Venezuela is spiraling down fast while its biggest problems are skyrocketing up.

Inflation in Venezuela is projected to increase 481% this year and by a staggering 1,642% next year, according to new estimates released Tuesday by the International Monetary Fund.


“Venezuela is on the precipice of hyper inflation,” says Kathryn Rooney Vera, research director at BullTick Capital Markets in Miami.

The IMF also forecasts that Venezuela — which rarely publishes its own economic data — will have an unemployment rate of 17% this year and nearly 21% next year.

For some context, the last time the unemployment rate hit that high in the United States was during the Great Depression in the 1930s, when it spiked to as much as 25%.

“Venezuela is experiencing a very severe economic crisis,” says Francisco Rodriguez, chief Andean economist at Bank of America Merrill Lynch. “This is not a recession, this is a depression.”

Related: 5 reasons why Venezuela is in a ‘meltdown’

Inflation has already been a huge problem in Venezuela. In January, the Venezuelan government said inflation rose 141% in the year ending in September. That means prices for all types of goods, such as milk, sugar and flour, are soaring. Basic goods such as toilet paper and soap are in such short supply some hotels are asking guests to bring their own.

The value of Venezuela’s currency is crashing rapidly. On the black market exchange, where most Venezuelans exchange U.S. dollars for the home currency, bolivars, one dollar equals 1,125 bolivars. A year ago, one dollar equaled 258 bolivars.

Venezuela’s official exchange rate system is complicated and has multiple tiers. One exchange rate allows ordinary folks to exchange one dollar for 306 bolivars, well behind the black market rate.

Related: Venezuela ships gold to pay for debt

Socialist President Nicolas Maduro has continued the massive public spending and welfare programs that his predecessor, the late Hugo Chavez, instituted over a decade ago.

However, the country can ill afford them. Its economy is in trouble and plummeting oil prices has only made it worse. Venezuela has the world’s largest oil reserves and about 95% of its exports are oil. The country is overwhelmingly dependent on oil to power its economy.

With oil prices still low, Venezuela’s problems continue to mount. The country can’t pay for basic food or medical imports, leaving many people without basic food items and medicines.

In a sign of growing anger among the people, Venezuelans elected a new, opposition-led Congress in December. A major bloc in Congress wants to impeach Maduro but that could prove difficult because the country’s Supreme Court is packed with judges who were appointed by Maduro.

Related: Trumpismo: eerily similar to Latin America’s macho leaders

A change in president or policy doesn’t appear imminent, experts say.

“We have this institutional paralysis, it contributes to the economic deterioration,” says Mauro Roca, an economist at Goldman Sachs. “As a result of this paralysis, it’s going to be difficult to implement any economic reforms.”

Venezuela problems could worsen significantly later this year. The government must pay about $5 billion in a series of debt payments in October and November. The country’s foreign reserves are already withering at 12-year lows.


Venezuela Is Adding More Zeroes to Its Currency to Deal With Hyperinflation
Noris Soto and Nathan Crooks  Bloomberg
August 27, 2015 — 2:17 AM AEST Updated on August 27, 2015 — 3:44 AM AEST

Venezuela is preparing to issue bank notes in higher denominations next year as rampant inflation reduces the value of a 100-bolivar bill to just 14 cents on the black market.
The new notes — of 500 and possibly 1,000 bolivars — are expected to be released sometime after congressional elections are held on Dec. 6, said a senior government official who isn’t authorized to talk about the plans publicly.
Many Venezuelans have to carry wads of cash in bags instead of wallets as soaring inflation and a declining currency increase the number of bills needed for everyday purchases. The situation is set to get worse. Inflation, already the fastest in the world, could end the year at 150 percent, said the official.
The government stopped releasing regular economic statistics in December, when it reported inflation had reached 69 percent.
A customer would need at least 1,280 bank notes to purchase a 24-inch Samsung television on sale at a mall in eastern Caracas for 128,000 bolivars. Some banks, meanwhile, have reduced daily withdrawal limits at ATMs because of shortages of the highest denominated notes.

Exchange Rates

The country is not planning to change it’s three-tiered exchange rate system in the short term, said the official, adding that the government is working on plans to increase dollar revenue by developing mining and petrochemical projects and reduce its dependence on oil.
One dollar is currently worth 725 bolivars on the black market, which Venezuelans use when they can’t get government approval to purchase foreign currency at the three official exchange rates of 6.3, 12.8 and 200.
Venezuela’s monthly minimum wage of 7,422 bolivars equates to about $37 at the weakest legal exchange rate and is only $10 at the black market rate.


A unified exchange rate would not be possible until the economy becomes more diversified and domestic production rises, said the official.
Press officials at the central bank and finance ministry declined to comment when contacted by telephone Wednesday.
Market Manipulation
The black market rate is being manipulated by traders in Cucuta, Colombia and the Miami-based website, the official added. While the rate has become a reference for some minor sectors of the economy, it’s a small market and not representative of the overall economy, the official said.
Venezuela maintains its willingness to pay foreign debt and is buying back bonds when it can, said the official, adding that the government could consider selling or swapping gold reserves if it needed to. Gold currently held in Caracas could easily be transported abroad if the need arose, the official said.
The country’s foreign reserves fell to a 12-year low of $15.4 billion on July 27 and have since rebounded to about $16.5 billion, according to data compiled by Bloomberg.
New loans from China will slowly be reflected in the country’s reserves, the official said.


Venezuela’s Food Shortages Trigger Long Lines, Hunger and Looting

Violent clashes flare in pockets of the country as citizens wait for hours for basics, such as milk and rice

Aug. 26, 2015 5:30 a.m. ET

LA SIBUCARA, Venezuela—Hours after they looted and set fire to a National Guard command post in this sun-baked corner of Venezuela earlier this month, a mob infuriated by worsening food shortages rammed trucks into the smoldering edifice, reducing it mostly to rubble.

The incident was just one of numerous violent clashes that have flared in pockets around the country in recent weeks as Venezuelans wait for hours in long supermarket lines for basics like milk and rice. Shortages have made hunger a palpable concern for many…