Friday, October 24, 2014

Dakazo 2 and Technocrats

The advantage of distance is that one has no time to follow closely what happens in Venezuela nor the ability to self drown in useless details. Thus the mind clears up and one starts seeing "things". I see a "dakazo 2" in play and I see an avid embrace of technocratic managed inflation by the regime. The poor guys do not have much of a choice: the drop in oil prices is not a mere circumstantial affair and something must be done even though as it is always the way in Venezuela the decisions are not the right ones.

The "dakazo 2"

As this blog has often repeated the regime is paralyzed since Chavez death because any economic measure it may take will hurt one of its pillars. Weakness inside chavismo being what it is, there is no way the regime can risk alienating any of its bases. Though the apparent dismissal of Ramirez away of the oil money may indicate that the situation is bad enough that settling accounts between factions cannot be avoided anymore.

But price of oil is going down in a way that will last for a year or two. The regime that needs oil at 120 USD a barrel to survive will be lucky if it gets it a 80+USD.... the solution to the financial crush is very simple: stop sending oil to Cuba and force the Chinese to renegotiate previous agreements that are apparently too skewed China's way. But this is not an option so there is only one way for the regime to get the missing dollars: force the private sector to bring back its dollars held overseas.To do that you simply stop honoring CADIVI/Cencoex USD debts and force private sector to save its good name and reputation by paying. Also, it is assumed that the private sector will not let its business go bankrupt in Venezuela and in the end will accept to bring back currency, knowing that it will possibly never be recovered.

Hence the "dakazo 2", a new way to steal dollars from the private sector to boost the regime popularity, just as Maduro did last November forcing commerce to sell under price and leaving the country with semi empty stores since then. Go and visit a DAKA store today.....

Unfortunately it will not work.

For one thing it is safe to assume that half of what has been taken out of Venezuela under Chavez is already spent, invested, placed in real estate, wasted, whatever. That money cannot go back, it's gone, period.

We could be optimistic and assume that half the bullion could be recovered because it is in stocks, in reserves or in the accounts of Venezuelan companies overseas who may decide to save the home business. But they will not do so for very simple reasons. With an inflation of 100%, with insecurity, with a regime that seems still only too willing to expropriate stuff like Polar, there is no viable risk calculation for a business to bring back dollars to save the company in trouble: it would be throwing in good money over bad.

Let me put it under a practical light: if I have, say, 2 million dollars overseas as working reserves for the business, I could use maybe 100, or 200 to buy spare parts or specific chemicals outside of Cadivi/Cencoex. But I AM NOT GOING to use that money to buy the more significant amounts required to import raw materials that the regime wants to force me to buy with my savings because the regime refuses to honor my previous legally contracted debt, a debt contracted with the regime approval.  In short, considering that local currency is worthless, that there are no working conditions, bankruptcy in Venezuela is much more cost effective than bringing back your savings to save your company.

The dakazo 2 will fail miserably and the amazing thing is that the regime will be unable to understand why....

Technocracy on the rise

I have heard all sorts of nicompoopetties as to the regime holding to office stubbornly but as a concession allowing technocrats to run the show. You know, like China.... Things will get better...

This also will not work.

First, the good potential technocrats in Venezuela have long left the country or are salvaging their business or someone's business. It is unlikely that they will leave their current jobs to dirty themselves in the cesspool that Venezuela's administration has become. In any case they would impose conditions that I doubt the regime would meet.

Thus the only sources for the regime are foreign technocrats or local second tier ones, the only ones that may be willing to put up with the crassness of working for a vulgar and corrupt regime. For money of course.

In the foreign import section we have already people like the notorious Banque Lazare and the ambiguous Pigasse at its head. Nothing good can come of it. Not because Pigasse works for money, it is his right. But because his personal delusions push him to prop up a brutal regime devoid of ethics and corrupt to the bone.

