector of economy.
As compare to India, Venezuela execution while demonetization was completely naive, but surely both the countries have different prospective. India demonetise its 500 and 1000 rupee note to curb anonymity wealth, seized funds of terrorist and curbed inflation. Maduro government has executed this to prevent its currency from smuggling and increase confidence in currency. In India large proportion of people supported government move and endure all the pain and sufferance, while engaging in little quarrels and scuffling with bank officials due to lack of cash. But Venezuelan heavily protested against the Maduro government which gradually converted into sanguine and genocide.
Pursuing Economics Honours 3rd year.
Doon University Dehradun. (Uttrakhand)
Gmail address: Mohitpande2@gmail.com, Mohit.firstname.lastname@example.org