Wednesday, January 22, 2014

Ramirez devaluates without devalauting, solving no real problem in Venezuela

Finally the regime decided to apply some measures to try to stop the crisis. They will fail, of course, because the root problem is not faced, but who seems to care... I followed the press conference through twitter since I am at work so I might as well pick a selection of El Universal tweets and comment. They come from Rafael Ramirez performance showing that he is the one now in full charge of the economy. For how long? That is another question. Covering for whom? That an even more interesting question.

On travel money

The regime since 2003 has been blocking the amount of money that is available for travel. As a meager compensation airplanes tickets were at the official rate which allowed for a lot of travel, and when the parallel market became more than 3 times the official rate a major source of currency flight and corruption. Finally today it seems that the regime has decided to correct something that should have been corrected at least 3 years ago but that Chavez always blocked because he never wanted to have a dual exchange rate just as he refused any increase the price of gas. So are caudillos, apres moi le déluge!

Apparently, as I wrote already on December 23, the new SICAD/SITME rate of 11,3 supposedly only for incoming tourists is starting to be used for other items. One is the amount of money that will be available for travelers and air plane tickets (note: the regime owes hundredS of millions of dollars to airlines and is offering to pay those in gas and bonds...). The bad news is that new restrictions will apply and there is no guarantee now that you will be granted dollars for your trip, even at 11.3 The corresponding tweets:

Rules on limits and who gets what are still being defined
These limits [as now] depend on time of travel and destination
Travel at SICAD rate [but a fixed one, not a variable one as is the case for the rest]

And the best one where Ramirez discovers that subsidized travel is not a right:
Everybody has a right to travel but there is no possibility anymore to give them a preferential rate of exchange.

Does the guy realize that he has been for 15 f.....g years in office?

My comment. Something that has been postponed for too long is finally done. However it will not solve anything as announced. The problem of travel outside or inside the country is more than just a question of debt and currency. The national fleet is dangerously out of shape, Airports are falling behind, pilots are leaving the country, and foreign airlines will not improve their services as long as they cannot make money which paying old debts at new rates will not help. No tourism for Venezuela for the time being, amen of the other problems such as services and security.

On debt

The news here is less good. Reminder: when I import anything, from raw material to spare parts, my provider sends me the stuff after CADIVI approval and at some point CADIVI will demand that I deposit the VEB in its account and it is CADIVI that will pay in foreign currency the provider, NOT me. Since 2003 all transactions between customer and provider are indirect, through CADIVI.

The regime announces that all the money it owes through CADIVI will be paid only after the people who imported demonstrate that they indeed imported what they said they would. Of course, people like me have no problem demonstrating that. But what it means is that yet a new control system needs to be put in place and there will be yet major delays in paying our providers that have been waiting for now 6 months to one year for their goods (goods that by the way people like me already sold or processed and have the money in bank to pay our providers but are delayed by the regime). This also implies that new retroactive criteria may be employed to create new excuses for the government not to pay at 6.3. And thus there is a new door opening for the corruption of the regime to offer me to pay my debt not at 6.3 but, say, at 9 and the official that signs the new permits pocketing the difference between 9 and 6.3. For example, Polar, the largest food manufacturer of Venezuela, by far, is owed 463 million USD by CADIVI to its providers. How many millions will it cost Polar to finally be allowed to pay its debts? The tweets:

Business to which the regime owes money will have to prove that they imported and at which rate.[supposedly flushing out those who did not import but cashed the dollars anyway?]
We are going to investigate "until the bone" the fake importers [but how? they already got their dollars whereas legitimate business like mine are still waiting!]
We are going to discuss the subject of the debt (with the private sector adds El Universal) [Which can only mean that if the regime discusses it it has also the right not to recognize it! No matter if that debt was contracted according to the rules of the regime]

My comment: this is not promising at all because it risks to slow down an already very delayed economical restarting of production. Inventories are very low in raw materials and spare parts. Further delays in figuring out a debt payment system will only delay future imports of raw material. If this is not set up in a semi convincing way in the next couple of weeks the regime risks to start a major recession of the Venezuelan economy.

