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Centro de Divulgación del Conocimiento Económico para la Libertad
"...La única forma de cambiar el curso de la sociedad
será cambiando las ideas" - Friedrich Hayek
"Una sociedad que priorice la igualdad por sobre la libertad no obtendrá ninguna de las dos cosas. Una sociedad que priorice la libertad por sobre la igualdad obtendrá un alto grado de ambas" - Milton Friedman
How will Hugo tackle inflation?

by Jonathan Wheatley

The important thing about the new Venezuelan anti-inflation package announced in outline last week is that it shows the government is beginning to recognise that it has a serious problem.

With spending surging and the free-market Bolivar plunging to new depths this year, inflation is rising quickly. Prices were up by 2 per cent in January and by 18 per cent over the past 12 months. Food prices are increasing at an even faster rate. As a central bank report made clear, many goods are simply not available. When they are, controlled prices are simply not sticking. All of this must be worrying for the government since it is precisely the most loyal Chavistas – the poor of the urban barrios – who are being most badly hit.

So far, however, the authorities are still only prepared to tinker. New bond issues planned to mop up the excess liquidity that has resulted from big spending increases are unlikely to be more than a palliative. The same is true of changes to the amounts that banks have to lodge with the central bank. President Hugo Chávez has ruled out devaluation (and easing foreign exchange restrictions) for the moment, although it may become unavoidable.

Even after a devaluation, however, it is difficult to see how the government could control inflation unless it brought greater order to public finances and more consistency and predictability to economic management. This has worked elsewhere in Latin America. But for the architect of “21st century socialism” it is dastardly “neo-liberalism”.

Source: Financial Times

© 2001 Hispanic American Center for Economic Research