ASSESSMENTS

Special Report: Venezuela's Unsustainable Economic Paradigm

Aug 4, 2010 | 12:08 GMT

Large reproductions of the Venezuelan bolivar on display in Caracas

PEDRO REY/AFP/Getty Images

Summary

Despite being a major energy exporter, Venezuela is currently mired in economic recession and suffering from record-high levels of inflation, a dismal condition known as "stagflation." As the country's economy deteriorates on a number of fronts, the government continues to struggle with an electricity crisis and worsening food shortages that are threatening to undermine support for the ruling party in the lead-up to September legislative elections. The Venezuelan government has tried to impose a range of currency controls, from currency devaluations to parallel market crackdowns, in an effort to resuscitate the economy. But the country's distortionary and unsustainable currency regime not only is forcing more of the economy underground (leading to higher inflation and shortages of basic goods), but it is also catalyzing an elaborate money-laundering scheme that now appears to be spiraling out of control, thereby weakening the regime's grip on power.

Venezuela has imposed a range of currency controls to deal with its recession and record-high inflation, but the controls are forcing more of the economy underground and have catalyzed an elaborate money-laundering scheme that is now spiraling out of control and thus threatening the regime's grip on power. ...

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