A quickie economic post

I am rather busy these days, among other things fighting back an extortion attempt from government employees who need to fulfill a quota of extortion so they can finance the PSUV campaign (and line up their pockets along the way).  Details do not matter because were I to go to a court of justice my options would range from nothing happening to me be thrown in jail, never the bureaucrat.  Let me put it this way, on some technicalities the bureaucrats involved want me to give them the amount of the fine, not letting me pay it to the state as it should be.  That is, they can delay the legal solution of my problem forever, even if I am willing to pay the legal dues, unless I pay these to them and then they sign up all the paper work in a jiffy.  Needless to say that this "incident" is giving me a particularly clear, raw look into why Venezuela economic recovery is not going to happen anytime soon.


What I am referring to is of course the latest declaration of Giordani, our ineffable economy tsar since 1999, where he congratulates us because the inflation has to go below 30% next year and because the drop in Venezuelan economy should stop and growth come back.  I am not even going to give you a link to such inanity.  You can go to Miguel's blog for details if you think that Giordani's words are worth something.  As far as I am concerned he is a senile charlatan who does ideological economic voodoo in agreement with Chavez, he is someone who has been so consistently wrong for over a decade that I would not even trust him in giving me the exact time of day.

The fact of the matter is that for people like me, at ground zero, there is no evidence, no element whatsoever that may indicate that things might start moving again, unless oil prices go above 100 USD a barrel.  Which seems to be the only economic plan of the regime at this point.  The government has not taken any single measure that could restore a minimum of confidence so that people could invest a little bit to expand their business, or create a new one.  The recession is happening, and it will last, for one very simple reason: no one is investing, no one wants to expand his or her business until it is at the expense of somebody's else money.  Only highly speculative business are taking place as not even the state is able to invest anymore.  We heard in Chavez latest cadena Tuesday night the representative of INVEPAL, the paper company seized about 5 years ago by the regime announcing that it is producing at ONLY 12 % of its capacity!!!!!!  And Chavez found that great because when they took it over it was not producing!  Chavez is happy that the growth rate of the economy would be 12% over 5 years!

As for inflation, I can tell you, personally, first hand, that corruption is one of the inflation motors of the economy. If I were to succumb to the corruption schemes "offered" to me I would have to sell the questioned item at 40% more than what I used to do.  One of the go-in-between men I am forced to use to "negotiate" told me coldly that the flat rate is calculated in such a way as to wipe out your earnings.  That you import flat screen TV or or some item used in one of the price controlled products of the country, they always assume that you are going to make a 30% return and they simply, socialisticaly I could say, take it away from you.  You cannot make money, you allowed just to survive, but they can line up their pockets.

In my line of work it is dramatic because my returns cannot reach 10%, and only if all was to go fine and dandy.  With an inflation of 35% you need a return of at least 30% so you can keep working and replenish your stocks, forgetting about real earnings as you still must pay taxes on your 35% "earnings".  If you have access to CADIVI dollars you do not need a return of 30% but you still need a return of significantly more than 10% on your imported goods to help you compensate from the services you get inside of Venezuela suffering the 30% + inflation.

When you have a production system based on the unavoidable need to calculate your "earnings" against inflation, just to keep your business alive, how can you hope that inflation will go down on its own like Giordani wishes?   My business costs already include about 5% due to corruption expressed on many ways, such as the bribes my delivery drivers must pay to multiple Nazional Guard road blocks (some of my permits are expired, renewal is not arriving due to state negligence, I need to work anyway, cannot stop deliveries, henceforth a "bajate de la mula") to the forced hiring of "gestores", those people that are the intermediate between the bureaucrat and you so that your dossier is made according to taste.  Now they are about to jump to 10% that I will pass on to the final consumer who will either have to pay up or be deprived of my product as I close shop.  Eventually there will be only one provider left and this guy will be able to charge whatever so the inflation process is fueled up further.  Hopefully that last guy would be me and I will finally be able to recover all my lost income in the most savage capitalistic way possible, courtesy of the revolution.  that is, if some chavista bolibourgeois has not forced me to sell him my business for not even a quarter of its book value.

Giordani is right: eventually the economy will have to show some growth because it can only go so far down.  That is, people will always need to eat, to dress, to get some basic medical care.  When we reach the minimal survival state of an economy like Cuba, thanks to the little bit of oil that we will be able to produce we will have an economy that will grow at best at the population growth rate.  Also, when we reach a Cuba like economy there will be inflation only for some, those that can afford to buy stuff.  The great majority who will depend on government hand outs and ration cards will not experience inflation for one very simple reason: they will have no money to buy anything anyway.  An thus, Giordani is right, inflation ought to go below 30%....