Thursday, September 09, 2010

A quickie economic post

I am rather busy these days, among other things fighting back an extortion attempt from government employees who need to fulfill a quota of extortion so they can finance the PSUV campaign (and line up their pockets along the way).  Details do not matter because were I to go to a court of justice my options would range from nothing happening to me be thrown in jail, never the bureaucrat.  Let me put it this way, on some technicalities the bureaucrats involved want me to give them the amount of the fine, not letting me pay it to the state as it should be.  That is, they can delay the legal solution of my problem forever, even if I am willing to pay the legal dues, unless I pay these to them and then they sign up all the paper work in a jiffy.  Needless to say that this "incident" is giving me a particularly clear, raw look into why Venezuela economic recovery is not going to happen anytime soon.


What I am referring to is of course the latest declaration of Giordani, our ineffable economy tsar since 1999, where he congratulates us because the inflation has to go below 30% next year and because the drop in Venezuelan economy should stop and growth come back.  I am not even going to give you a link to such inanity.  You can go to Miguel's blog for details if you think that Giordani's words are worth something.  As far as I am concerned he is a senile charlatan who does ideological economic voodoo in agreement with Chavez, he is someone who has been so consistently wrong for over a decade that I would not even trust him in giving me the exact time of day.

The fact of the matter is that for people like me, at ground zero, there is no evidence, no element whatsoever that may indicate that things might start moving again, unless oil prices go above 100 USD a barrel.  Which seems to be the only economic plan of the regime at this point.  The government has not taken any single measure that could restore a minimum of confidence so that people could invest a little bit to expand their business, or create a new one.  The recession is happening, and it will last, for one very simple reason: no one is investing, no one wants to expand his or her business until it is at the expense of somebody's else money.  Only highly speculative business are taking place as not even the state is able to invest anymore.  We heard in Chavez latest cadena Tuesday night the representative of INVEPAL, the paper company seized about 5 years ago by the regime announcing that it is producing at ONLY 12 % of its capacity!!!!!!  And Chavez found that great because when they took it over it was not producing!  Chavez is happy that the growth rate of the economy would be 12% over 5 years!

As for inflation, I can tell you, personally, first hand, that corruption is one of the inflation motors of the economy. If I were to succumb to the corruption schemes "offered" to me I would have to sell the questioned item at 40% more than what I used to do.  One of the go-in-between men I am forced to use to "negotiate" told me coldly that the flat rate is calculated in such a way as to wipe out your earnings.  That you import flat screen TV or or some item used in one of the price controlled products of the country, they always assume that you are going to make a 30% return and they simply, socialisticaly I could say, take it away from you.  You cannot make money, you allowed just to survive, but they can line up their pockets.

In my line of work it is dramatic because my returns cannot reach 10%, and only if all was to go fine and dandy.  With an inflation of 35% you need a return of at least 30% so you can keep working and replenish your stocks, forgetting about real earnings as you still must pay taxes on your 35% "earnings".  If you have access to CADIVI dollars you do not need a return of 30% but you still need a return of significantly more than 10% on your imported goods to help you compensate from the services you get inside of Venezuela suffering the 30% + inflation.

When you have a production system based on the unavoidable need to calculate your "earnings" against inflation, just to keep your business alive, how can you hope that inflation will go down on its own like Giordani wishes?   My business costs already include about 5% due to corruption expressed on many ways, such as the bribes my delivery drivers must pay to multiple Nazional Guard road blocks (some of my permits are expired, renewal is not arriving due to state negligence, I need to work anyway, cannot stop deliveries, henceforth a "bajate de la mula") to the forced hiring of "gestores", those people that are the intermediate between the bureaucrat and you so that your dossier is made according to taste.  Now they are about to jump to 10% that I will pass on to the final consumer who will either have to pay up or be deprived of my product as I close shop.  Eventually there will be only one provider left and this guy will be able to charge whatever so the inflation process is fueled up further.  Hopefully that last guy would be me and I will finally be able to recover all my lost income in the most savage capitalistic way possible, courtesy of the revolution.  that is, if some chavista bolibourgeois has not forced me to sell him my business for not even a quarter of its book value.

