Tuesday, November 19, 2013

The next few months for Venezuela

Let's go beyond what qualifies as the "mundane" for the regime. Let's not focus on the organized looting, or the spontaneous one.  Let's not delve on the idiocies of the regime which claims that looting and forcing to sell at a loss will encourage production and lower unemployment. Let's just say that what started with the Daka looting over ten days ago is a mere politico-electoral ploy from the regime, that they never quite meant it the way it turned out.

Yet there will be consequences. Which ones?


I am not going to write as a pontificating economist. Firstly, I am not one. Secondly, you do not need to be a graduate from Ivy League School of Business to guess that the odds for Venezuela to enter a deep recession next year are in the 99%+.  The Maduro regime has made a massive blunder by destroying the commercial sector which is what holds together the financial and productive sectors.  Without commerce to distribute the goods around the country there is diminished receipts for the manufacturing sector, and there are no commercial benefits that go to the banks so they cannot invest in production ventures. If you do not understand this generality, if you do not agree with this, then do not waste your time reading further.


Venezuela is a very difficult country to work in.  The inherent flexibility of any commercial sector has made the Venezuelan one able to cope more or less with the situation making sure it all did not fall apart earlier, as it is about to happen.  Logistics are tremendously complicated in a country where the inefficient regime makes harbors unworkable, does not maintain properly highways and infrastructure in general, create rules after rules that inhibit commerce, etc. Furthermore, commerce is particularly understanding with the difficulties of many producers in ways that the banking system cannot or will not. I will refer you to the glaring example of AgroIsleña which nationalization 3 years ago has created havoc in Venezuelan agricultural output.

And in case the difficulties alluded to in the preceding paragraph were not enough, commerce must deal with an inflation above 50% that is joined to the corruption of the currency control that includes nice features such as retroactive devaluations where the regime forces you to pay old debts at new larger prices, wiping out any earnings you may have managed.  Thus the calculation of restocking costs has become a true dark science in Venezuela where you need to calculate selling prices by balancing what you think the market may pay for the goods you want to offer against your wild bet as to what you will need to fork in order to replenish your shelves. Any error may make you look like Shylock or may send you into bankruptcy.

The regime has used the rules it made to control the economy as a paltry excuse to punish the economic actors for the mistakes of the regime. And this is where it all centers: who will want to keep playing a trumped game knowing now for sure that there is no way you can protect yourself from the main abuses, and even less hope of winning your case.

If we assume that the regime "never meant it that way", which I think it did but that is my opinion, then what can the regime do to restore some equilibrium? Nothing. The regime does not have enough money available to refurbish the depleted shelves, if anything because corruption would take too much of a bite out of whatever the regime would be willing to settle with. Can the regime replace the commercial sector? No. We have for that the glaring failures of AgroIsleña now a derelict AgroPatria; we have the failures of the Bicentenariao chain holding courtesy of left over French management, and the Mercal who only offer goods on occasion, according to arrival, numbering people's arm for their turn in line when necessary. The state distribution system as it is is on the verge of instituting ration cards.  If the regime wants also to pick up malls and electronics it will only add more strain to what it is doing today, and further corruption and black market.

Considering all of this, what can we expect, not even for next year, for next month already?

First, people are going to empty their meager savings to shop for whatever they can shop. I went myself to a Locatel (refusing to shop in any taken over shop refusing to profit from the misery of others) and spent several K bolivares on stuff that I do not need yet but that I know I shall consume in the next 6 months, from soap to acetaminophen.  I did not buy electronics because I have all that I need and I am not going to buy a refrigerator just because the one I have is sixteen going on seventeen.

Second, surviving commerce is not going to be able to replenish shelves or will do so in part, and ONLY after the regime guarantees them access to a stable currency rate.  The consequences are immediate, beyond the empty shelves: a whole bunch of people are going to go jobless in the next very few months.

Third, our quality of life is going to go down south. Commerce also provides spares parts and once a store is on its knees it will, if it does, only buy a minimum of spare parts, those that it is sure can fly away from the shelves really fast before any inspector shows up.  Now, when my refrigerator breaks down, I may not be able to get a new compressor, nor a new refrigerator.

Fourth, production will be affected faster than what you know. Because in addition of needing to import raw materials that the regime intends to control more than ever, by purchasing it all themselves before they sell it back to you, we also need a lot of supplies that will not be readily available anymore (and many already missing before last week crisis).  For example at work I need car spare parts, electrical supplies, safety implements for workers, etc. If I cannot find these within reasonable delays I may have to shut down, first a day here or there, then a week here or there and then close down once and for all.

Let me illustrate you the perversity of the system. For example safety equipment for workers are already difficult to get. If I cannot get them anymore what should I do? Endanger my workers? Risk a punitive fine by INPSASEL that could bankrupt me as they cannot care less whether I can find the supplies?  I better close shop.

