Monday, December 16, 2013

Getting ready for 2014 (1): the baseline starting point, a tanking economy

So now that we have completed an election cycle, that the last election day of that cycle is just behind us, that there is no scheduled election until December 2015, it is time to start wondering what is in store next for us.  What is going to be the overriding factor next year, well, it is already, is the economy of Venezuela. Thus let's start describing briefly in which conditions Venezuela is finishing the year. The least and kindest we can say is that the situation is grim.


I want to start with a mere observation: we are on December 16 and we are still waiting for the economic numbers of inflation and scarcity index. That is, the regime and the Central Blank are not releasing the inflation numbers for November 2013. The regime has got into the habit of delaying those numbers by a few days, up to a week almost. But two weeks and counting?  The only thing this can possibly mean is that the numbers are not good, that the regime is trying to find a way to massage them to make them more acceptable. My bet is that the monthly inflation rate may have reached the double digit and they cannot admit it. This would be politically fatal coming right after a Maduro destroying the commerce sector for electoral purposes by forcing down prices on some items. It looks that such a reckless behavior is coming back to kick his ass faster than expected.

The other fatal number is the black market dollar value which now seems permanently above 60 to the US dollar. That is, around 10 times more than the official rate at 6,3.  The only thing the regime has been able to do on the currency so far is to declare today that the secretive SICAD will now become the norm for the majority of the imports. What does this mean in practice, as far as one can understand from the confusing words of Ramirez, the guy in charge these days?

You have two legal ways to get currency in Venezuela. The first one is through CADIVI at a fixed 6,3 to the dollar if what you import is in the approved government lists (or if you have a corrupt contact but this is another story). The second way has varied and is now the SICAD which is a "secretive discretionary auction" that fixes a dollar value for the chosen few, and for a rather small amount of dollars (around 5-10% of the country's need this year if I am right). In other words the regime fixes a value for the dollar in the auction that is not published and gives a certain amount of dollars to some of the auctioneers that remain nameless. We have learned that few of those who apply actually do get greenbacks, and that the rate has been set at around 11-12 when some were willing to offer more than 20. In other words through SICAD the regime tries artificially to minimize the devaluation of the Venezuelan currency.

So, what will be the end result of this new complex and unworkable scheme in the long run (amen to the added discretionary power by the regime to favor those it wants to favor)? I guess the regime will preserve the fiction that it has not devaluated by retaining a 6,3 rate on some items, covering maybe about half of the country's exports. The other half will be quickly pushed to as much as 15 per USD within months if not weeks of the new system. So we can look forward to a devaluation equivalent of (6,3+15)/2= 10-11 VEB for a USD. Or in other words at the very least a (10-6,3)/10= 37% depreciation. By February? March?

Needless to say that with an annual inflation above 50% that 37% depreciation will not be enough and that further pressure will likely drive that depreciation to more than 50% as early as June. I think, anyway. What is the regime going to do to try to put the brakes on this slide that could spiral in some XXI century socialism hyperinflation?

Since the regime refuses to change the economic system, since it is unwilling to take measures that could restore a minimum of the huge loss of confidence it inflicted upon itself last November by destroying commerce, there is no other option but to cut spending, preferably brutally, preferably in the hated neo-liberal fashion. Creditors demand it I am sure, from the Chinese to the IMF: increase the price of gasoline, of electricity, of public services and cut down other subsidies elsewhere. This is how we must understand that the regime has decided suddenly to "discuss" the increase in the price of gas, a volatile topic in Venezuela. Such an increase can only be done now, just after a spurious electoral victory, just as people head out for their annual holidays and may not be willing to riot over that psychological flaw of Venezuela. But there will be a political cost.

And yet the real problem of Venezuela's economy is the desire of the regime to do away with the private sector, now threatening even the bolibourgeois class, those that became immensely rich under Chavez, though sweet deals with the regime.  The simple reason is that the regime understands very well that its popularity is weakening and after a few harsh measures things are going to get difficult to control. The only source of political financing for the opposition, the necessary evil to pretend to be a democracy, is the private sector. The pauperer it becomes, the less chance it will be able to unseat someday the regime. This explains why we have now the vice president, an idiot, ill educated, son in law of Chavez and a political taliban to boot demand that shopkeepers leave the country. The regime totalitarian bent becomes every day more apparent.

The reader that has followed me so far knows very well that there is no historical example of a country that has become prosperous without at least an independent commercial sector. The regime probably knows that too but it is prisoner to an ideology imposed by its Cuban masters and the fear that were they to leave office too many of them would end up in jail.  The choice has been made to become a fully state controlled system where even the price of housing will be controlled. Probably they think that some state capitalism can be allowed but even that functions only with some personal freedom which is something the regime is also bent to curtail as there is now no free TV or radio and newspapers are attacked, from censorship to paper restriction. But the fact of the matter is that the regime has killed any confidence in its ability to manage the economy. The people who got spoiled last month for electoral purposes will not replenish their shelves lightheartedly and this will have a cascade effect on every sector, And who is going to come to invest in Venezuela when Moody again downgraded Venezuela debt to the C ranks?

Thus the background for 2014 is the economic crisis that will be made worse by the current regime measures. It is against this backdrop that we will have to evaluate which are the possible shadow plays of the opposition and the regime.



8 comments:

  1. charly8:57 AM

    "But there will be a political cost".

    Daniel, with who? Baluchistan? These people just "won" the last election of the cycle, they sit on top of the food chain, with all powers in their pocket. Unless the peasants start practicing the pitch forks on them, I simply cannot see what political cost there will be. What was the political cost of destroying the economy in Cuba? In Zimbabwe? Siltch! The Venezuelan hoi polloi has just shown once again they are a political yo-yo and can be manipulated at will. No political cost to pay with that lot.

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  2. Daniel there is no political cost for at least two more years and in last half 2015 the gov will only apply same old tricks to "make things better" (in front of the next election). Until then they are home free. But I have a solution to the other problem. With the extension of the labor law where no on gets fired, I think everyone in Venezuela should become employees of the state including the shop owners. This way it won't ever matter if anything is produced or sold, people will have a "guaranteed" job and non of these capitalist endeavors will matter ever again. Cadivi and Sicad issues will go away because there will be no privateers looking for dollars for imports, only government employees. (all said with tongue in cheek).

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  3. Anonymous12:52 PM

    "The regime probably knows that too but it is prisoner to an ideology imposed by its Cuban masters and the fear that were they to leave office too many of them would end up in jail."

    So true. Maduro will go against everyone in Venezuela but he fears the Castros and follows their orders.

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  4. Anonymous1:02 PM

    Gentlemen, please! Not all Cubans are like the Cuban masters (who are not very Cuban, by the way).

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  5. Just the mere existence of a "scarcity index" is a demonstration of failure.

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  6. I'm pretty bored so I was watching videos....
    Can you believe people actually wanted to move to Vzla.
    http://www.youtube.com/watch?v=PxmuwufSxLE

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  7. Anonymous10:15 PM

    That is the worst video I've ever seen... I would like to go back but I know it is not the Venezuela I left 15 years ago...

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  8. Oops
    Venezuela's president calls for higher gas prices
    http://www.salon.com/2013/12/19/venezuelas_president_calls_for_higher_gas_prices/

    ReplyDelete

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