A cup of coffee in Venezuela now costs $4,500. That is, according to Bloomberg’s Café Con Leche Index which showed that in the past 12 weeks, the cost of coffee rose from 5,500 bolivars to 45,000 bolivars. At an annualized rate, the figure represents an inflationary increase of 448,025 percent.
The Café Con Leche index was established by Bloomberg because the government of Venezuela stopped publishing economic indicators. The index tracks just one product: a cup of coffee served at a bakery in Caracas.
While the Café Con Leche index may not be as precise as the conventional Consumer Price Index (CPI), what has become frighteningly clear is that the socialist government of President Nicolas Maduro is incapable of normalizing or stabilizing Venezuela’s spiralling economy.
Venezuela has found its way in the programming of many news networks. Images show a country that has been mired in destitution. There is a massive shortage of food; hunger has spread nationwide, people dying from lack of medicine and an alarming upsurge in crime and violence.
But it hasn’t always been this way.
Once a upon a time, Venezuela was regarded as the richest country in Latin America. People enjoyed some of the highest wages in the world. Venezuela had low inflation rate, a strong currency and had embarked on an urbanization program that gained worldwide acclaim and admiration.
So how did the once-mighty Venezuela fall into hyperinflation and extreme poverty?
Venezuela had only one resource but it was bountiful and a game-changer for any economy. The country sits on the world’s largest reserves of oil. Exports of oil make up 95% of its revenues. If Venezuela does not sell oil, it cannot pay for what it needs.
At a time when the price of oil hit $100 per barrel, Venezuela which was under the administration of President Hugo Chavez chose to acquire massive amounts of debt to fund the government’s welfare programs and agricultural facilities instead of improving oil refining capabilities or investing in oil fields.
Thus during the boom period, Venezuela’s production of oil fell at a 13 year low.
The government acquired the country’s largest oil refinery Petroleos de Venezuela or PDVSA. But it was grossly mismanaged that the company did not even pay the contractors which helped it extract oil.
The deteriorating situation of the bolivar led to the government’s suspension of food importation because importers were selling at a loss. At the same time, the government instituted price controls on basic commodities that were sold at supermarkets and grocery stores.
When the controls were lifted and commodities were loaded back onto store shelves, merchandise had grown too expensive for Venezuelans to afford.
Medicines and hospital health care had gone the same way. They had become very expensive and were available only in short supply.
The story of Venezuela is one of a country that spent more than it made. It has racked up debt of $15 Billion but only has dollar reserves amounting to $11.8 Billion.
The financial position of Venezuela has become so bad that even China has refused to lend the country any more money.
In the end, Chavez’s socialist regime which imposed an iron hand rule where supporters were appointed judges and prosecutors and puppet politicians conspired to amend Venezuela’s 1999 Constitution created a smokescreen which was largely ignored by the electorate until the country entered recession in 2014.
The solution to Venezuela’s economic woes may not come from government policy but from an agreement among multi-sectors: academicians, trade unions, business organizations and the Church to come together, set aside individual interests and arrive at a consensus for the country’s future.