Wednesday, February 13, 2013

Devaluating the devaluation

arithmetical error?
I am no economist. Though it seems that my scientific background allows me to understand a devaluation more than most, I am afraid to have to say in all modesty.

The thing is that through the Carnival holiday people have been screaming at the devaluation but for all the wrong reasons. Well, not all, mercifully there were enough people left at home to make some sense, but the fact of the matter is that the reaction of most people is indeed thatthey are worrying about their CADIVI bonus to go on vacation. Idiots! It plays straight into the hands of the regime, who wants to project the image of spoiled rich escualidos bitching because their vacations are going to be a tad more expensive, 31,74% more expensive to be exact. And still dirt cheap as I explained before.

For example, the picture that I put above is circulating on Internet. It is intended as humor but it is misleading on at least two accounts. It intends to represent the value today of a 100 banknote, now with the color of a 50 banknote. But the way one would read it at first is a "reevaluation of the currency", that is, now you need only 53,50 to buy 12,44 USD compared to the previous 100!  In fact the depreciation of the currency is 31,75% which means the numbers in the banknote should read 68,25. But dramatization is always good so it is better to use the 2 over 4,3 ration than the sounder 2 over 6,3 which is the economical reality of accounting books even though the pain feels certainly worse than the 2 over 4,3 ratio.

Idiot and mean and corrupt Giordani certainly does not miss that bit. In an interview he gave to a chavista journalist that writes a terrible humor column in El Universal, he speaks about all those spoiled brats that scream about the devaluation while that one was needed to preserve the economic health of "el pueblo" . That none of his arguments stand criticism even from a non-economist like me is not the point. That he looks like a jurassic park economist a few days before extinction is of no concern for him, nor does he notice in his arrogance. The point is to blame anyone but himself for the devaluation and it works, at least up to a point in the chavista hoi polloi.

Let's not forget one thing: since 1999 Giordani has been in charge of the macro economy of Venezuela for at least 85% of the time (he left for few months twice, curiously to have two devaluations taken by other people who had nothing to do with those ones). So, how does that measure up?

In February 1999 when Chavez was sworn to office the bolivar was 573,88, or 0,58 in current terms.

As of today the bolivar is 6,3 to the dollar.

The depreciation of the money has been (6,3 - 0,58)/6,3 = 90,79%

In other words, any property that Venezuelans held in 1999 has lost 90,79% of its value on paper (thank God for inflation to recover some of that!). In other words, your house, your business, your paycheck is worth roughly 10% what it was worth in February 1999....

This is what should be told to people, to make Chavez responsible, and his team, for the continuous devaluation. It is time the main voices of the opposition take a large view of the chavista disaster instead of trying to leave him as a sickly poor semi god and try to win next election by putting the blame on second string players. In fact, it should be said with all courage that we applaud the devaluation as it should have been done earlier but that we place all the blame for that measure on Giordani and Chavez.  Instead the oppo prefers to play #paquetazorojo (of which I admit in shame, I played a little bit at first, avoiding # in twitter as the plague...).

Oh well, another missed opportunity for the opposition. We will need to wait for people to go hungry before they finally realize how wrongly led the country has been for the last 14 years. One side does not want to listen and the other one is unwilling to talk straight anyway.


  1. Anonymous5:37 AM

    "In other words, your house, your business, your paycheck is worth roughly 10% what it was worth in February 1999...."

    I would question if "your house" is also affected like e.g. certainly one's paycheck. Real Estate is usually a good hedge against devaluation and inflation. But since in Venezuela everything is upside down, I am not sure if it is true.


    1. I could reply that actually my business is worth 0% of what it was worth in 1999 because no one in his sane mind will buy a business in Venezuela these days. In short, if I wanted to sell, with inflation and economic repression I would get a fraction of its true worth if this were a normal country. The net loss on my investment makes it 0% a good looking figure....

      My house? I can sell it here but in bolivares that I cannot take out of the country or invest. If I sell it is to buy immediately something else. Or buy dollars at the black market at 20. In short, I also lose a lot, A LOT of equity, and this if I can find a buyer interested in my house and paying it at, say, 10 equivalent. That is, it would assume that my real estate as value for the future and the investor has enough idle bolivares to split with me the loss. This applies only to real estate in some desirable areas of Caracas, where in a distant future the buyer can recover his investment so that buyer is willing to buy just to preserve this one. In San Felipe? Tough luck!

    2. Stefan3:19 AM

      That you may find it difficult to find a buyer for your house or your business is not due to inflation/devaluation. Both forces would actually play in your favour, as they make people rush into tangible assets. The other thing which you said is correct: A potential buyer would apply a steep discount because of the economic (and other) repression in Venezuela. The devaluation cannot be blamed for this, however. The scary term "devaluation" means nothing else than recognizing reality, bit by bit. In reality, reflected by the market (that is, the so-called "black" market), the bolivar has already been devalued and loses more of its value on a daily basis as the government prints more and more money (much like the German inflation after 1914 which peaked in 1923 when a pound of butter cost trillions of German marks). However, chavistas pretend that they can ignore the laws of nature/economy most of the time and set an artificial exchange rate. For some time, they pretend that it works. Time and again, however, even they have to admit that it doesn`t, that the rules of the market still apply in Venezuela. Subsequently, they have to adjust the "official" (propaganda) exchange rate to the real one. To call it "devaluation" is not entirely correct because the currency has already been devalued before, by the actions of the government.

    3. Stefan

      Except that normal people have not enough cash to buy a house. There are no mortgages in Venezuela anymore besides the few offered by the government because no one can afford a 20%+ mortgage. The real estate market for upper middle class and the rich is cash only. The other social classes can only afford housing if they inherit something, if they already own something they can trade up, or if they are in a governmental program.

      Do not forget that the Venezuelan economy is highly distorted in its cost structure and things are dirt cheap that should be more expensive and things are expensive that should be cheap. You need to think in war torn country economics models when you think about Venezuela, you know, black market, far from the front, connections, etc... which is what gives you the "market" value rather than the actual costs of replacement, or international comparisons.

  2. "to say in all modesty." LOL, right. :-)

  3. My modesty being my main quality :)

    Kidding aside, I did write this indeed on purpose, not only to see if someone would pick it up and call on me (you did, you get a gold star) but to grossly underline the lack of common sense in the country. And the poor arithmetic skills when the only thing that matters is political effect in a polarized country. Be it from Capriles or from Giordani it is simply impossible to have a coherent discussion these days.


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