http://www.bloomberg.com/news/articles/2015-04-24/these-u-s-companies-are-hurting-from-venezuela-s-hyperinflation
Venezuela has been burdened with hyperinflation. They have continually introduced weaker exchange rates, and this has been at the detriment of many US corporations. Adopting these lower rates leads to lower earnings and additional charges. It was noted that 46 S&P 500 companies listed Venezuelan exchange rate exposure as a risk last year. Venezuela utilizes three exchange rates that are controlled by the government. For example, DirecTV could take a hit of $452 million if they adopt to the new weaker exchange rate. This type of free fall could hamper firms' ability to conduct business in Venezuela. The currency has been devalued by at least 36% already this year.
We just finished discussing inclusive and extractive institutions. How can Venezuela fix the problems that are permeating their economy?
5 comments:
The Venezuelan economy will not recover until Nicholas Maduro is no longer president. Maduro, Hugo Chavez's chosen successor, has refused to liberalize the Venezuelan economy despite several years of recession. Instead, Maduro has placed blame on the United States and sanctions placed by Barack Obama, accusing the US government of trying to overthrow his regime. Until the Venezuelan people use the polls to put a new party in power, their economy will continue to struggle, especially as long as oil prices stay low.
I tend to agree with Luke: Maduro has had serious difficulty reconciling his government's hard left stance with any meaningful economic development. Their approach has been to remain leftist, populist, and nationalist, to the detriment of their economy, as swerving from this path would create the conditions for the regime to fall over.
In light of recently reading "Why Nations Fail", it sounds like there is currently an extractive political institution in place which is contributing to an extractive economy.
I frequently visit Venezuela, and during Chavez's tenure I used to wonder if there can be anything worse. Maduro has surprised everyone but plummeting the country. Venezuela is a perfect example of an extractive institution where in order to make it, you have to support the government. Many people supported Chavez just so he could benefit them economically. Venezuela is a country that'll take a long time to fix, and the first step is to get rid of Maduro.
This makes me curious if Venezuela will change to an intrusive economy after Maduro is gone or will another leader with extractive ideals will come into power? I am also curious to what else may help the country
Post a Comment