Wednesday, June 19, 2013

Are there simple measures to stop provisionally Venezuela's slide into major recession?

I was thinking that after my post yesterday on how the regime has no clue as to what to do to boost exports, it would be fair for the readers of this blog to list what could be the bare, minimal measures that seen from ground zero could help Venezuelan producers to stay in business and perhaps increase production.

I must warn the readers that this is not a list about recovering the country: this one would be much longer and would require several years of work, and the end of the current "model". What I am listing below are simple measures that would bring back some good will, some desire to reactivate some production sectors and that would, for a couple of years, avoid further decline in the production of food stuff. In short, what I am proposing is what the regime could do to gain a couple of years until it settles its internal affairs and decide what it wants to do on the economy.  Assuming of course that inside the regime there is a sector large enough that does not want to see the country turn into a Cuban style outright rationing of goods. If the internal balance of power is going the Saman way, more controls, more hard stance, ration cards are to be expected by the end of the year.

The basic problem of the regime is to get dollars so that some productive sectors can purchase raw materials and supplies to increase production of whatever can be increased inside Venezuela, considering the extensive damage that has been wrought on the industrial and agricultural sectors in the last decade. We are not talking expansion here, we are talking recovering the 100% capacity of production which is currently between 30 and 80% depending on the sectors (my estimations, there is no comprehensive evaluation that I know of, even Polar is not working 100% because they do not have enough raw material). The idea would be for the "pragmatic sector" of the regime to get more bang for the buck by producing some stuff locally rather than importing the finished goods (which does not please the corrupt trafficking gang but let's assume that the pragmatic sector of the regime can rein in their appetite for a couple of years).

The first measure is thus to create a dual exchange system (Miguel speaks of a possible return to the famous "permuta" of a SICAD on fluoride). I personally think that a dual exchange is best and simplest and slightly less corruption prone than SICAD or permuta. The 6,3 current exchange rate is pushed to 8 and reserved strictly for import of raw material and supplies for food and medicine. Everything else is sent to a fixed exchange that I would put at least at 12 to start with. Preferably 15 outright.  Inflation would be pushed by another ten points but at this point, with monthly rates in the 6-8%, who cares really.....  The economy would crunch fast but whoever can work may start working again and in 6 month we could "grow" again.

This working devaluation needs to be compensated for the chavista masses and the regime needs money to subsidize a reduced social program that includes only Mercal and Barrio Adentro. Where to find the money for that? In addition to the dollars already needed for the devaluation described above so that its purpose can be accomplished.

Gas price hike is one way. To avoid major upheaval, it should be calculated such as to bring in, say, and extra 500 million a month by reducing gas consumption to at least stop the current gas imports bleed. The impact on inflation would be rather minor considering the current situation.

Explain to allies that they will need to tighten up their belt. That is, out of Petrocaribe and Cuba, another 300 million a month must be obtained.

Stop all weapons purchases whatsoever for at least 2 years, postpone any current contract execution for at least two years. Limit infrastructure purchases for one year strictly to what is needed to recover current communication ways (no more trains, no more highway from Portugal, no nothing, just start filling up holes in highway and fix up bridges and the like). Have Mision Vivienda, pared down, and sent to local constructors to build cheap homes, who can do it cheaper in dollars than the idiots of the sino-russian mafia involved.  There is at least another 200 million there.

All in all the regime needs to find an extra billion dollar a month to import supplies for folks like me so we can produce food again. Not to become self sufficient but at least to stop the constant increase in food import. It is quite possible, it is quite feasible but it involves the will to put a stop to the mafia easy contracts.....

But that is not all: we need also real incentives for us, producers, to risk again our assets and health to produce in this hell.

There is a real need to render flexible price controls so as to adjust them to inflation fast. Inflation can only be curbed when production reaches reasonable levels again so that some competition will start. There is no other way around. Since we have inflation already anyway, might as well harvest its benefits.

The regime not only needs to declare the provisional end of expropriation for at least 2 years, but should have the guts to recognize that the expropriations that led nowhere should be returned to their original owners. That is, AgroIsleña should be returned to their old owners if the regime intends agricultural production to return. And lands that have been expropriated without results should also be returned, through some form of ad hoc commission. That commission may not do shit but at least it will reassure those who still have productive land.

I can vouch myself on at least two sectors that can recover fast: poultry and coffee.

An adequate supply to poultry producers can restore Venezuelan self sufficiency in a mere year. If the price of chicken is too high for "el pueblo" the regime needs only to buy, say, 30% of the production and resell at specific Mercal programs at a lower price. Even that 30% subsidized would be cheaper for the regime than buying frozen chicken from Brazil.

If coffee prices are freed for good, I can assure you that within three years the Venezuelan production could recover enough to satisfy the market and perhaps even consider some small exports. In the first year the illegal shipments to Colombia stop, and in three years the existing deteriorated coffee farms can be recovered through some small credits and be put to produce again. It is THAT simple. But that would mean stopping buying coffee from Nicaragua, yet another mafia sure to bitch.....