Fifth, as the regime relies on sales taxes and income tax and fines to pay for its public workers (the rest is paid by oil, rounding up numbers if you allow me), it will lose significant income with all the consequences you can imagine.  Will the regime ensure purchasing power of the public sector? Yeah, right...Some of my clients depend in part of contract from the regime to supply Mercal. If the regime stops paying, how long can they hold?

Sixth, seventh, eighth.....  you get the cascade picture.

The regime has put itself in a corner. It has either to back down badly and badly fast, or it has to go all the way with its open dictatorship plan that I doubt it has much capacity to implement in the long run as it needs to start by internal purges.  Whatever the regime decides we can expect next year a major degradation in living conditions forcing
massive repression which will not be able to stop violence, a violence that I must say will start mostly from the henceforth supporters of the regime.

The regime has no capacity to raise fast oil production to get the money it needs to import all the country needs and no capacity to spread it in case it could miraculously increase oil production and revenue; or at least tell Cuba and China to fuck off on their indentured share of oil.

Thus 2014 is a sure crisis waiting for us.





39 comments:

  1. But Mark Weisbrot...

    ReplyDelete
    Replies
    1. Yeah right.... such a credibility gap between him and me.......

      Delete
    2. When the Colombian and Brazilian borders are filled with hundreds of thousands of emaciated refugees telling the world horror stories of what is happening inside Venezuela, Mark Weisbrot will still be extolling the virtues of the Bolivarian Revolution.

      Delete
  2. 1979 Boat People3:38 PM

    Speaking IMHO:

    -Chavez wanted to be secured JUST IN CASE so Cuba got Venezula oil for free by providing security for Chavez. Eventually Cuba controls Chavez and the current regime.

    -To be fair here, China got Venezuela oil cheap because of Chavez's running out of cash. All the countries in World play " Cash is King" game.

    Chavez sold Venezuela for his own selfishness.

    Who are to be blamed for this? The ones that just keep voting for Chavez in power for 10+ years.






    ReplyDelete
    Replies
    1. Anonymous4:21 PM

      1979 BP, You are correct in all statement.

      Cuba and China may be competing to quickly get everything left in Venezuela.

      Delete
  3. Of course the violence will start from supporters of the regime, it always does. They will know the ship is sinking and will declare the opposition rats as the problem.

    ReplyDelete
  4. Charly4:03 PM

    "The regime has put itself in a corner", or the population at large in a corner. Witness Cuba in the last 50 odd years. On the other end, the oppo has missed a golden opportunity to destroy la patria roja rojita, whether by laziness, cowardice or most probably lack of strength and that was to send a fifth column to induce people not only to loot fridges but also their contents, food. Imagine the mayhem. Painful? You bet but better than the frog in the boiling pot which is what is occurring and why Maduro will never get out of power. The beast should be killed swiftly and the opportunity was there. Probably the reason why Maduro on a Sunday night became so accommodating.

    ReplyDelete
  5. Daniel,

    I think your time frame off. This can't last another whole year. Venezuela is dependent on imports for 70% of its food. Without a functioning commerce system for importing and distributing food, Venezuela starves. You should know that even what it does produce is dependent on imports. I do not see the government being able to replace the private sector in time to avoid a massive shortfall of foodstuffs. And when people get hungry enough, this regime will not be able to stay in power. Hell, by the time this is done, there may be no central government left in Venezuela.

    ReplyDelete
    Replies
    1. Cuba got used to limited economic possibilities..I think you are underestimating the power of brain washing.

      You do not need a majority to maintain a government.If you have a fanatical minority and sophisticated repression, including political stunts where all the blame is thrown on " others"( USA, Jews, Capriles, the rich etc) , the government will cling to power unless there are people willing to bring it down.

      It will not fall by itself.

      firepigette

      Delete
    2. Roy

      Errh... I thought that my post stated trouble start already in. December.... "next month"

      Delete
    3. Sorry. I thought you were suggesting a slow degradation over the next 12 months. After re-reading your post, I think we agree this is going to get bad fast.

      Delete
    4. and we both agree on Matt Groening timetable, no? It kind of looks like the PSF international support all in bed together, no? :)

      Delete
  6. Anonymous5:19 PM

    Daniel,

    There is a scenario you have not mentioned. It is the absolute worst scenario.

    The scenario where the regime lets all private business fail. All private banks fail. The selected few are chosen to own and operate government funded operations that provide the bare necessities to survive on a daily basis. Example, bag of wheat/rice, cheap shoes/clothing and clean water.

    Anyone who wants to remain in Venezuela has to go to work at a factory for the greater good of the country or they can leave. Think back to war era USSR or North Korea.

