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Friday, 27 September 2013

Venezuela: the next Zimbabwe?

Venezuela: the next Zimbabwe?

Things are going from bad to worse in Venezuela. See Bloomberg.

Would Venezuela become the next Zimbabwe? At this stage, I don´t think Venezuela would get to 89 700 000 000 000 000 000 000 percent hyperinflation and eventual spontaneous Dollarization like Zimbabwe did in 2008. Venezuela has vast amounts of oil.

Angola reached 3000 percent hyperinflation in 1996. The ex-Portuguese colony also has oil. It successfully stopped hyperinflation in the late 1990´s. Inflation is currently at 8.97 percent according to Trading Economics.

There is thus a strong case for Daily Indexing in Venezuela. Daily Indexing or daily monetary correction is financial capital maintenance in units of constant purchasing power in terms of a daily index as authorised in IFRS and US GAAP at all levels of inflation and deflation. It was used very successfully in 1994 in Brazil prior to the Real Plan.

Daily Indexing would stabilise the Venezuelan non-monetary economy over a relatively short period of time.


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