Giordani is right: eventually the economy will have to show some growth because it can only go so far down.  That is, people will always need to eat, to dress, to get some basic medical care.  When we reach the minimal survival state of an economy like Cuba, thanks to the little bit of oil that we will be able to produce we will have an economy that will grow at best at the population growth rate.  Also, when we reach a Cuba like economy there will be inflation only for some, those that can afford to buy stuff.  The great majority who will depend on government hand outs and ration cards will not experience inflation for one very simple reason: they will have no money to buy anything anyway.  An thus, Giordani is right, inflation ought to go below 30%....

11 comments:

  1. Barney Frank2:23 PM

    sorry...no sympathy.....fight or flee

    ReplyDelete
  2. torres2:25 PM

    I think the indicators agree with you:

    http://www.elnuevoherald.com/2010/09/09/798844/chile-pais-mas-competitivo-de.html

    --

    ReplyDelete
  3. 1979 Boat People5:30 PM

    Well...Welcome to a communist state where its citizens must biologically changed so that they could digest grass as their main source of daily food.

    ReplyDelete
  4. Good analysis! I am not in business for myself, but I've been in the country long enough to deal with the system and it stinks!
    You hit the nail on the head on inflation. My fellow gringo buddies and I have often talked about this exact problem over beers. Inflation will never be reined in until the corruption is under control.

    ReplyDelete
  5. Anonymous6:57 PM

    This is the age of the internet, Daniel. Don't get angry at corrupt politicians demanding bribe money, just get their picture, their Cédula, their full names and address, and post them on the internet. Hopefully along with a video showing them doing their business.

    And no, I have no delusions of the current judicial system doing anything about it. It's just that, well, they can't all escape to Cuba when the dictatorship finally crumbles, can they?

    ReplyDelete
  6. Boludo Tejano7:21 PM

    That is sad. It must take a lot of fortitude to keep going.

    ReplyDelete
  7. Barquisimeto.He used to have a book store that was functioning well but he could never foresee if he would make any profit a given year because it would depend on how much the Chavistas officials would harass him.

    The system is called 'cachicamo trabajando pa' lapa'

    ReplyDelete
  8. Roger9:12 PM

    Corruption that is sanctioned by the state is hard to get around unless you have friends in even higher places to take your problem to. Corruption is not a political movement. Places like the Philippines are just as corrupt and kill communists on sight. Also, countries like China and Vietnam, while they do have a lot of corruption, lock up or even execute those they catch doing it. My advice is unless you want to do some Franklin type thing, is pay them and move on. Or walk away from it and find some other gig.

    ReplyDelete
  9. I am sorry, Daniel, for all those hassles you have to go through. You are actually one of those that would be praised in developed countries...even developing countries, for their contribution.

    Corruption is one of the worst problems a country may have. Venezuela was always corrupt, but things have reached just horrible levels. Do try to document stuff, even if we know it won't be easy to do anything about it, life is not worth much in Venezuela.

    I wish you good luck in spite of all the hurdles they put to you. One day Chavez will be gone and Venezuela will start to recover. Let's work for that.

    ReplyDelete
  10. I ditto everything Kepler said above.I feel sure you are doing the best thing you can do, and that at some point Chavez will be gone.Your alpargatas are still made of pearls but so many people's have long ago turned to stone.



    My eyes are close to tears
    Chavez's lines of might have reached encampments
    and slowly walk our way
    Highways are lost to fear
    and we are calling out crimes of shame ;
    they echo through the trees and gather near us
    There are sins to pay
    so let us shout with all our strength:
    God speed is too slow
    Pearls are turning to stone

    ReplyDelete
  11. Anonymous5:02 PM

    In all fairness, this extortion you mention here, or "la raqueta", "bajate e' la mula", "cuanto hay pa'eso", "como quedo yo ahi", "vamo' a arregla' esa vaina ahoritica, no le des mente, chamo.." is nothing new in our beloved land. It's probably gotten even worse under this miserable insect Chabruto, but it has always been a feature of thirld, second and even first-world countries. Afloja!!

    Carlos I.

    ReplyDelete

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