Venezuela? Argentina & Inflation
August 11, 2023
Venezuela has seen extensive media attention for its crippling hyperinflation problem. The country, in the face of an ever-growing Bolivar-to-U.S. Dollar exchange rate, decided to print larger and larger denomination notes. Ultimately, that evolved to include redenominations to lessen the appearance of the problem but doing nothing to solve it. Argentina is now facing its own crisis, albeit not yet anywhere as severe as Venezuela’s once seven-figure inflation rate. The Central Bank of Argentina, in response to a 100%+ inflation rate, has raised interest rates dramatically to 97% in order to curb inflation.
Argentina has a long history of battles with inflation. Government debt defaults have occurred numerous times since Argentina’s 1816 independence and have contributed to its currency’s instability. Though various regimes attempted different solutions, the currency has been consistently devalued, and an attempt to peg the currency to the U.S. Dollar did not end up working out, and the nation continued to struggle with inflation. Argentina, however, unlike Venezuela, is not a staunch socialist nation. Ergo, while Argentina has dealt with troubling inflation problems like Venezuela, the two nations’ overall economic situations look very different from each other.
While Argentina has a significant portion of its nation living below the poverty line (as high as 43%, according to the Catholic University of Argentina), that number is less than half of Venezuela’s, where nearly the whole population is living below the poverty line. There is also a major distinction between the two economies’ breakdowns. Venezuela is reliant on an industry the world seeks to move away from: oil. Argentina is automatically better positioned in comparison, despite its major agricultural industry recently being hit by a drought, as the growth of renewable energy choices does not destroy the nation as it does Venezuela.
While Argentina’s economy and currency are under severe pressure, worsened by a drought that hurt the nation’s agricultural production, Argentina still looks economically far better off than Venezuela. Venezuela’s political status as a nation viewed as a pariah on the world stage by Western powers, like the United States, certainly does not aid the Latin American country’s economy, either. Argentina is dealing with serious inflationary challenges, but it has historically had to do so for a great deal of its recent history. A 100%+ inflation rate sounds outrageous to Americans, but the situation could be a lot worse compared to Venezuela’s recent bout with a widely reported 1,000,000%+ inflation rate.
As the economic situation continues to develop in Argentina, and as the effects of its central bank’s actions are measured, the rest of the world will watch and see if the South American republic can escape a trajectory like Venezuela’s or follow in its footsteps.