Some other sectors like dairy will take longer to recover because it takes time to rebuild the cattle population. Grain production will not be rapid because too many lands must be recovered after improper expropriations, and we may simply not have enough farmers to get the job done since those that have been chased from the countryside through expropriations may not be willing to come back.  Also that recovery is also tied in large part to personal security of agriculture people as well as repairing access roads, etc... But some sectors, like the ones I mentioned, can have a significant recovery in three years or less, if the regime let's them work.

You will observe that the measures offered are not drastic, do not even question the current model as they can be presented as a transition and do not preclude the regime to intervene again in production later with a "renovated model" maybe based on more cooperation while "el pueblo" is led to think that the government calls all the shots. You will also observe that what I propose does not promote new investments, just a refurbishing of what is already in place and that any positive effect would be seen over two to four years and then nothing more. But we need to start somewhere since nobody in his right mind will invest his or her own money in Venezuela today.

Yet, I am afraid that even such a simple plan is too much for the regime at this point who prefers to buy a highway from a Portuguese company rather than accept that local builders may be able to do it for cheaper.  In that regard chavismo is alive and well and keeps driving us to the ground. Note: Portugal signed even though I am sure they know we are bankrupt and that the regime may not last much longer. At least the coming government can be sued for breach of contract and Portugal will get something anyway. So we are not done paying for the hubris of Chavez and his heirs.....


  1. Anonymous10:47 PM

    Who said that the new highway will not be built by Venezuelans using domestically produced materials?

    1. considering that we do not produce enough cement, iron bars, etc... i wonder where the materials for new highways will come. in addition we will pay Portuguese and Brazilian for an engineering that can be done, still, by Venezuelans.

      pray, do tell me if in Portugal or Brazil foreign companies do major highway projects? as the one proposed for la guaira. this is not a normal contract, it is plain corrupt support buying from an illegitimate maduro and the mafia surrounding him. unless of course you have access to public bidding that proves that the Portuguese are going to do the very cheapest and best project. please, do share.

    2. Anonymous11:18 PM

      There was no desire to industrialize in pre-Chavez Venezuela, so we are currently being forced to find foreign experts to help plan and execute big works and projects.

      Be happy that oil wealth is now being invested in bridges, road, public transport, housing, factories, windfarms, railways, hospitals, schools, satellites, etc.

    3. Boludo Tejano11:34 PM

      There was no desire to industrialize in pre-Chavez Venezuela..

      Apparently you never heard of "sembrar el petroleo." I suggest you read up on Cuidad Bolivar, and compare industrial production in pre-1999 Cuidad Boliviar compared with Cuidad Bolivar's current industrial production.


    4. Anonymous11:50 PM

      If Venezuela had sowed its oil it would already be the most developed country in Latin America.

    5. Anoymous

      You are an ignorant. Please abstain from further commenting because I have no patience for idiots that think the world started in 1999. BT already proved how ignorant you are, so you are the one in need to prove your good faith if you wish to keep posting. I warn you, There is no room here for dictatorship supporters and the delete button beckons me.

    6. Boludo Tejano12:25 AM

      Sin Nombre:
      Be happy that oil wealth is now being invested in bridges, road, public transport, housing.

      I will deal only with housing: Housing construction pre-1999 and post-1999.

      Housing Units constructed per year per 100,000 population
      1979-1998 346
      1999-2012 200 [using estimated pop average 1999-2012]
      1999-2012 201 [using pop average 1999-2011]

      Daniel, if you want to delete this, I will understand the reason why.

  2. Dr. Faustus10:52 PM

    "In that regard chavismo is alive and well and keeps driving us to the ground. "

    Loved your comments, but I'm afraid it may be too late. What's happening today in Venezuela can be likened to an economic death spiral. I'm not sure that it's stoppable. It's scary. It will have frightening ramifications. Your comments above are dead-on, but it's water over the dam.

    1. NorskeDiv1:20 AM

      It's too bad Chavez were dead. It would be satisfying for him to reap this disaster.

    2. NorskeDiv1:26 AM


      I like Anonymous above, it takes balls to be so openly stupid. Industrialize? When does this fool think SIDETUR etc. were built?

  3. Anonymous4:39 PM

    Just come back from our jaunt around a couple of supermarkets. Now these are big players and one of them a major player in Europe.
    Most, if not all, the fruit is from the northern and central parts of South America.
    Avocados, from Peru. Bananas and plantains all from Colombia. Colombia is relatively new in the market but seems to have a big share. Lots of other "stuff" from Equador, Costa Rica, Bolivia and Brazil.
    Not so long ago most of these items were from the Far East or East Africa. Not so now, South America is the big supplier.
    Not a sausage from Venezuela.
    Now I prefer the avocados, bananas, coconuts, watermelon, mangos and so on from Venezuela. Even your tomatoes too are far superior to the Dutch.
    I understand the issues exporting directly from Venezuela but what about Mercosur. What about supplying Colombia. What about partnerships with Colombian countries. Maybe partnership with Equadorian or Bolivian companies !!!
    I don't know the practicality of such solutions but I do know there's a BIG market out there.

