Saturday, May 14, 2005

Wonderland Venezuelan Economics

I have been quiet for the last few days simply because I was very busy, and with some minor health problems now mending. I did not follow much the news either and only came back in earnest with today's El Universal. I was quite aghast at some of the new initiatives taken. The only rational explanation can come up with is that all think that they live in a wonderland financed on eternal oil supply. And that we are stupid. Let's see.

The referendum on international reserves

There both opposition and government are in la-la-land. For those coming late to this topic. Simply put, any country must set aside a certain amount of foreign currency earned through trade. Depending on the economic structure, the rate of importation, etc, the central bank of a country holds a few billion Dollars (or Yen or Euro or even Pound). The amount should in theory back up all the currency emitted by the country as its declared foreign exchange, thus ensuring free convertibility. It also should cover a few months worth of importations.

Well, according to Chavez we have too much money in reserve and he wants to take some to invest in some "social programs" and investments. Read: there are elections coming and I need cash to buy votes. The calculation made by experts is reasonably simple. Of the 27.8 billion USD held currently, 6 are needed to pay the importations already due, 3 for debt service, 8 for importations needed in the next few months, 5.5 for reserves that cannot be touched which leaves an approximate amount of 5 to 6 billon bucks for backing up our currency at the official rate of 2150 and the street rate at 2600. It is essential to note that the price of oil can change while the rate of public expenditure keeps increasing with the mad dash in social programs; which explains the continuous devaluations since Chavez came to office. It also should be noted that we are living though an era full of uncertainties on our economic front, from the semi collapse of PDVSA now acknowledged, to the general lack of confidence in the Venezuelan economy which has lead to a dramatic drop in private investment. And also, the money that Chavez wants to grab is money not really created by "work", rather by the good luck of having oil underground, money that is there only by a fluke.

In other words, Chavez knows that these few billons "available" could melt really quickly in a few months. He better get them first. The consequences are very predictable: dramatic increase in inflation and high devaluation of the currency, not to say runaway inflation such as was still observed in Latin America a little bit over a decade ago. Of course he does not care about that as long as it certifies his reelection and allows him to buy the alternalists adulation he so seems to crave.

But there is a problem, legally he cannot just grab the money unless the central bank plays dumb and hand it to him anyway. Unaccountably an opposition assembly man has proposed a referendum on the subject. You have got to wonder. I mean, how do you make people understand such arcane maters that even in the National Assembly is scarce in thinking minds able to grasp the problem? How do they expect to make an issue of this against Chavez when he is going to promise to spend it "socially" and the suckers will buy it once again? Does AD think at this point that by predicting even more inflation they are going to scare the chavista voter? Really....

The Cuban vacation

This is quite a doozie, a demonstration on how high a degree of sycophancy the underlings of Chavez are reaching: they will come up with any scheme to finance Cuba and obtain the benevolent eye of El Supremo.

There has been a rather strict currency exchange control in Venezuela since January 2003. Now, I am allowed to spend only 4 000 USD a year to be charged on my credit card when I travel overseas. Plus 400 in cash and 2 000 to spend on Internet shopping. Not too bad you might think, but any one week business trip will set you back 1 000 dollars if you do cheap hotels and Mc Donald. Your customers or providers of course are not expecting you to set rendezvous at the local Burger King.... In fact, 4000 is barely enough to make three simple business trips to the US in a year, and some folks must make them more frequently. Forget about a vacation and using your frequent flyer miles, unless you hit the black market. Again, as a measure of responsibility I can see a currency control. But then again how does one explain that chavista assembly folks travel so much, to name a notorious group of frequent travelers not known to stay at cheap motels? How do they get the obviously more than 4000 dollars they spend? Animal farm equality.

Well, Wilmar Castro Soteldo, the tourism ministry of the bolibanana republic has a project to exempt Cuban tourism from that 4000 limit. That is, if you are a Venezuelan going to Cuba on vacation, you can use your credit card there without any control, as we used to do it before February 2003 anywhere else. It is not that an extra 1000 for Cuba is set, no, not something that could be justified in a way. In the project you could use your credit card in the Cuban stores for foreigners and buy, at benefit for Cuba, all what you cannot buy when you go to Miami for a little shopping. Not to mention that in Cuba you will be able to spend precious foreign currency in the luxury hotels dotting Cuba where the locals can only go as humble workers. The first question is to which government does Wilmar Castro belong to? Because as a measure to promote tourism in Cuba, you can hardly do any better. Heck! I might even go on vacation to Cuba and buy the video camera I have been thinking of! And some single malt scotch that I am running out of. While enjoying some Cuban beach and perhaps let myself be tempted by a jinetera who probably will be allowed to accept cash in bolivares....

So we have here a Venezuelan minister promoting the spending of the scarce Venezuelan tourism dollar for another country. How low can you fall?


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