topic chapter 30 money growth and inflation present a case study of any country except vietnam with high inflation why does inflation arise how to deal with inflation

SEVERE CONSEQUENCES...3A/ Hyperinflation causes an economic crisis...4B/ Humanitarian crisis is caused by hyperinflation...5C/ Political crisis is caused by hyperinflation...6V.. Once th

FPT CAN THO UNIVERSITY

[GROUP 5 ASSIGNMENT ECO121]

Topic : Chapter 30 Money growth and inflation.

present a case study of any country (except vietnam) with high inflation?

why does inflation arise? How to deal with inflation?

TABLE OF CONTENT

I OVERVIEW 1

II INTRODUCTION VENEZUELA ECONOMIC, INFLATION? 1

III WHY VENEZUELA INFLATION? 2

IV SEVERE CONSEQUENCES 3

A/ Hyperinflation causes an economic crisis 4

B/ Humanitarian crisis is caused by hyperinflation 5

C/ Political crisis is caused by hyperinflation 6

V NECESSARY RESOLUTION MEASURES 7

A/ Limit printing more money and change monetary policy 7

B/ Freeing exchange rates on financial markets: 7

C/ Adjusting fiscal policy 7

VI CONCLUSION 8

VII REFERENCE LIST 8

3 Nguyễn Khánh Băng CS160855 100%

5 Cao Nguyễn Anh thư CS160784 100%

Venezuela the storm of hyperinflation

I OVERVIEW

Covery of economies after the great impact of the pandemic, inflation has increased sharply in many countries around the world, reaching multi-year records However, central bank officials and policymakers said that high inflation is only temporary and they will hold on to supportive measures until the economy fully recovers

Inflationary pressures have increased, especially for food and food products, caused by supply disruptions, high savings, and accumulated losses due to high inflation Storms, floods, and forest fires cause damage in many parts of the world In addition, the recent increase in speculation and hoarding of strategic goods on a global scale has pushed up the prices of strategic and essential commodities, negatively affecting the world economy

The most typical country in terms of inflation that everyone knows is Venezuela Once the richest country in Latin America, with the largest crude oil reserves in the world, Venezuela is now reeling from hyperinflation and deprivation Join us to find out what happened to Venezuela

II INTRODUCTION VENEZUELA ECONOMIC, INFLATION?

Inflation, which is unavoidable in any market economy, is a sign of progress, but too much of it is negative When the rate of inflation climbs too high, the numbers rise at

a fast pace, leading to hyperinflation

Hyperinflation, as opposed to steady inflation, will bring an entire economy down Hyperinflation is to blame for the majority of the world's economic disasters, including Venezuela's Venezuela was formerly Latin America's richest country, with the world's greatest crude oil reserves At the time, oil was thought to be a never-ending "money well" for this country However, since 2014, they have been in a state

of crisis due to plummeting oil prices and economic mismanagement Due to the crisis, Venezuela was unable to sustain its prior system of subsidies and price controls

As a result, inflation surged, the local currency was devalued, and basic-needs shortages arose in droves In addition to the economic catastrophe, hyperinflation in this country has significant political, social, and humanitarian ramifications For example: Foods that are

expensive, like as meat, might cost

up to 9.5 million bolivars per

kilogram

Cre: Reuters

Venezuela has been in a serious recession for more than ten years, beginning in

2010 during Hugo Chávez's administration and continuing till now, in 2021, under Nicolás Maduro's presidency This is the country's worst crisis in its history Year after year, the economy shrinks, unemployment rises, wages decline, and social benefits deteriorate Venezuela's economic condition will be severely impacted by the Covid-19 pandemic in 2021, and it is expected to plummet once more when the oil price is brought to the bottom by Covid-19 in 2019-2020 Despite the government's efforts to promote and develop the country's economy, which is the richest in Latin America, it has proven ineffectual as the situation continues to worsen

III WHY VENEZUELA INFLATION?

To begin with, it originated at the end of 1999 when President Hugo Chavez came to power He realized the huge value that oil brought, so he advocated reforming oil refineries in order to increase the amount of oil that the country could extract Which

is a good thing, but inadvertently pushes Venezuela into dependence on oil More than 90% of the country's export earnings come from oil The oil extraction industry

accounts for an extremely large proportion of exports, with oil reserves of more than

300 billion barrels, twice the reserves of Iran and three times that of Russia In the past, Venezuela was considered one of the richest countries in Latin America It is the huge reserves that have brought a rich life to the Venezuelan people However, due to its dependence on oil, when the price of oil plummeted, Venezuela fell into a serious crisis

Along with that, the United States has imposed an embargo and increased economic, commercial, and financial blockade measures against Venezuela, causing the country

to face a shortage of foreign income

Another reason is that the Venezuelan government has enacted a policy to promote the improvement of the living standards of the poor and the redistribution of social wealth This policy proved quite helpful as it reduced Venezuela's unemployment rate from 15% to just 8% and its poverty rate from 50% to only 38% between 1999-2011 However, this policy inadvertently is a double-edged sword when, up to the present time, it has caused government spending to account for 50% of the country's total GDP, forcing the government to borrow from other countries to pay for its public policies However, it's not a big deal because of Venezuela's "black gold" reserves, but

as mentioned above, the price of oil dropped dramatically, and they did not have any funds to deal with during the recession, because President Chavez did not create a stabilization fund to guard against falling oil prices, but expected the price of oil to increase

Hyperinflation was caused by foreign debt, a weak government, and printing a lot of money Instead of adjusting fiscal policies through tax increases and spending cuts, the government attempted to address the growing budget deficit by printing money, which led to inflation No one knows exactly how many bills Venezuela has printed in total to repay foreign debts, but this act has

It created one of the worst hyperinflations in the history of the world In short, the underlying causes of inflation in Venezuela are cost-push inflation and currency inflation

IV SEVERE CONSEQUENCES

The severe consequences that hyperinflation has had in Venezuela is that the country, people, politics, and humanity are all affected Human rights and life are really bad

A/ Hyperinflation causes an economic crisis.