  4. Wow, such simple methodology too, I thought about this a lot when I was in venezuela, looking at all the chinese construction workers there, it had me thinking... how much is the government paying these guys... lets see here... costs about 1000 bucks to fly them from china to venezuela, and the machinery etc... and for sure the chinese companies are getting paid in real US dollars.. (I also heard somewhere the construction workers sent from china generally are guys that were in jail in china, given the opportunity to make money while serving their time, I'm not 100% sure about that, but I heard about it in africa for sure, i would imagine it would be the same in venezuela)
    so why doesnt the government just offer REAL US Dollars to local companies? so for example.. say a contract for chinese was a million dollars, why not give that contract to a venezuelan company to do the same work but give a chance to bid to obtain US Dollars! i would fathom that it would be better built, more efficient and I'd be willing to say that if a million USD was offered or if given a chance to bid for the contract, you would be able to do it cheaper and better...

    I also wanted to comment on the coffee, let's just say since 2005 the coffee has been crap, and I mean CRAP.. coffee from venezuela prior to 2005 was amazing, even the fama de america was one of the best coffees I've ever had, now you go buy the same brand and you can feel its like crap.. like... horrible... the only place I was able to buy good coffee from venezuela was in the mountains on the way to Merida...(a place called Caldera) I didnt realize it was the same old coffee of my youth until I brought back home in chicago, it was divine, like chocolate coffee.. since the price fixes on coffee, the quality has gone to crap, and its sad, I find it interesting the only way to get good coffee is to go close to the farms.. but venezuelan authorities really need to take an ECON 101 class, the entire country is literally showing the world that Econ 101 is not a taught phenomenon but is part of the nature of our world.

    1. NorskeDiv7:03 AM

      Well said. Venezuela actually started off hiring local contractors for Mission Vivendia, but it didn't pay them or didn't pay them in full. The Chinese on the other hand must be treated with respect, so they make better partners, Venezuela is forced to be reasonable with them. As the lender of last resort China has Venezuela by the nuts. This dynamic of foreign companies getting more respect is epically screwed up, but a common problem in countries lacking the rule of law.

    2. Man, If the US Government hires a chinese company to build infrastructure in the US, you can BET Your ass that someone is going down and getting axed, and it would just be HORRIBLE publicity for the regime to do that. In my opinion it is unconsitutional to use tax payer money to pay foreigners to do a job that a local person can do... but thats just my opinion... (unless of course the locals really think they are deserving 10 times more expensive then the market)

  5. When I go to City Market which is part of Kroger Foods, I find all sorts of foods that come from Chile, Argentina, Brazil, Mexico and Colombia and a few other countries form time to time. Last time I saw food (harina pan) from Venezuela was just before Chavez made exporting " La Mana" a crime! Now, most of these countries also export to the EU (including La France) Japan, China, Korea and others in the Pacific
    Rim. Most have even stricter food ímport regulations than the US has! Not a minor thing in the present world.
    Now what is also important is that all this food trading is done with food futures on the open"commodities market". Sound familar? Yea that's what sets the value of Venezuelan Oil. Funny thing, there is a relationship with high oil prices and high food prices. That's why food producers also buy oil futures to hedge their fuel costs in the next production cycle.

  6. Anonymous12:06 PM

    FUBAR as is presently, cannot be fixed by half baked bandaid "repairs" to accommodate the Marxists.

    Must hit bottom, like a drug addict or alcoholic to make recovery by radical change the only alternative for a new start. Hard core Chavistas must experience thru extreme hardship that there is no free lunch.

    A super majority will turn on the regime and overthrow it. The emerging rulers must implement Milton Friedman type free market policies ruthlessly, such as no exchange controls, no price controls, totally open and free markets and trade, privatize everything possible, incl. the petroleum industry and banking, except Central / Fed type. Low interest Central Bank policy. Eliminate virtually all red tape and let business operate freely, Hong Kong style. No, or at minimum small flat rate personal income tax. Reduce "government" (i.e. fire parasitic employees) to 50% of what it is now.

    After 2 - 3 very tough years, in about 5 years there will be a booming economy, fueled by foreign investment and returning Venezuelan professionals incl. most of their now hoarded $$ sitting in foreign countries' banks. Crime rate will go down as jobs will be abundant, otherwise fight the criminals ruthlessly, incl. using the military to get to hard core nests in the barrios. Firearm carrying permits for law abiding citizens and Castle Doctrine / stand your ground type laws.Outsource imprisonment in privatized prisons.

    Just the opinion of an otherwise very tolerant, US 2nd amendment defending redneck. No crime in my neighborhood. Criminals know they get shot, as everybody is armed. Great no fear lifestyle.


  7. Daniel dixit: Assuming of course that inside the regime there is a sector large enough that does not want to see the country turn into a Cuban style outright rationing of goods.

    Syd dixit: I wish I could be the smallest bit optimistic. Based on what I see from afar, the regime is controlled by Cubans who have neither the savvy nor the interest to see a booming economy of independent citizens. The Cubans, in their destructive mode, have only one interest: to reduce the economy to rubble, to render citizens as near-slaves. And, sorry to duplicate a link that I posted as comment in CC:


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