    I am disgusted by this, but I do believe that Maduro and his gang of thugs are sick enough to think that Venezuela would be better off in this state. How can one call the middle class parasitic bourgeoisie and not believe in something like this? Otherwise I just don't see how INSANE they are to expect that what they are doing won't backfire. Nobody is that stupid, not even a bus driver.

    Anon Dave

    ReplyDelete
  7. Anonymous5:32 PM

    Also you are assuming this was a mistake on the regime's part. Not IMO. Rather a very deliberate ajuste te tuercas, to continue purging opposition and resistance factors, and consolidating dependency levels in the poor souls trapped within.

    LuisF

    ReplyDelete
    Replies
    1. It is too early to decide what part is a mistake and which one is deliberate. Both apply but I suspect incompetence and idiocy prevail...... Too many of them love creature comforts and travel to enjoy the spoils. You do not see many Cubans or north Koreans conspicuously enjoying capitalism the way chavistas do.

      Delete
    2. Boludo Tejano10:43 AM

      While the Cuban/Radical/Giordani strain of Chavismo would be content with a Venezuela remade into Cuban style austerity and totalitarian control, the Godgiven strain and the camp followers are in the game for what goodies they can get. The Boliburgueses - and most Chavistas with a lot less access to the goodies than the Boliburgueses- don't do austerity very well. Nor do Venezuelans as a whole like austerity- not a country whose motto could well be the Cajun saying, "Let the good times roll."

      The coming recession will be one in which the regime, try as it may, will not be able to confine its effects to the oppo.When Chavistas have their take reduced, they are going to react. Ain't no Fearless Leader around any more to placate them with day-long harangues on TV or from the central plaza.

      "After me, the deluge."

      Delete
  8. I remain convinced that this is the Cuban model in the making. Hey it is keeping castros for more than 50 years

    ReplyDelete
    Replies
    1. Excepted that cuba is an island and Fidel could use a type of violence that would be very difficult to use today. Not that they will not try at some point, but it is uphill for them.

      Delete
    2. And, it does not require a high level of technology to produce sugar. But, it does require complex technology and infrastructure to extract and distribute petroleum. Also, Cuba was mostly self-sufficient in food production all along. Venezuela is not even close.

      Delete
    3. Anonymous7:28 PM

      I keep hearing that Cuba is an island. Well, in some practical ways, much of Venezuela is also isolated geographically from its neighbors. Yes, the border is more porous and more suitable for smuggling small numbers of people or goods. But the major population centers are on the coast or in the center of the country. The borders with Colombia and Brazil are far away; the roads to get there aren't very good and could be blocked by the army.

      Delete
    4. Please note that cuba imports 80% of it's food and still ratioins.

      http://www.ats-sea.agr.gc.ca/lat/4678-eng.htm

      Delete
    5. Glenn,

      Precisely.

      It is just a matter of adjusting people's expectations, building the support of a committed minority and keeping the majority intimidated and on the defensive.

      firepigette

      Delete
    6. anonymous 7:28

      Maracaibo is the second largest urban center in Venezuela and it is a couple of hours bus drive from the Colombian border. Tachira is the most densely settled state and it is never more than a couple of hours away.

      That is enough to do damage to Colombia

      Delete
    7. Glenn,

      I don't know about your report, but in 1997, when I was in Cuba for a job, the food available seemed to be of local production.

      Delete
    8. "Despite the existence of the embargo, the United States is the fifth largest exporter to Cuba (6.6% of Cuba's imports are from the US).However, Cuba must pay cash for all imports, as credit is not allowed."

      http://en.wikipedia.org/wiki/United_States_embargo_against_Cuba

      P.S. The US embargo does not prohibit Cuba from trading with every other nation on this earth. But no matter, you'll hear even a Cuban consul (as I came across in Toronto, c. 2003) cry out in public that it's the mean ole US that's the cause of Cuba's misery.
      http://en.wikipedia.org/wiki/United_States_embargo_against_Cuba

      Delete
    9. Syd,

      "El Bloqueo" is and has been, the Cuban Government's only excuse to the Cuban people to explain why they don't have a pot to piss in. This U.S. policy is and has been completely counter-productive to U.S. foreign policy goals in the region. In private conversations with U.S. diplomats, they will acknowledge this (I know this first hand). The only reason this policy has been continued is due to U.S. domestic politics. The policy cannot be reversed without the consent of Congress and the Cuban exile community opposed to this represents a significant political force and has blocked any change in policy for decades. With proper timing, unilaterally dropping the embargo could actually bring down the Cuban government, which is why they have always created an "incident" every time the U.S. has moved in that direction.

      Delete
  9. Anonymous6:21 PM

    I saw this link at CC in the comment section.
    Has someone more information if this is true? It says Cuba takes advisers etc back to Cuba en masse.

    http://www.frentepatriotico.com/inicio/2013/11/17/cuban-advisors-are-exiting-venezuela-en-masse/

    If thats true maybe there is something bad going to happen in the near future. Is there any other sources?

