Saturday, March 21, 2009

Chavez's economic fart

Thus we have it, after weeks of expectation (not from me anyway) Chavez announced an economic package that is pretty much worth nothing, just as I guessed waiting for sleep to come last night. Heck, I was so little concerned that I went around my normal Saturday activities and only read tonight at 9 PM on El Universal web pages the details. The first overview shows that Chavez balked at making necessary adjustments and he just accepted a minimum package that he hopes will tidy him up to the end of the year. In other words he counts on the few savings left and some minimal spending cuts to allow him to wait for an oil price increase that he hopes will come by the end of he year. If I were him I would pray to Saint Barak in heavens to make sure he intercedes with God almighty to help his namesake on earth.

Let's see the only 5 items worth noting, and sometimes for their stupidity, 5 items that illustrate quite well the failure of chavenomics and his arrogance in refusing to face the consequences.

Sales tax up by 3%, to 12%
Main victims- Middle class folks. The rich, bolibourgeois or old money, really do not care: they can afford it, and they shop in Miami anyway. The poor can barely afford food where there is no sales tax.
Effect-not enough new income as long as gas and electricity prices do not go up. However the negative political effect exists in all sectors.
What it really means- the key here is to remember that Chavez dropped the sales tax as a way to fight inflation. With a 30% + last year it obviously failed dramatically. So, hoping that people have short memory he raises it again. But at the same time he admits that he is unable to control inflation and so decides to empty our pockets to sustain his rule.

Minimum wage up by 20%
Main victims- The working poor, and in particular the state employees. Many business (mine among others) were already giving increases of up to 20% so this will not affect them.
Effect-Until now the government had tried to parallel minimum wage increases with official inflation. But now it accepts that there will be an official decrease in purchasing power of the lower economic sectors of at least 10% from last year. There will be consequences, the more so if inflation cannot get below 30% this year.
What it really means- The government has a huge amount of people working at or close minimum wage status (misiones and administration). By increasing that wage below the inflation rate it acknowledges that it does not have the money to pay them, and also implies that higher wages will not be increased.

Review of the 2009 budget and ONLY a 6.7% decrease
Main victims- The opposition governors and mayors and the people they administrate. By Venezuelan law a portion of regular income must go to the states. By reducing the budget and taking a barrel price of 40 instead of 60 Chavez will be able to control ALL income that he gets above 40 USD without having to share it with, say, Ledezma.
Effect- Almost irrelevant as there is an increase in public debt also announced.
What it really means- Naively the government hopes that cutting off higher wages in the public sectors and toning down propaganda expenses will be enough to reach that goal. Corruption by itself will make sure this fails.

No devaluation for the time being
Main victims- All of us. People that import necessary items (spare parts, equipment investment, raw material).
Effect- The only way for the government to sustain the present exchange rate is not to give fixed rate CADIVI dollars. Thus importers are forced to the parallel market which is already almost three times as high as the official currency value. The result is simply more fuel for inflation as people need to run their cars, need to eat imported food, need to clothe themselves, etc...
What it really means- The government really does not know what to do, does not understand the implications of the world crisis, is unable to clean up its act. It means that Giordani is indeed again in charge, more senile than ever. It also means that the longer the adjustment is postponed the more painful it will be.

No gas price increase for the time being
Main victims- The environment, the budget which has to sustain the subsidy.
Effect- Terrible! When the other measures are implemented, if they are, this single item will be even more glaring as the obnoxious, scandalous, irresponsible subsidy that the government gives.
What it really means- Chavez is scared shitless. The one single measure that would have made sense, that would have sent a positive signal that the country is finally going to get managed responsibly was not taken, not even partially. If there was one NO-decision that would show how politically weak Chavez really is, how clay-like his feet are, it was that one. With that decision Chavez shows that once again he is putting all his eggs in a significant oil price increase before the end of the year.

-The end-

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