Venezuela: The FT Bows to Authority (The IMF)

Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke.

Recent reportage in the Financial Times by Jonathan Wheatley, Andres Schipani, and Robin Wigglesworth continues to spread misinformation about the inflation rate in Venezuela by citing the International Monetary Fund’s (IMF) 476 percent annual inflation estimate for that beleaguered socialist paradise in 2016. This estimate, which is contained in the IMF’s October 2016 World Economic Outlook (WEO), is a far cry from my latest calculation of Venezuela’s current annual inflation rate of 126 percent. Why this yawning gap?

The IMF report gives no indication of the method used to arrive at its forecast. When this omission occurs in an IMF report, it raises a red flag. If that were not enough, the IMF’s states, “The last Article IV Executive Board Consultation was on September 13, 2004.” This suggests that they have no direct insight into the country because, according to the IMF, “During an Article IV consultation, an IMF team of economists visits a country to assess economic and financial developments and discuss the country's economic and financial policies with government and central bank officials.” Even Wheatley, Schipani, and Wigglesworth admit that “the IMF has been barred from the country for years.” So, if the IMF doesn’t disclose its method for calculating inflation in Venezuela and doesn’t have any access to the country, why do the FT’s reporters continue to report a flawed IMF forecast? Because the FT reporters bow to authority unquestioningly. In this case, the IMF. 

 

As for my estimate, produced by the Johns Hopkins-Cato Institute Troubled Currencies Project, it is based on the long-established principle of purchasing power parity. Using this method, changes in black market (read: free market) exchange rates are translated into overall inflation rates. When inflation is elevated, this method yields deadly accurate results, which have been widely reported in the professional literature for years.