Thursday, August 02, 2007

Inflation and minimum wage, Venezuela's Cabezas in Oz

Event though I know that the job of Chavez finance minister, Rodrigo Cabezas, is to make his boss look good while he scrounges any cent he can to give to his boss without any control, I still get amazed on occasion by his utterances. For example Cabezas today was congratulating himself for the Venezuelan inflation rate of July (a mere 0.5%!) and reminding folks that Venezuela has one of the highest minimum wages in Latin America (285 USD), coupled with the best growth rate.

All true but all false.

Inflation. Rodrigo Cabezas did not elaborate much on the fact that on July first the sales tax went down 2%. Even if we keep in mind that not everything is subject to sales tax, we could have hoped for a 1% drop in inflation. Thus, if we got 0.5% we can be assured that the real inflation of the country is ABOVE 0.5%. 1%? 1.5%? More? It is any one's guess but it is any one's verifiable fact: prices go up and up and up.

Minimum wage. Well, that might be right if the currency exchange rate was a free number, going up and down with the aleatory factors of the market. Instead we have been stuck at an official 2,150 VEB to the USD for over a year and the street value of the VEB today is 4,400. Yes, that is right, the street value is less than half of the official value. Thus THE REAL VALUE of our minimum wage is half of what the minister pretends us to believe. The question that begs to be asked is whether this real value put us still on top of LatAm or at the bottom......

Growth rate. What growth rate are we talking about? The one based on ever increasing importations? Or the one of new plants hiring new workers to produce more and more "made in Venezuela" stuff?

The government piously tells us that all the food scarcity are due to increased purchasing power form lower classes who apparently for the first time in their lives must be eating (one wonders how did they manage to grow up and breed before Chavez came to office, but I digress). But Cabezas is a liar, if by omission. In fact the truth almost escaped him. He admitted that the government is trying (desperately?) to make all sorts of investments from irrigation projects to 200 "socialist manufacturers" to be able to supply, NEXT YEAR, what is lacking in Venezuela stores. What Cabezas implicitly admits here is that the private sector will not increase its production, or at least not enough to supply what is lacking on the shelves. What Cabezas fails to say is that the remaining private business are working at full capacity but are not investing significantly. What Cabezas fails to say is that the private sector is not investing because it is afraid that any day the state will come and expropriate it just because Chavez said so; because the cost of business is ballooning in Venezuela; because everyday management spends more and more time dealing with more and more new regulations that make little sense in most cases instead of managing and developing the business and production lines.

Of course Cabezas knows all of that. Even if he is an ideological jerk he is not THAT stupid. But the bolivarian revolution has stuck its finger in the fateful gear box that will pull its economy inside and turn it into shreds just like in Cuba. If we do not see it yet it is because PDVSA still brings enough money to hide all of this crap. But as PDVSA is slowly imploding we just need to sit down and watch for how long will the government be able to hide the real numbers of Venezuelan economy.

Of course, by then all of these chavista "businessmen" who made a fortune in the import business will have managed to have enough sales commissions stashed away in foreign accounts that they will not care anymore as to whether Venezuela can still afford imports. But we have seen this happen at least twice in Venezuela in the past. This is just a bad remake with more money and more corruption, but it will end up the same.

-The end-

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