|A good explanation too...|
The good thing about today's devaluation is that you do not need to be a PhD economist from S.U. to understand or to explain it. The regime has not done a devaluation for economic reasons or to solve macro problems that weigh heavily on the population. The regime today did simply a currency exchange measure to get some cash quickly to pay for the electoral campaign coming. That is all. All the problems that forced the regime into today's rate change loss of 32% remain and will carry on, forcing yet a new devaluation in, I guess, 6 months at the latest.
Reader Eduardo points that I did not discuss the SITME. Certainly the SITME elimination has its importance but when I wrote the post late last night I had already enough arguments to make the point of the entry: a devaluation decided strictly out of political necessity and economical expediency.
And yet adding the SITME suppression would have actually strengthened my point so there it goes, a discussion on the SITME elimination.
The SITME was the system escape valve, where those denied CADIVI dollars could go. Its reach was limited because it could only be funded through national debt (bonds), because the amounts offered where relatively low and at any rate never amounted globally to much, maybe 20% of the foreign currency? It also was of no use since they tried to keep the SITME exchange as low as possible, below the 6.3 of today. In short, the SITME with its bias to insiders of chavismo was never an effective system to stem the rise of the dollar and the control of inflation. Still, it allowed for some important functions such as importing some non essential foods that made your life more tolerable or more importantly some spare parts and ingredients that were essential for the economy but that the regime ignored out of its congenital ignorance. Amen of allowing for some extra cash for those who needed to travel outside the country.
It is clear that the regime objective of yesterday was to reassess and refurbish the political control on currency exchange. Thus going above the SITME rate in theory would eliminate the need for the this one. Except that for this to work CADIVI needs to recognize again all of these imports that were made through SITME because CADIVI refused them. Will that happen? In the immediate future no but in the medium range (6 months?) a new "alternate" mechanism will have to be set in place because the 6.3 rate is untenable and the economic paralysis from not importing certain goods would become intolerable. BCV president Merentes yesterday was saying that business had dollar overseas to buy what they needed, that they should bring it back to the country. But with his poor performance yesterday sitting next to saurian Giordani he killed any confidence and trust he may have ever aspired to generate. Nobody, NOBODY, NOBODY will bring its savings in dollar unless it is a matter of personal life and death. At this point in Venezuela bankruptcy for many is the least of evils.
It should be noted also, along the SITME elimination, that the regime is setting yet a new layer of control. Now there will be a system that will decide discretionary who gets the ever scarcer dollars. That is, corrupt CADIVI will become a mere administrative office that will take your bolivares and give you the dollars. The decision will be made elsewhere. What this means is that dollars will become more than ever a tool for political pressure. Before, if you fulfilled certain requirements CADIVI gave you what you needed, even if incomplete, even if late. Now?
Thus this political devaluation is only going to lead to yet more corruption and more economic paralysis and more inflation. I bet you anything that by the end of the year we will be on the verge of hyperinflation How long will president Maduro hold when the hungry chavista hordes turn against him once Polar has been ransacked?
I forgot to put it in the post yesterday but I had tweeted it.
When Chavez was elected president and named Giordani to rule over the economy, the US dollar was around 0.5 bolivares. Today it is at 6.3. Do the math and figure yourself the abysmal failure of Giordani.....
Note that in previous devaluations Girodani took a back seat and even left office for a few months. This time he was as brash and mean as ever, blaming his own failure on others. I suppose that at some level he knows that history will be harsh with him and he tries to escape it by killing those across. Or some other Freudian approach.