When the International Monetary Fund (IMF) recently estimated that Venezuela’s inflation will reach 1 million percent this year, many analysts jumped to the conclusion that President Nicolás Maduro’s days in power are numbered.
But the experience of Zimbabwe, which went through a similar hyperinflation in 2008, shows that the Venezuelan dictator may remain in power for several years by dollarizing the economy, and incorporating some opposition leaders into his regime.
I see three scenarios for Venezuela in light of the latest forecast by the IMF. In addition to estimating a 1 million percent hyperinflation this year — which it compared with that of Germany in 1923 and that of Zimbabwe in 2008 — the IMF calculates that Venezuela’s economy will contract by a whopping 18 percent this year, for a record 50 percent decline over the past five years.
Maduro announced on July 25 that he will cut five zeroes from Venezuela’s currency to help bring down inflation. But no serious economist thinks that such measure will work absent drastic market reforms. And Maduro may do just that — try capitalist recipes.
There are three basic scenarios:
▪ The Zimbabwe scenario: Much like Maduro today, Zimbabwe’s leftist dictator Robert Mugabe faced a hyperinflation in 2008, but he addressed the situation by pegging his country’s currency to the dollar and other strong currencies, and by creating a bogus “national unity government.”
Mugabe got opposition leader Morgan Tsvangirai to accept the position of prime minister and included several others in opposition in his cabinet. That helped Mugabe deflate international criticism of his regime, despite the fact that he remained in full control of the government and left his prime minister with virtually no powers.
In addition to dollarizing the economy, Mugabe took several belt-tightening measures that caused growing discontent. But he blamed his prime minister for the country’s economic hardships, and Tsvangirai was forced to step down.
Mugabe later won fraudulent elections in 2013, helped by a divided opposition, and remained in power for several more years. He was ousted in a 2017 military coup, nearly 10 years after Zimbabwe’s hyperinflationary crisis.
Andres Cañizalez, a Venezuelan academic who has written extensively about the similarities between Venezuela and Zimbabwe, told me that, “The lesson for Venezuela is that hyperinflation by itself does not necessarily bring down a government. Zimbabwe’s case has proven that.”
▪ The Cuban Scenario: As I stated in my previous column, Venezuela’s economic collapse may have started as a result of the Maduro regime’s corruption and incompetence, but at some point may have become a deliberate government policy to encourage the massive emigration of disaffected Venezuelans.
Maduro may have decided that he can survive in power indefinitely if millions of government critics leave the country, and he is left with a docile mass of Venezuelans who depend on government food subsidies and can thus be easily controlled.
In addition, with Venezuela’s minimum wage at about $1 a month, Venezuelan exiles are sending hundreds of millions of dollars in family remittances back home. An estimated 3 million Venezuelans, or 10 percent of the country’s population, has left the country since late autocrat Hugo Chávez took office in 1999, including about 1.5 million over the past three years.
Cuba has carried out this kind of political cleansing starting five decades ago, and the island’s dictatorship is still in power.
▪ The Brazilian and Argentine scenarios: Brazil and Argentina saw their governments fall after devastating economic crises in 1983 and 2001, respectively. Both countries’ governments imploded amid street riots and political infighting.
“We may see the Venezuelan government implode from within,” Venezuelan pollster Luis Vicente Leon told me. “Unlike in Argentina or Brazil, it may be more due to internal fractures than to opposition protests.”
My prediction is that Maduro will try to survive politically by dollarizing the economy, like Zimbabwe did. There have been dozens of cases of hyperinflation in recent world history, and all of them have ended in one of two ways: either with capitalist remedies, or with regime change. My guess is that Maduro knows this, and that he will opt for the first.