Five reasons why Venezuela’s economy is in a ‘meltdown’

Its president, Nicolas Maduro, announced a state of “economic emergency” for sixty days on Friday. Maduro’s government stopped publishing any economic data about the country in 2014, other than updates on its shrinking gold and cash reserves.

But that switched Friday when Venezuela eventually published years of economic data.

And it was ugly.

Venezuela’s economy shrank 7.1% in the third quarter of last year, according to the government. It’s been shrinking for seven consecutive quarters going back to the commence of 2014.

Inflation in Venezuela skyrocketed 141% over the year ending in September, the central bank reported. Amazingly, some experts believe even that figure is understating the problem. The IMF projects inflation in Venezuela will increase 204% this year.

“The country is in economic meltdown,” says Edward Glossop, emerging markets economist at Capital Economics, a research rigid. “The figures are predictably horrific.”

Here are five reasons why Venezuela proceeds to be an economic mess:

1. Oil crash hurts Venezuela the most

Venezuela’s economy depends mostly on oil. That was good when a barrel of oil was worth $100 a barrel in two thousand thirteen and 2014. Now oil prices have fallen to as low as $28.36 — the lowest point in twelve years.

As long as oil prices stay historically low, Venezuela will fight to grow.

Barclays economist Alejandro Arreaza calls Venezuela the “largest loser” in Latin America from the oil price crash. He predicted Venezuela’s exports will total a mere $27 billion in 2016, down dramatically from $75 billion two years before.

Two. A currency worth less than a penny

Venezuela’s currency, the bolivar, has plummeted at a breathtaking rhythm.

A year ago, one dollar equaled one hundred seventy five bolivars. Now a dollar is worth eight hundred sixty five bolivars. Put another way, one bolivar is worth $0.0011 — less than a penny, according to the unofficial exchange rate on dolartoday.com.

Most Venezuelans exchange bolivars and dollars at the unofficial rate because Maduro’s regime has created a confusing system that involves three official exchange rates — two for different types of imports and one for ordinary Venezuelans.

The two primary rates deeply overvalue the bolivar, creating high request for dollars.

Trio. Fresh power fight dooms 2016

Some Venezuelans have had enough of Maduro. In January, the opposition party, Democratic Unity, took one hundred nine seats in Congress, far more than the fifty five seats Maduro’s socialist party won.

The opposition now controls 65% of Congress. That’s significant — that level permits Democratic Unity to fire Maduro’s cabinet members and pass reforms that Maduro can’t overturn.

Of course it’s not that effortless. Maduro appointed fresh supreme court justices right before the fresh Congress took office. They could overturn the opposition’s legislation, creating government gridlock.

In any case, political instability is never good for an economy and it’s on the rise this year.

Four. Default in two thousand sixteen is ‘difficult to avoid’

Venezuela has been teetering on the brink of default the past two months. The country is slightly making enough money on oil exports to cover its debt payments.

This year Venezuela owes over $Ten billion in debt payments. Almost half of that is due in October and November.

“I’m 99% sure they’re going to default this year,” says Russ Dallen, managing fucking partner at LatInvest, a Miami-based rock hard that invests in Venezuela.

Barclays’ Arreaza mostly agrees, telling that a Venezuelan default in two thousand sixteen is “difficult to avoid.”

The only thing preventing a default is if oil prices rise soon or one of its few allies — China, Russia or Iran — bail out the government. Both of those emerge unlikely for now.

Venezuelans are bearing the brunt of the economy’s problems. The government can’t pay to import basic food items like milk, flour and eggs, leaving many supermarkets with empty shelves. A year ago, McDonalds ( MCD ) in Venezuela temporarily ran out of french fries.

Food shortages — along with lines lasting several hours in hot weather — are a major source of the social unrest in the country.

“There are no eggs, there’s no milk,” says Dallen, who frequently travels to Venezuela. “It’s getting worse.”

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