Tuesday, December 24, 2013

Getting ready for 2014 (6): 2014 in Venezuela

So, now that I have dressed a dismal portrait of the country's perspectives for 2014 what else can I add?

Predictions are useless because all is changing fast and all can be changing even faster. For example just today that should be a slow pre holiday Monday, when the regime would be in slow motion getting ready to bomb us with something next week end I learned two things.

One is that the devaluation has started in the most hypocritical way possible; a web change in the Venezuelan Central Bank portal. The new exchange rate is reserved, for the time being, for INCOMING tourists who can now buy 11.3 VEB for 1 USD, instead of 6.3  That is, the "tourist dollar" depreciation is (11.3-6.3)/11.3= 5/11.3= 44%.  This is screwing you with a devaluation pretending not to be one as there is no official announcement that I know of yet, likely because no one wants to announce it a day before Christmas. What a present!  But that way in the coming weeks the regime can slowly add more people to that rate of 11.3, calling it, say, "re-prioritization of beneficiaries"... or some other Orwellian concoction. In short over the next few weeks whole sectors of the economy will move from 6.3 to 11.3.

You would think that this is a bad piece of news, that it reflects the bankruptcy of Venezuela. And you may be wrong.  The other thing I learned today is that banks are lending at sure bets, at some important businesses willing to invest on loans (nobody invests his or her own money, we only invest from loans that the banks are forced by law to make), at a earth shattering 8%. Yes, it is earth shattering but not the way you may think it would be in Wall Street or Brussels.

In Venezuela the "official" inflation is above 50%, and probably around 80% in real life. Yet, banks are forced to lend at 13% a mandatory portion of their loans (between 22 and 25% according to the time of year for the agricultural sector of which I depend). So, 13% with an inflation above 50% is a pretty good deal for the customer: at the end of the year you are looking at a 25% indirect dividend. So, why do banks in some cases go down to as low as 8%?  Because there is so much VEB in the streets and nowhere to use them. By printing money the regime has left the country with a surplus of VEB while the USD are, well, gone. Banks knowing that they are going to lose money no matter what prefer to court the "good" customers by giving them 8%. They may lose but at least they will get back something.

If I extended myself in that example above it is to illustrate two things, how crazy the country is and, when everything is said and done, how little we truly know about our real circumstances.  Based on this series of posts who should dare to give "predictions"?  Why not give mine, kind of Christmas joke, no?

I think the financial situation of the regime is in a bad enough shape that for a few weeks they are going to try to be a little bit softer than usual. By freeing some political prisoners, by meeting a counted number of times with an opposition commission, the regime will hope to pass the strict minimum of measures to improve its cash flow, that it can import enough food and that it can keep the life support to Cuba. I even dare say that Cuba will be asked to tighten its belt some which it may accept when you read that just this year maybe 3,000 Cuban medics found their way from Venezuela to the US. Besides the devaluation that started today we will have an increase of gas though for it to reach its real cost will take some time.  And some other minor measures which will be targeted at cutting down expenses for a few months by reducing certain benefits which are only of an electoral quality. After all, the earlier possible electoral activity would be an opposition sponsored referendum that cannot take place before the last quarter of 2014 if the opposition were to start working on it early January. Extremely unlikely.

During that period it is possible that the pressure on opposition elected officials may soften some but repression will keep going on anyway as purges inside chavismo will take place, such as the jailing of a chavistas dissident today because he caused the loss of Maturin on December 8. It makes sense, in the next few weeks the chavista leadership aware of dissatisfaction inside needs to squelch this one before it can attack the opposition again.

By April the regime will know the true extent of its loss of revenue from income and sales taxes. And this is when the going gets interesting. The measures taken in the next two weeks may have their insufficient reach becoming obvious, or not, but the government will be able to figure out then when the true impact will hurt the financial situation of the regime. If by April the production of food does not show any sign of improvement then we enter into dangerous waters as the regime does not have the skill to organize the even larger importations and distribution that will be required. I can say that because the regime this month is losing precious time making real producers sign all sorts of paperwork to allow them again access to dollars. More paperwork instead of emergency granting of the permits necessary to produce food in April. It takes at least 2 months for raw materials to get to Venezuela from the time the producer is allowed to submit the paper work. No permit or purchase order will take place until mid January now..... So food production cannot increase before April 1st, already.

Again, April may become the month of all dangers.  The regime may finally be out of cash, or know when it will happen and start freaking out really. The opposition may have solved its leadership issues by then, maybe even started changing its line, and thus begin to be more assertive at a time when the government becomes more defensive as it cannot deliver anymore to its base.  A perfect storm in the making.

Then again, what do I know.........


  1. The best example of this lending I can find, is that if you borrow to build a hotel, the rate is 9%, guaranteed until the hotel is finished. Build the hotel in Margarita, borrow say the equivalent of US$ 15 million at the unmentionable rate, build it and by 2015, you will owe 20% of the loan in Bs. have a building, you can sell it or run the hotel. Crazy, no?

    1. Well, sell it if you can find some one willing to fork dollars. Even if they pay half of its real value in dollars you get 50-20 a 30% profit :)

      And do you think that April is crunch month or do you have another date?

  2. Anonymous2:09 PM

    Plus you gotta find construction materials and pray you don't get expropriated or inepabized.

    1. Inepabized.... I was afraid the word would coined... Though it should properly be indepabized. ;)

  3. Anonymous8:25 PM

    Math Example: How to calculate percentage increase, Decrease or Difference How to calculate percent increase between two numbers? To calculate percent difference, you need to follow these steps: Percent Problem: You need to calculate percent % increase from 2 to 10. First Step: find the difference between two numbers, in this case, it's 10 - 2 = 8. Second Step: Take the difference, 8, and divide by the original number: 8/2 = 4. Last, multiply the number above by 100: 4*100 = 400%. You're done! You calculated difference of a number in percent, and the answer is a percentage increase of 400%.
    Or 5/6.3 = 79.4%

    1. There are many ways to look at a devaluation depending on the headline one seeks. Mathematically nothing can "decrease" more than 100% otherwise you would get a negative currency! So what you do is take the new value of the currency as if it had always been 11.3 and calculate as I did how much it "lost". Maybe 44% is not as headliny as 79% but it is closer to measure the true financial impact. Trust me, 44% is already quite awful for my business......

    2. Anonymous1:07 AM

      If the dollar goes from 6 to 12 you may say that your bolivars are now worth 50 % less and therefore you have to invest 100% more bolivars to get the same ítem. Your bolivars devaluated 50% as the dollar remains constant.


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