The next few months for Venezuela

Let's go beyond what qualifies as the "mundane" for the regime. Let's not focus on the organized looting, or the spontaneous one.  Let's not delve on the idiocies of the regime which claims that looting and forcing to sell at a loss will encourage production and lower unemployment. Let's just say that what started with the Daka looting over ten days ago is a mere politico-electoral ploy from the regime, that they never quite meant it the way it turned out.

Yet there will be consequences. Which ones?


I am not going to write as a pontificating economist. Firstly, I am not one. Secondly, you do not need to be a graduate from Ivy League School of Business to guess that the odds for Venezuela to enter a deep recession next year are in the 99%+.  The Maduro regime has made a massive blunder by destroying the commercial sector which is what holds together the financial and productive sectors.  Without commerce to distribute the goods around the country there is diminished receipts for the manufacturing sector, and there are no commercial benefits that go to the banks so they cannot invest in production ventures. If you do not understand this generality, if you do not agree with this, then do not waste your time reading further.


Venezuela is a very difficult country to work in.  The inherent flexibility of any commercial sector has made the Venezuelan one able to cope more or less with the situation making sure it all did not fall apart earlier, as it is about to happen.  Logistics are tremendously complicated in a country where the inefficient regime makes harbors unworkable, does not maintain properly highways and infrastructure in general, create rules after rules that inhibit commerce, etc. Furthermore, commerce is particularly understanding with the difficulties of many producers in ways that the banking system cannot or will not. I will refer you to the glaring example of AgroIsleña which nationalization 3 years ago has created havoc in Venezuelan agricultural output.

And in case the difficulties alluded to in the preceding paragraph were not enough, commerce must deal with an inflation above 50% that is joined to the corruption of the currency control that includes nice features such as retroactive devaluations where the regime forces you to pay old debts at new larger prices, wiping out any earnings you may have managed.  Thus the calculation of restocking costs has become a true dark science in Venezuela where you need to calculate selling prices by balancing what you think the market may pay for the goods you want to offer against your wild bet as to what you will need to fork in order to replenish your shelves. Any error may make you look like Shylock or may send you into bankruptcy.

The regime has used the rules it made to control the economy as a paltry excuse to punish the economic actors for the mistakes of the regime. And this is where it all centers: who will want to keep playing a trumped game knowing now for sure that there is no way you can protect yourself from the main abuses, and even less hope of winning your case.

If we assume that the regime "never meant it that way", which I think it did but that is my opinion, then what can the regime do to restore some equilibrium? Nothing. The regime does not have enough money available to refurbish the depleted shelves, if anything because corruption would take too much of a bite out of whatever the regime would be willing to settle with. Can the regime replace the commercial sector? No. We have for that the glaring failures of AgroIsleña now a derelict AgroPatria; we have the failures of the Bicentenariao chain holding courtesy of left over French management, and the Mercal who only offer goods on occasion, according to arrival, numbering people's arm for their turn in line when necessary. The state distribution system as it is is on the verge of instituting ration cards.  If the regime wants also to pick up malls and electronics it will only add more strain to what it is doing today, and further corruption and black market.

Considering all of this, what can we expect, not even for next year, for next month already?

First, people are going to empty their meager savings to shop for whatever they can shop. I went myself to a Locatel (refusing to shop in any taken over shop refusing to profit from the misery of others) and spent several K bolivares on stuff that I do not need yet but that I know I shall consume in the next 6 months, from soap to acetaminophen.  I did not buy electronics because I have all that I need and I am not going to buy a refrigerator just because the one I have is sixteen going on seventeen.

Second, surviving commerce is not going to be able to replenish shelves or will do so in part, and ONLY after the regime guarantees them access to a stable currency rate.  The consequences are immediate, beyond the empty shelves: a whole bunch of people are going to go jobless in the next very few months.

Third, our quality of life is going to go down south. Commerce also provides spares parts and once a store is on its knees it will, if it does, only buy a minimum of spare parts, those that it is sure can fly away from the shelves really fast before any inspector shows up.  Now, when my refrigerator breaks down, I may not be able to get a new compressor, nor a new refrigerator.

Fourth, production will be affected faster than what you know. Because in addition of needing to import raw materials that the regime intends to control more than ever, by purchasing it all themselves before they sell it back to you, we also need a lot of supplies that will not be readily available anymore (and many already missing before last week crisis).  For example at work I need car spare parts, electrical supplies, safety implements for workers, etc. If I cannot find these within reasonable delays I may have to shut down, first a day here or there, then a week here or there and then close down once and for all.

Let me illustrate you the perversity of the system. For example safety equipment for workers are already difficult to get. If I cannot get them anymore what should I do? Endanger my workers? Risk a punitive fine by INPSASEL that could bankrupt me as they cannot care less whether I can find the supplies?  I better close shop.

Fifth, as the regime relies on sales taxes and income tax and fines to pay for its public workers (the rest is paid by oil, rounding up numbers if you allow me), it will lose significant income with all the consequences you can imagine.  Will the regime ensure purchasing power of the public sector? Yeah, right...Some of my clients depend in part of contract from the regime to supply Mercal. If the regime stops paying, how long can they hold?

Sixth, seventh, eighth.....  you get the cascade picture.

The regime has put itself in a corner. It has either to back down badly and badly fast, or it has to go all the way with its open dictatorship plan that I doubt it has much capacity to implement in the long run as it needs to start by internal purges.  Whatever the regime decides we can expect next year a major degradation in living conditions forcing
massive repression which will not be able to stop violence, a violence that I must say will start mostly from the henceforth supporters of the regime.

The regime has no capacity to raise fast oil production to get the money it needs to import all the country needs and no capacity to spread it in case it could miraculously increase oil production and revenue; or at least tell Cuba and China to fuck off on their indentured share of oil.

Thus 2014 is a sure crisis waiting for us.