Venezuelans had gone weeks without basic food items like milk, flour and toilet paper. Colombian officials estimate that about 100,000 Venezuelans crossed the border. Venezuelans crossed into Colombia on Sunday after the border was temporarily reopened, allowing them to buy basic foods and toiletries. Venezuela is expected to dive deeper into the abyss this year. The IMF forecasts Venezuela’s economy will shrink 10% this year, worse than its previous estimate of 8%. It also estimates that inflation in Venezuela will catapult to 700% this year, up from the earlier guess of about 480%. Venezuela is deep into a humanitarian crisis.
Venezuela can’t pay to import goods because its government is desperately strapped for cash after years of mismanagement of its funds, heavy spending on poorly-run government programs, and lack of investment on its oil fields1. There are two underlying issues. One is that global oil prices have fallen sharply. The main way to acquire foreign currency in Venezuela is exportation of crude oil. However, Venezuela can not acquire foreign currency because of collapse in oil prices. The other is its economic structure that is extremely unbalanced. Basic goods were not produced in Venezuela. Venezuela depends on import to get basic goods, but they can not import basic goods because of lack of foreign currency and at the same time they can not acquire enough foreign currency because of collapse in oil prices.
There are two ways to change that situation in the short term, which are increasing the inflow of foreign currency or reducing the foreign currency outflow. In the long term, they need to reform of the economic structure.