Local technocrats available are of poor quality and, well, come mainly from the military ranks. Thus their "technocracy" was acquired late in their career and as a side occupation. And even those that the regime promote are, well, of dubious quality. Let's take for example Alejandro Fleming who directs CENCOEX, the ATM of the regime for imports. Well, he does speak French and has studies at French average to low universities. His major was International Relations and now he is one of the economy stars never having worked in a private business or even in a bank or economic think tank. You think I am rash? Well read his tweet line and tell me I am wrong about the guy, that he is more than merely a flippant bureaucrat.

Even if I was convinced that Fleming and the like have good intentions, they have neither the skills or the contacts needed to solve Venezuelan current problems.

Thus we shall keep sinking.




3 comments:

  1. Island Canuck2:14 PM

    Daniel, I also agree that these measures by a desperate regime are not going to work but they are going to create chaos.

    I've read that on Nov. 1 they are going to mobilize 150 THOUSAND inspectors to check "precios justos".

    Can you imagine the anxiety that this will cause the few businesses that have been able to get some stock?
    Or service businesses, like ourselves, who are dealing with inflation since January of 100%+. What guidelines are these inspectors going to use? You can bet they will not favour business.

    With many stores still empty after last year's disaster you can just imagine what December, January is going to be like.

    Here in Margarita we are hearing that shortages are much worse than on the mainland. This is due to the total collapse of Conferry, the government expropriated ferry service.

    We really have to do something to stop this madness. Even beer is in short supply & that's my breaking point. :-)

    The absence of accurate numbers like inflation are another problem. With no official or fabricated numbers how do you deal with mindless inspectors. I will close before I will run at a loss.

    Talking about numbers - the numbers for Chinkungunya released by the health department are typical of a government that can't face the truth. They said this week that there were some 7,000+ cases in all of Venezuela. What a joke. Just in our small area there are dozens of cases. I would guess that in Margarita alone there are 10s of thousands of cases. They are turning people away from the medical centers telling them to just go home & live through it. There has been no noticeable prevention programs & medicine is unavailable here. I imported 1,000 Acetaminophen pills & have been handing them out to family & neighbours. It's just a total disaster & exemplifies the complete lack of interest in the governments - regional, state & national.

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  2. Boludo Tejano10:55 AM

    Even beer is in short supply & that's my breaking point. :-)

    Apparently even beer has some imported components.

    I have read more than once that a big reason for the GOV not nationalizing/expropriating Polar was that the GOV didn't want to suffer the consequences of production downfall after nationalization/expropriation of Oso Polar, a product very essential for domestic tranquility.

    So maybe now the GOV will nationalize at least Oso Polar under the "produce or be expropiated" maxim, a line which has been recycled throughout the last century.

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  3. Anonymous1:20 PM

    If you want venezuela to pay you in dollars, you must give them dollars first. That is fundamental. For now, international lenders continue to be paid.

    The CADIVI system is obviously insane. The CADIVI rates are not real exchange rates, they are fantasy. For something like $1 USD worth of local currency, Venezuela promises to give you $10 USD? How is this sustainable in any way? This leads obviously to arbitrage profit (for those with access), and liquidity / solvency issues (for those without). As domestic supply of hard currency to give away goes down, they are going to have to reduce settlement on these CADIVI "approvals" likely to those who are VERY well connected or are making the news.

    A real business will have to sell in local currency, exchange on black market, then get that foreign currency out of country to pay suppliers for the next round. Depending on Venezuela government itself is ludicrous. This does mean the business person will have to break many laws (especially fair price laws, the price in local currency will be only payable by the wealthy). But the business is then operating on normal economic principals.

    The rest is just a series of ludricious distortions. Follow the price of oil. As it drops, the settlement in hard currency will get harder and harder! What would really be wild is if the US in a year or so starts EXPORTING gas / oil or development ramps up off coast of US (unlikely). or the keystone pipeline gets built (more likely).

    ReplyDelete

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