Friday, March 3, 2017

Venezuela is down to its last $10 billion


Link: http://money.cnn.com/2017/03/01/news/economy/venezuela-cash/index.html

Summary- The country of Venezuela is slowly running out of money. Currently, they only have $10.5 billion in foreign reserves left. They currently owe around $7.2 billion of that $10 billion in debt payments. In 2011, Venezuela had about $30 billion in reserves, and in 2015, it decreased to $20 billion. Currently, Venezuela relies solely on oil exports for money, however, according to Siobhan Morden, head of Latin America fixed income strategy at Nomura Holdings. " If oil prices stagnate and foreign reserves reach zero, then the clock is going to start on a default." Venezuela does not even have actual cash. According to the country's 2016 financial report, $7.7 billion of its remaining $10.t billion of reserves is in gold. They had to pay Switzerland's debt by shipping gold. Currently, Venezuelans are suffering massive food and medical shortages, due to skyrocketing grocery prices. Some factors that have allowed Venezuela to reach this low include government overspending, a crashing currency, and corruption. Inflation is expected to rise 1,660% and 2,880% in 2018. Low oil prices are making it hard for the country to pay its debts and import food, medicine, and other essentials for its citizens. If Venezuela does not find another way to bring in some national income, they could be in real trouble over the next few years. The example of Venezuela sends a warning to any country that relying on one source as an income will never work and will almost always put your economy in an extremely unstable state.

Connection: This correlates to the default that happened in the United States in 1979. At the time, Congress waited to long to lift the debt ceiling. Eventually, they raised the debt ceiling right before it was too late, however, we were not able to avoid defaulting on about $120 million in debt due to the logistical and technological challenges in the Treasury to send checks out on a short notice.

Discussion:

What other factors might be in play that caused Venezuela to slowly run out of money?

What other incomes roads do you think Venezuela could take?

Why do you think that Venezuela is not asking for any help from bigger countries?

7 comments:

  1. I think theres a chance Venezuela isn't spending their money correctly. I thinkVenezuela should start to focus more on their crops and what other countries need that they could provide. I think Venezuela does not want to ask for help from bigger countries because they are scared to be in a larger debt.

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  2. I have witnessed complete bankruptcy occur to sports teams, and it usually involves having to get rid of any valuables you own in order to gain the resources necessary to survive. I think something similar will occur with Venezuela. When they run out of money, they must work with a larger neighboring country. They will be forced to send their people into farming and other manufacturing jobs to provide resources for themselves and their partner country. They will then need the money this partner country gives them in exchange to provide for their people's basic needs. Most of all, the government corruption needs to end.

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  3. I believe the main reason most countries like Venezuela lose so money is simply because they import and spend way more than they export. They don't produce and export enough goods to other countries to balance amount of money they spend, causing their budget to plummet. I believe Venezuela should try to focus on education, as this will help current children get better jobs as adults, leading to more tax money for the government. Lastly, I believe that Venezuela isn't asking for any help from bigger countries because they don't want to appear weak and want to stand up for themselves. Also, that might increase their debt even more in the future and make them lose even more money.

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    Replies
    1. I totally agree with you, education is the basis of a countries success and if the next generation can be well educated. Venezuela will have a good chance at redemption as choices in the countries government will be made with much more consideration then uneducated people.

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  4. Venezuela is in debt because of their government's anti-market policies. They enacted price controls, enacted bans on foreign currency, had government take over of business, etc. If the people of the country are in abject poverty because of this, the government cannot rely on taxes - so they borrow and inflate. The only way to stop this is at the source.

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  5. Honestly a factor in why Venezuela isn't going to ask for help is ego or pride. They might believe that they can do it themselves and not have a need fr help although they are struggling.

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  6. Most likely Venezuela is running out of money because they have failed to find an effective method of limiting their expenditures. I believe that finding one would be the first step towards fixing their economy and establishing a stable reserve.

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