    @Daniel in your shoes I would have bought the Fridge ;-)

    ReplyDelete
    Replies
    1. They may be pulling back those the regime is not paying. Castro Inc. is not a charity....

      Delete
    2. My thoughts exactly

      Delete
  10. Anonymous8:05 PM

    I wish we could somehow help Daniel.

    Anon Dave

    ReplyDelete
  11. I think this qualifies as persecution, nothing new in Venezuela....
    Government fines General Motors for car part prices:

    http://www.chicagotribune.com/classified/automotive/sns-rt-us-venezuela-generalmotors-20131119,0,5104863.story

    ReplyDelete
  12. Anonymous8:08 AM

    Glenn7:42 PM
    "Please note that cuba imports 80% of it's food and still ratioins."

    Also please note that this would not be possible without chavez and now maduro financing this method. Cuba is not self sufficient enough to continue without venezuela's support, and if it is cut off the "island" will collapse.

    Anonymous4:21 PM
    1979 BP, You are correct in all statement.

    "Cuba and China may be competing to quickly get everything left in Venezuela."

    The difference is that venezuela has been given to cuba, but venezuela was mortgaged to china. The support to cuba could be cut off immediately. The debt owed to china for chavez's bailouts will plague venezuela for decades...Even if all future debts were stopped today before becoming reality, which they will not. Maduro would gladly, and has tried recently to mortgage more of venezuela's future to anyone willing to take the gamble. This is not sustainable, and like it or not it will get worse before it will come to an end.

    concerned



    ReplyDelete
  13. Charly8:47 AM

    All the above comments show how confused the situation is and even tea leaves readers are in the dark. Like someone famous in his days said: There are knowns unknowns then unknowns unknowns, etc.

    ReplyDelete
  14. "It is a riddle, wrapped in a mystery, inside an enigma;"

    -- Winston Churchill -- Referring to the difficulty of predicting the Soviet Union

    ReplyDelete
  15. Anonymous11:10 AM

    This is just history repeating itself for those too stupid to remember the past - Descent into communism. The ruling class controls everything and gets all the benefits while doling out crumbs to the brainwashed masses they control. The enemies of the state will be eliminated, perhaps violently. It took the Russians 70 years to get rid of these idiots and millions died. This may also encourage other Marxist regimes like NIcaragua or Ecuador to try the same tactics. Venezuela's oil weapon is going limp fast and if this crackdown spurs anti-government reactionaries, the oil wells will be the likely target. They may set up shop somewhere across a border (like the FARC) and exact payback. This is always the danger of letting the poor classes take over a government-chaos, revolution, ideological blindness, class hatred. Pro-chavista groups are already agitating and trying to stir up the same crap in other countries like Columbia, and a collapse in Venezuela may cause more moderate Latin American countries to take decisive action to protect themselves. Even the Russians and Chinese have huge investments to protect from the bonfire. Dark, violent times ahead.

    ReplyDelete
  16. While I don't believe Maduro and the rest of the current government have the cunning of Mugabe, I am still convinced that the best example of what the future holds is Zimbabwe - hyperinflation, ever increasing shortages, rampant seizures and corruption - and yet the government will survive because any serious opposition will be jailed or suffer an unfortunate "accident" such as being shot during a "common robbery". I am sorry to say that things will collapse quickly and will remain dark for many years to come.

    ReplyDelete
    Replies
    1. http://www.bloomberg.com/news/2013-11-20/ghost-of-chavez-can-t-stop-hyperinflation.html

      Delete
  17. Anonymous5:41 PM

    The Foro de São Paulo (FSP), or the São Paulo Forum in English has the master plan to make all of Latin America communist. Even Lula and Rouseef are mixed up in it with Castro being the mastermind. People had better take this seriously and see beyond the naïve notion that these are just humane leftists who believe in democracy.

    ReplyDelete
  18. Increasing oil production will only flood an already foundering market. Prices are sliding downward and are expected to continue down. They will have higher production cost and the need for more employees only to receive less and less for all their increased production. The world market is not in need of a huge boost in oil production from VNZA. No benefits from this...The regime will continue to founder.

    ReplyDelete

Comments policy:

1) Comments are moderated after the fourth day of publication. It may take up to a day or two for your note to appear then.

2) Your post will appear if you follow the basic rules. I will be ruthless in erasing, as well as those who replied to any off rule comment.

3) COMMENT RULES:
Do not be repetitive.
Do not bring grudges and fights from other blogs here (this is the strictest rule).
This is an anti Chavez/chavismo blog, Readers have made up their minds long ago. Trying to prove us wrong is considered a troll. Still, you are welcome as a chavista to post if you want to explain us coherently as to why chavismo does this or that. We are still waiting for that to happen.
Insults and put downs are frowned upon and I will be sole judge on whether to publish them.

Followers