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Nov 28, 2017 | 20:06 GMT

3 mins read

Venezuela: Why 2018 Will Be a Painful Year

(Stratfor)
Forecast Update

In Stratfor's 2017 Fourth-Quarter Forecast, we noted that the Venezuelan government would focus on ensuring its long-term survival for the foreseeable future. It has many crises to handle, including the possibility of financial default and political dissidence. Inflation and food shortages will persist and get worse, creating new dilemmas as many Venezuelans flee the country.

The economic problems that have plagued Venezuela for years will intensify in 2018. Food shortages — exacerbated by the collapse in oil revenue in 2014 — are rampant, fueling runaway inflation in turn. The Venezuelan government has steadily introduced larger denomination bills since 2016 to counter the trend, but inflation continues to accelerate. Even with 10,000- and 20,000-bolivar bills now making up a third of all bills in circulation, currency shortages abound. The government continues to expand the country's monetary base, but it lacks the foreign reserves to print enough bills abroad to satisfy demand for cash at home. In practical terms, that means Venezuelans are often left without enough money to conduct day-to-day transactions, let alone survive.

This breakdown poses a threat to Venezuela's public security. Venezuelans are increasingly bartering food items for other goods, often because there is simply not enough cash to carry out transactions. Anecdotal reporting by Panorama newspaper, for example, claims that people have bartered food items for bus tickets out of Maracaibo to other cities. Venezuela already has a severe crime problem and one of the highest murder rates in the world. With more Venezuelans chasing scarce goods, violent theft of food and other goods for resale or bartering will add to the country's already rampant crime.

Venezuela's slide toward hyperinflation will eventually grow into a migration crisis as well. Lower- and middle-class citizens are emigrating in rising numbers, leaving for neighboring states such as Colombia and Brazil. And at some point, more Venezuelans could make their way to the United States or overstay their visas in the country.

Yet the Venezuelan government is taking steps to weather these crises. President Nicolas Maduro appointed National Guard Gen. Manuel Quevedo as president of state energy company Petroleos de Venezuela and as oil minister. The appointment gives the armed forces far greater influence in the country's energy sector and could keep officers satisfied by allowing them better access to oil revenue. Such an arrangement could forestall a military coup or secure military loyalty in case of greater social unrest. Another wave of social unrest could still arise next year, but with more Venezuelans departing the country, it's unlikely it would grow large enough to threaten the government alone. When forced with a dilemma of staying to protest or leaving the country, many Venezuelans will likely choose the latter.

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