On the following diagram, we can clearly see that the GDP of this country plummeted when the oil price fell in 2015 to only about 50 dollars a barrel The GDP also decreased to 203.82 billion dollars After gaining momentum, GDP dropped rapidly when Venezuela entered hyperinflation in 2017

According to the State Bank of Venezuela, external debt is divided into 4 categories: Public debt accounts for 55% of total debt

The financial debt of the Venezuelan Oil and Gas company accounts for 21% of the total debt

-External debt accounts for 15% of total debt

-Debt of CADIVI (Venezuelan Monetary Authority), which accounts for 9% of total debt

At the end of October 2017, The Economist reported that Venezuela's total debt was

up to 105 billion (USD), equivalent to more than 25,260,375,000,000,000 Venezuelan Bolivars (VEB) In less than a year, hyperinflation caused significant economic upheavals

B/ Humanitarian crisis is caused by hyperinflation.

Before 2017, when hyperinflation started, there were also serious problems with the lack of housing in Venezuela In 2013, the number increased to about 3 million People began to revolt with fierce protests against the government's

policies Leading to the uncontrolled crime situation here, Venezuela has the largest crime rate in the world when there are 90 murders for every 100,000 people

The shortage scene is shown through the reporter's lens when he encounters a person in Venezuela eating food from a dump The government at that time also introduced policies on price control, but they were not very satisfactory People here face severe difficulties, such as a lack of milk, meat, chicken, pre-processed flour, coffee, butter, and other necessities such as medicine and toiletries Food and drink became so scarce that people had to eat wild fruits to sustain themselves and possibly trash

As of January 2016, the rate of scarcity of basic necessities is estimated to fluctuate between 50 and 80% A lot of women in Venezuela have crossed the border into neighboring countries to get food and drink (on July 6, 2016) More than 3.7 million people are malnourished, and less than 22% of children under the age of five are malnourished The severe mental and physical consequences

of other people's actions cannot be erased

C/ Political crisis is caused by hyperinflation.

Hurricane The hyperinflationary crisis has also caused heavy political upheaval

in this country The opposing factions and parties compete for power with each other Pushing people into the most difficult situations is a crime Violent protests took place continuously Until now, the ongoing political unrest between the two opposing factions has made the Venezuelan people still suffer

V NECESSARY RESOLUTION MEASURES

From the serious consequences that inflation leaves The Venezuelan government is gradually developing a plan to reduce hyperinflation here

A/ Limit printing more money and change monetary policy

The government made the decision to change the currency in order to improve the people's confidence in the eastern Bolivarian when the government decided

to intervene in the value of the currency On August 20, 2018, the government decided to issue new coins, converting from the “old Bolivarian” to the

“Sovereign Bolivarian” (VEF) By removing 5 zeros, it is easier to control inflation With the largest denomination of 500,000 Bolivar The purpose of this is to easily control transactions, normalize trade and protect the Bolivarian currency But this way still does not reduce the 5-digit inflation here

B/ Freeing exchange rates on financial markets:

In early September 2018, the government decided to convert currencies freely across the country in order to expand currency management to promote production of businesses, individuals and businesses can buy foreign currencies via the Internet private stores instead of depending on banks in this country Been besides, mineral snar is also used as collateral for direct sales activities

C/ Adjusting fiscal policy

The state aims to reduce the fiscal deficit to zero Generate prepayments and tax revenue for large financial transactions To compensate for dwindling revenues and limited access to foreign markets, the government grants extra currency in its fiscal management From 2016-2018, taxes from businesses and other taxes increased by an average of more than 20% of GDP

Besides, the Venezuelan government also solves the problem of economic crisis Increase wages, increase subsidies, encourage domestic production, increase imports of necessities, increase the minimum wage of workers by 34 times Using measures to prevent inflation such as controlling spending, reviewing and cutting unnecessary investment sources, improving the state apparatus Adjust petrol policy by announcing 3 prices: 100% subsidy for public and freight transport, selling gasoline in dollars or private electricity In terms of political economy, Venezuela accepted to use the US dollar, asked the

US to lift economic sanctions, try to make a deal with the opposition and maintain peace in the country In addition, the government also maintains order and security and solves food problems in the country Finally, it is to deal with the Covid 19 pandemic Venezuela is fortunate to have enough medical support equipment and necessities Like Vietnam, the government of this country also advocates anti-epidemic along with economic stability and development by maintaining import tax exemption, suspending bank interest payments for 6 months, maintaining cash and strengthening food fixation

VI CONCLUSION

VII REFERENCE LIST

The Economist (2017, July 27) How to deal with Venezuela Retrieved February 27,

2022, from https://www.economist.com/leaders/2017/07/29/how-to-deal-with-venezuela

T H.E.O.D.O.R.E (2017, March 17) Venezuela: Socialism, Hyperinflation, and Economic Collapse AIER Retrieved February 27, 2022, from

https://www.aier.org

A review of resource curse burden on inflation in Venezuela (2020, August 1) ScienceDirect Retrieved February 27, 2022, from

https://www.sciencedirect.com/science/article/abs/pii/S036054422031032X