Venezuela’s oil is as much bane as boon
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Venezuela’s oil is as much bane as boon

The country’s new leadership has yet to find solutions to serious economic issues. Plagued by high inflation and dollar shortages, the nation is not making the most of its oil, much of which is unprofitably in hock to regional diplomacy.

The death of president Hugo Chávez in March marked the end of an era for Venezuela. Many throughout the region mourned his passing, because of his combination of charisma and populist policies.

However, Chávez’s larger-than-life persona masked serious underlying economic issues that the new administration has yet to deal with – and it is doubtful that Nicolas Maduro, Chávez’s chosen successor, has the requisite charm to continue diverting the public’s attention.

Nelson Merentes, the recently appointed finance minister, has voiced optimistic predictions of lower inflation and higher growth figures for the remainder of 2013, but analysts say the economic outlook isn’t showing any signs of improving.

"Stagflation is a fact," says Munir Jalil, chief economist at Citi for Colombia and Venezuela. He, along with other observers, such as David Rees of Capital Economics, is expecting inflation to hit a peak of 45% this year in September.

Nicolas Maduro. Can he settle the legacy of Chávez?
Nicolas Maduro.
Can he settle the legacy of Chávez?

Jalil concurs with the finance minister in predicting a decline in inflation later in the year, but Citi projects that it will fall by only a small amount, to 39%, by December – in line with Credit Suisse’s projection of 39.8%.

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