Breaking News
0

Harvard Economist Says Dollarization Won't Fix Venezuela Crisis

ForexApr 16, 2018 09:33AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Bloomberg. A customer pays for candy with a credit card at a stand in the Chacao district of Caracas, Venezuela, on Wednesday, Dec. 6, 2017. Venezuelan President Nicolas Maduro announced the nation would create its own cryptocurrency, the

(Bloomberg) -- Venezuela faces famine if it can’t reverse its collapse in output, and ditching the currency won’t do anything to help, according to Ricardo Hausmann, a Harvard economist who served as the nation’s planning minister in the 1990s.

Hausmann denounced as “magical thinking” proposals to adopt the dollar, made by the leading opposition presidential candidate. This would require currency reserves that the country doesn’t have, he said.

“Venezuela’s problem is the spectacular collapse in output,” Hausmann said Friday, in an interview in Cartagena, Colombia. “If you don’t recover output quickly, Venezuela will die because there aren’t the calories, the proteins and the medicines to have 30 million people survive in the country.”

Venezuela’s economic disaster is driving more than a hundred thousand people a month to leave the country, often crossing into Colombia on foot and then seeking to get to Chile, Panama and elsewhere. This exodus is likely to gather pace as the establishment of Venezuelan communities across the region makes it easier for new arrivals, Hausmann said.

The adoption of the dollar would mean the government would have to renounce the so-called “inflation tax”, whereby it finances its deficit by creating more money.

“I want to know how it is that the week or the month after dollarization you are going to pay the wages, the pensions and so on,” Hausmann said. “You can tell me the inflation tax is bad, bad as compared to which alternative?”

Opposition presidential candidate Henri Falcon has proposed the adoption of the dollar, with his economic adviser Francisco Rodriguez arguing that this would avoid “a very damaging prolonged period of hyperinflation”, and that converting the outstanding currency could cost about $3 billion, or about one third of current international reserves.

Hausmann said that Venezuela is unlikely to be able to restructure its bonds without regime change, and that the country won’t attract investment unless it can disconnect oil projects from the “bankrupt” state-controlled oil company PDVSA.

“People might invest in Venezuela, but not with that partner,” he said.

Harvard Economist Says Dollarization Won't Fix Venezuela Crisis
 

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments
Laim Limbu
Laim Limbu Apr 15, 2018 5:13AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I wonder how such an oil-rich country fall into disastrous economic crisis !
Reply
0 0
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email