Adam Smith said: The conduct of private individuals or companies can't ruin a large country of several million people, but the conduct of the Government can. The cases of Argentina and Venezuela are examples of this.
Inflation in Argentina
After the Argentine default of 2001, the country started to stabilize between 2001 and 2007 (dates are approximate). Around 2007, you could easily see that people were beginning to enjoy life normally and were able to count on the stability of next month's salary to indulge a bit with their salary of this month. However, in 2007-2010, the Government started to meddle quite heavily in the affairs of the country. There are several ways the Argentine Government did this, and the net result was all the same-they increase the taxes on the people. A larger share (as a percentage of the annual production) of the private people's produce was wanted by the Government. Here's what they did:
1. Increase of export and import taxes : Duties on export of soy, a major export of Argentina, were increased (measured in percentages, and valued in Argentine Pesos, the official currency of Argentina). Other agricultural commodities which are exported by Argentina were also slapped with bigger duties. The Government wanted a larger share of what was being exported out.
Duties on imports were also increased. Principle increases were in machinery and electronic goods, which form a major part of what Argentine's import.
2. The Argentine Government fixed the US Dollar (the international currency of choice in trade in South America at least) at a substantially lower rate than the market (20% in the beginning, and the gap between the market rate and what the Argentina's official rate for the USD kept increasing from this 20%). This in effect reduces the value of what exporters get for their exports (they get less dollars than the dollars they would get if they would sell at market price in international markets). In many ways, it acts like an additional tax on exports. The difference between the market USD rate and the fixed peg is the tax which the Government collects on each dollar exported (e.g. if Market rate of USD/ARP is 10/1 and the Government rate is 7/1, the government keeps $0.30 for every dollar worth of goods exported out of the country)
You would think that what is lost in exports would be gained in imports; but the Government does not really offer a two-sided fair market. It never lets you buy dollars at the official rate (if you are an importer, you need the dollars). It only lets you sell pesos at the official rate. The liquidity is one sided-there is a perpetual scarcity of dollars, and in effect, the benefit of the importer of getting a lower rate for the dollar is never honored in practice, because banks, under the instruction of the Government, give you only very small quantity of dollars, and make you fill out dozens of forms if you want to purchase dollars from them.
Since exports are taxed at a very high percentage now because of duties and these currency controls, as you might imagine, the volume of exports goes down considerably. As I have explained in another post, the value of exports is always equal to the value of imports-what being imported being necessarily because something was exported from the country (discounting the minor effects of carry trade which Argentine companies might be doing, or Argentine capitals outside of Argentina whose returns are being brought back to Argentina, etc.). The volume of exports of Argentina started to go down considerably in around 2010. Correspondingly, imports also took a drastic drop.
3. In addition to trying to get a larger share of exports, Argentina also increased taxes on domestic companies. Worse than an increase in taxes was the arbitrary nature of Government Tax collectors-who would come regularly to remind you to pay taxes, and in many cases, would go away if you gave them a nice bribe. Your business would be fined with infractions of the safety code, health code, etc. etc. and you would have to pay them these fines. This had the effect of stunting down real production in Argentina-no capitalist likes being bothered by a rogue Government. Many small Argentine capitalists left the country-several arriving in Chile. In effect, the Government's meddling caused a real flight of capital from Argentina, which decreased production of goods and services of the subsequent years. Foreign companies were forbidden from taking out their own money from their subsidiaries in Argentina at market rates. Many such policies were put in place-effectively to fill up the coffers of the Argentine Government as much as they could. The local governments followed suit-and also started hassling businesses small and large for more taxes, and more fines if they didn't pay bribes. Corruption on Government acts as an additional tax on the country's citizens; and what went on in Argentina between 2010 and 2015 is an example of that.
Inflation is measured by comparing the price of a basket goods (and services) and seeing how the price of this basket changes over time. If the amount of money in a country is constant (a majority is in the form of salaries to private and government employees), and there is a scarcity of goods, the prices of goods start to go up. The scarcity of goods is not perceived or imagine (as Keynes foolishly thought), it is very real and perceived quite easily by everyone in under-stocked shelves on the supermarkets, many stores closing down, a perpetual shortage of imported goods, etc. Most of the ruin is caused by Government employees, whose salaries in Argentine pesos were a constant, and essentially, because the Government was keeping a larger share of the net production of the private people, caused the value of the paper money to fall in real terms. It is goods which decide the value of money; not the other way around; money being just a tool to facilitate the exchange of goods (and services) of society. A reduction in the amount of goods in society, with the same amount of money in society (salaries of employees) makes the prices of goods go up. This is how inflation of 20% per year happened in Argentina in the years 2010 to 2015.
