The loss of purchasing power can be much greater in developing countries. Recent economic history is full of examples of countries that have suffered financial collapses, often as a result of poor economic policies, corruption, hyperinflation, and loss of confidence in their monetary systems. Cases like Venezuela and Zimbabwe serve as warnings about the devastating consequences of inadequate economic management.
Venezuela, once one of the most prosperous countries in Latin America thanks to its vast oil reserves, suffered a catastrophic economic collapse in the last decade. The government implemented price control policies, massive expropriations, and excessive dependence on oil revenues combined with rampant corruption. When oil prices fell dramatically in 2014, the country faced an unsustainable fiscal deficit, coupled with the government’s ineffectiveness in maintaining basic industry infrastructure, led to Venezuela experiencing record inflation of more than 1,000,000% in 2018, which made the bolivar practically worthless. This forced the population to resort to using the US dollar or even barter for transactions. As a consequence, the healthcare system collapsed, food supply became critical, and millions of Venezuelans emigrated in search of better living conditions. Despite several monetary reconversions, the bolivar continues to lose value against foreign currencies, and the country’s economy remains in crisis.
Zimbabwe, on the other hand, is one of the most emblematic cases of hyperinflation in recent history. In the late 90s and early 2000s, Robert Mugabe’s government implemented land reform policies that destroyed the agricultural industry, which was the foundation of the economy. This, combined with uncontrolled increase in public spending and massive money printing to cover fiscal deficits, led to the collapse of the economic system. In 2008, the annual inflation rate reached 89.7 sextillion percent, resulting in the total loss of value of the Zimbabwean dollar. Banknotes reached absurd denominations, such as 100 trillion dollars, which weren’t enough to buy a loaf of bread. In this situation, the economy became de facto dollarized, as citizens began using foreign currencies, such as the US dollar and South African rand, for their transactions. Although new attempts at national currency have been introduced, confidence in the monetary system remains weak.
Other countries have also faced significant economic crises, such as Argentina, Greece, and the countries affected by the 1997 Southeast Asian financial crisis. Argentina, with a history marked by recurring crises, has defaulted on its external debt several times, most recently in 2020. High inflation and inconsistent fiscal policies continue to be a chronic problem. Greece faced a debt crisis in 2009 that led to financial bailouts from the European Union and the International Monetary Fund, but in exchange for severe austerity measures that deeply affected its population. In 1997, countries like Thailand, Indonesia, and South Korea suffered financial collapses due to the devaluation of their currencies, triggering a regional crisis that required international aid.
These cases illustrate how poor economic management can devastate a nation. Hyperinflation, excessive debt, and poorly designed policies erode confidence in financial institutions, generating a cycle of poverty and inequality.
