Venezuela nearing total “collapse”

(Photo: Ariana Cubillos – AP)

A recent International Monetary Fund report that Venezuela will reach a 720 percent inflation rate this year — the highest in the world — has drawn a lot of media attention, but what I heard from a senior IMF economist this week was even more dramatic.

Robert K. Rennhack, deputy director of the IMF’s Western Hemisphere department, told me in an interview that Venezuela is on a path to hyperinflation — the stage where the economy reaches total chaos — and could reach a “total collapse of the economic system” in 12 to 18 months if there are no changes in economic policies.

“Inflation in Venezuela probably entered on a hyperinflationary path in 2015, ” Rennhack says. He told me that he expects Venezuela’s inflation to reach 2.200 percent in 2017, and could balloon very fast to 13, 000 a year, the stage that most academics define as full-blown hyper-inflation.

Although he didn’t get into that, no Latin American government in recent memory has been able to survive a hyper-inflationary crisis. When you reach five-digit inflation rates, governments either make a dramatic political u-turn, or they fall.

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