Since the Argentine Government accepts taxes in Pesos only; in effect it reduces the value of the Argentine peso in the real market (when measured in terms of goods, or by a basket of goods, as an inflation basket measurement does). People are less likely to save in Argentine pesos, and they are more likely to save in the form of foreign currencies like USD or buy a lot of land or real estate. Investments in production activities goes down when you know that an unfair Government wants more than it's fair share of money from you.
As you can imagine, the value of the currency, Argentine Peso, in US Dollars is a good proxy measure of inflation (but still an imperfect one). The USD vs. Argentine Peso doubled in 5 years between 2010 and 2015, which amounts to about a 15% gain in the USD per year. The USD vs. Argentine Peso has gone up almost 3.5 times from 2003 to 2015, with the bulk of the appreciation coming in later years.
Note that Argentina never had a shortage of basic necessities like food or clothing in all this time. Despite what all the news reports say-the nation didn't become a very poor nation between 2003 and 2015. Even the most crazy policies of the Government didn't prevent the production or import of basic stuff in Argentina.
This however, has not been the case in Venezuela, where there is a basic shortage of basic goods-even food and clothing. The Venezuelan Government has been far more tyrannical in it's actions that the Argentine Government.
Inflation in Venezuela
As I said above, the value of the USD is a proxy indicator of inflation. The Venezuelan Bolivar has gone from 10 to 1000 in a period of 20 years; with no end in sight. People have no intention of holding any of their savings in Bolivares; they would rather hold USD or even the Colombian Peso than hold a currency which next year will be even lower than this year (because Government employees are paid in Bolivares, without exception), unless there is a change in Government leadership at the top, which stops interfering with people's daily lives.
The Venezuelan Government implemented price controls in the local markets in 2012. This was even worse than currency controls; and the harmful effects of price controls, in not knowing where to put capital, are well documented by many economists. In daily live it is a big nuisance when Government official tell you what to price your goods at; and many capitalists simply run away to border countries rather than deal with this constant botheration. There has been an exodus of Venezuelans to all Latin American countries in the last 20 years. Many are capitalists who have shut down their small businesses in Venezuela, and escaped with 20K to 100K USD to other countries to start their businesses there.
Governments can cause inflation and kill economies
One reason why I posted the details of Argentina and how inflation is brought about here is to end the myth that central banks do anything by varying money supply, interest rates, etc. to control inflation.
But the main reason to post this is to show in detail how Governments ruin a country. Private people can ruin themselves; but a large scale collapse in Economy as in Argentina and Venezuela can be brought about only by the Government. The Government employees, and I suspect about 30% of the people work for the Government in these countries, can really retard the productive ability of the other 70% who are private individuals, who the Government lives off (in the classic sense, the Government lives of Taxes; not counting the small amounts of for-profit undertaking they may hold a share in, like PDVSA or YPF). Sudden increase in taxes, arbitrary tax collection, currency controls and price controls all effectively eat into the real capital of the productive citizens of society; and when this happens to an extent as in Argentina or in Venezuela, the country can stagnate or go backwards slightly for some time (the case of Argentina between 2007 and 2015) or it can really go backwards considerably (the case of Venezuela).
Something similar happened in Zimbabwe, where heavy handed Government intervention has caused a real drop in the production ability of that country (I am averse to use the term GDP because that number is full of errors, and doesn't capture the situation of in flux countries like Argentina, Venezuela, and Zimbabwe).
Zimbabwe's currency has also fallen in similar amounts, or even more than the Venezuelan Bolivar.
The situation of Greece has an important similarity to all these. Greece, because of massive loans from Germans, French etc (through banks in Germany and Greece) caused it to appear much richer than it really is. The Government salaries were inflated to ridiculous levels (more than even in Germany!) before the Greek Government default in 2011-2012. The country did not go bankrupt because of private Greeks; it went under because of a very fat and inefficient government paying exorbitant salaries to its employees. While there is no real currency measurement available because Greece still uses the Euro-the asset prices of Greece become inflated and now have come down to normal levels. However, the Government of Greece still is a major drain on the country; and the European Central banks and other banks who have loaned more money to Greece on the condition that they reduce the size of the Government are doing exactly the right thing. Where they err is in forcing the Government to collect more taxes from private persons; that will only delay the recovery of Greece. Even if the taxes don't go up, if the Greek government can reduce it's expenditure by a significant amount, e.g. more than 30%, they will be able to pay off the loans which they have defaulted on.
Related post: The foolishness of inflation measurements.