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

Venezuela the storm of hyperinflation

I OVERVIEW

Covery of economies after the great impact of the pandemic, inflation hasincreased sharply in many countries around the world, reaching multi-yearrecords However, central bank officials and policymakers said that highinflation is only temporary and they will hold on to supportive measures untilthe economy fully recovers.

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

The most typical country in terms of inflation that everyone knows isVenezuela Once the richest country in Latin America, with the largest crude oilreserves in the world, Venezuela is now reeling from hyperinflation anddeprivation 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, withthe 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 stateof crisis due to plummeting oil prices and economic mismanagement Due to thecrisis, 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-needsshortages arose in droves In addition to the economic catastrophe, hyperinflation inthis country has significant political, social, and humanitarian ramifications.For example: Foods that are

expensive, like as meat, might costup to 9.5 million bolivars perkilogram.

Cre: Reuters

Venezuela has been in a serious recession for more than ten years, beginning in2010 during Hugo Chávez's administration and continuing till now, in 2021,under Nicolás Maduro's presidency This is the country's worst crisis in itshistory Year after year, the economy shrinks, unemployment rises, wagesdecline, and social benefits deteriorate Venezuela's economic condition will beseverely impacted by the Covid-19 pandemic in 2021, and it is expected toplummet once more when the oil price is brought to the bottom by Covid-19 in2019-2020 Despite the government's efforts to promote and develop thecountry's economy, which is the richest in Latin America, it has provenineffectual 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 than90% 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 theimprovement 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, butas 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 intotal 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 thecountry, people, politics, and humanity are all affected Human rights and lifeare really bad.

A/ Hyperinflation causes an economic crisis.

On the following diagram, we can clearly see that the GDP of this countryplummeted when the oil price fell in 2015 to only about 50 dollars a barrel TheGDP also decreased to 203.82 billion dollars After gaining momentum, GDPdropped 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 VenezuelanBolivars (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 problemswith the lack of housing in Venezuela In 2013, the number increased to about 3million People began to revolt with fierce protests against the government's

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

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

As of January 2016, the rate of scarcity of basic necessities is estimated tofluctuate between 50 and 80% A lot of women in Venezuela have crossed theborder into neighboring countries to get food and drink (on July 6, 2016) Morethan 3.7 million people are malnourished, and less than 22% of children underthe age of five are malnourished The severe mental and physical consequencesof other people's actions cannot be erased.

C/ Political crisis is caused by hyperinflation.

Hurricane The hyperinflationary crisis has also caused heavy political upheavalin this country The opposing factions and parties compete for power with eachother Pushing people into the most difficult situations is a crime Violentprotests took place continuously Until now, the ongoing political unrestbetween the two opposing factions has made the Venezuelan people still suffer.

V NECESSARY RESOLUTION MEASURES

From the serious consequences that inflation leaves The Venezuelangovernment 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 improvethe people's confidence in the eastern Bolivarian when the government decidedto intervene in the value of the currency On August 20, 2018, the governmentdecided to issue new coins, converting from the “old Bolivarian” to the“Sovereign Bolivarian” (VEF) By removing 5 zeros, it is easier to controlinflation With the largest denomination of 500,000 Bolivar The purpose ofthis is to easily control transactions, normalize trade and protect the Bolivariancurrency 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 freelyacross the country in order to expand currency management to promoteproduction of businesses, individuals and businesses can buy foreign currenciesvia 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 andtax revenue for large financial transactions To compensate for dwindlingrevenues and limited access to foreign markets, the government grants extracurrency in its fiscal management From 2016-2018, taxes from businesses andother taxes increased by an average of more than 20% of GDP.

Besides, the Venezuelan government also solves the problem of economiccrisis Increase wages, increase subsidies, encourage domestic production,increase imports of necessities, increase the minimum wage of workers by 34times Using measures to prevent inflation such as controlling spending,reviewing and cutting unnecessary investment sources, improving the stateapparatus Adjust petrol policy by announcing 3 prices: 100% subsidy forpublic and freight transport, selling gasoline in dollars or private electricity Interms of political economy, Venezuela accepted to use the US dollar, asked theUS to lift economic sanctions, try to make a deal with the opposition andmaintain peace in the country In addition, the government also maintains orderand security and solves food problems in the country Finally, it is to deal withthe Covid 19 pandemic Venezuela is fortunate to have enough medical supportequipment and necessities Like Vietnam, the government of this country alsoadvocates anti-epidemic along with economic stability and development bymaintaining import tax exemption, suspending bank interest payments for 6months, 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