This is not a devaluation

In spite of all evidence against, Ramirez calls this a new exchange system, NOT a devaluation. That within weeks most items will be at 11.3 and not 6.3 is irrelevant for him. The point is that for the chavista hoi polloi that has never seen a dollar in their lives as long as there is a way to pretend that the official exchange rate is 6.3 is a political bonus. Maduro will be lying without lying, in a way.

We need to take the just measure of this desperate attempt by the regime to hide a devaluation. The only interpretation we can have is that the regime is ready to cut down on dollar supplies and that for the next couple of years we must ready ourselves of a life of increasing scarcity of goods. Our only hope is that we will have at least enough to eat. Expect negative indicators all along, with sustained inflation as people will be willing to pay anything for what they cannot legally import or find on the shelves. Black market for all, from Harina PAN to light bulbs. The tweets:

This is not a devaluation, it is a different system of foreign currency [making Orwell proud!]

But the three below must be taken together.
80% of the needs of the country will remain at 6.3
The productive sectors must abide the call of the government and work with us.
Only food, tools, investments or supplies for priority industries will avoid SICAD

In short the regime tells us that only the private sector that will play exactly as the regime wants will have access to currency at 6.3. Maybe. If they play nice. If they share willingly. If they do not mind being paid late. If they do overprices to be shared with corrupt officials. Etc...

My comment: we are far, very far from reestablishing a strict minimum of confidence so that we can work as badly as we already were working in the previous 2 years.  The black market rate is almost reaching 80 to the dollar when the regime has all the trouble in the world to deal with a 11.3 it wants to impose on us.  Is there any, ANY way to be optimistic?

My conclusion: this will fail because even the announced "new" system will be more complex than what we already had, because no one is going to be happy, because corruption will be the same as before, and maybe even easier to hide by the regime. As a bonus I do not see how this can slow down the rate of inflation, how trust can be improved. In short, I see a recession worse than the one I was already seeing late December.


  1. Thank you for another insightful and succinct post Daniel. Although I am increasingly worried for my family in Merida....

  2. This "Esto no es una devaluación, es un sistema de divisas diferente" is awesome.
    Awesome in a very perverted manner.

  3. Boludo Tejano6:23 PM

    note: the regime owes hundredS of millions of dollars to airlines and is offering to pay those in gas and bonds...)

    No prob. Take all the gasoline you can at official price of 10 cents US [whatever] per gallon. Somehow I don't think this is the solution the GOV wants.

  4. Ramirez's part of speech is comical. He blamed the credit card limit swipers or "raspacupos" as part of the problem of the lack of Dollars, but I think he forgot that there were special auctions for travelers so they could receive some extra Dollars besides the ones available according to the norms.

    1. Ramirez has an EXTREMELY selective memory. People like him or Jorge Rodriguez have a particular talent to block away things that annoy them and lie through and through while they swear genuinely that they are as truthful as they come.

  5. Tell a lie often enough and people will believe it as truth!

  6. There is another problem for the regime. The favorable exchange rate for travelers was one way to buy off some of the middle class. It went something like "yes, there is a scarcity of goods in Venezuela, but heck we'll give dollars at a very favorable exchange rate when you travel and you can buy important goods overseas." Well, past profligacy of buying off votes of the lower classes at election time means they have to cut back on one of the few efforts to curry favor (or at least temper their tendency to complain) with the middle class.

  7. Exactly! favourable exchange rate? seriously? 11.5 for 1usd? Last December (2013), in Merida I could get 65-75 Bsf/VEB to the dollar. If I had wanted to... Obviously not, as I am happy that my family can not purchase toilet paper or milk, oh no, we can feed them La Patria, and they can wipe their bums with La Patria also....Of course I went meekly along to the bank, waited 6 hours in the la cola, to change some dollars, got a flight (really?) and did my purchasing abroad, or not?
    Yes, I am ranting. But only because I love the country and am in constant despair for my family there....
    Mas-Burro you are a most stubborn donkey... some-one please light a fire under him..

  8. All these measures will come to zero because the economy of Venezuela cuurently cannot receive the kind of dollars it needs to meet its obligations and to pay for its debt. The scarcity of supply of dollars will further push the black market rate even higher. With debt default no supplier will want to do business with the Ven businesses. It never rains but pours for Venezuela.


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