Thursday, February 18, 2016

Maduro's economic measures get a D- ; but the objective is elsewhere

Finally, after nearly three years in office, Nicolas Maduro decided (or was it decided for him?) to take some economic measures. Too little, too late. He does not get an F because he dares to increase the price of gas. I suppose that gives him a C for effort, and the rest is F. Before I get into the details it is noteworthy that the measures are announced barely hours after he fired his economic minister (Salas) and failed to put in jail Polar's CEO Mendoza and expropriate the group as radicals wanted. Combine that with the creation of a new monster controlled by the military, CAMIMPEG, and you know that the military are behind the whole thing (but more on that in a future post).

Thus, even if I have other things in my mind these days I need to summarize what happened today to give you guys the real meaning of the whole thing. In no particular order.

Gas price increase. C for effort. F for method. D- for benefits.

In Venezuela we have nearly free gas in two grades. Now we will have the same two categories, not quite free, but with a 5 fold difference in price. Consequence number 1 expect shortages of the lowest grade immediately. Consequence number two, people are stupid enough that they rushed to gas station tonight to fill up with free gas to avoid paying almost free gas in a couple of days so there may not be gas this week end in Caracas. But if people were smart and knew how to count and manage, surely chavismo would be by now a long forgotten bad memory.

Will it help? No. We still have the cheapest gas in the world (at the black market rate which is the one that matters). It is quite possible that gas will still be sold below production cost. And smuggling of gas will continue to be a brisk business at the borders as long as it is less than a quarter the price of gas in Colombia or Brazil or T&T. And when your tip to a valet parking attendant is already higher than what it will take you to fill your tank of gas at the new price, then there is no incentive to save on gas by driving less.

Devaluation of currency. D for effort. D+ for simplification. F for benefits.

We had three exchange rates (Cencoex, Sicad and Simadi) plus the black market. Now Sicad disappears (ir was invisible anyway) and we are left with a new Cencoex that goes down from 6.3 to 10, or a 37% depreciation against the USD. Simadi which was kept through mysterious ways at 200 for one USD will start to float. How? No details but if it is not in a transparent way and if the regime does not supply a steady, even if small, supply of dollars the black market rate of 1000 to a USD will keep going up.

We can expect that the floating new Simadi, or whatever the name will be, to be a tad more supplied because apparently we may be getting travel money through its value (right now we are getting nothing). But otherwise I see no improvement on economic conditions. The Cencoex rate should have gone down, in my opinion, to at least 50 to make any difference. After all with an inflation somewhere between 200 and 300% that depreciation hike of 87% would have been already factored in. But the real problem here is that the same people who had access to the 6,3 rate are the ones that will retain access at 10, and will resell it on the black market through "arbitration". This is where the big business of the military and bolibourgeoisie resides and it remains untouched. In other words the economic system of privileges remains untouched and thus the crisis will remain as it is.

Minimum wage increase. F. Period

With a minimum wage increase of 20% and a current inflation of at the very least 200%, you do the math.

New system for price control and food distribution. D for simplification. D- for benefits.

Too early to pass a definitive judgment here. Anything that wants to perpetuate price control is doomed from the start. However the way things are announced it would seem that the regime is willing to let a significant portion of the economy out of price control, keeping a "100" list of essentials only which will be sold/controlled at their true production costs, whatever that may mean. The other possible good news is that the complex system of food fairs, MERCAL, PDVAL and whatever will be fused in, well, basically food fairs in critical areas. Apparently too much corruption and black market....  Gee...  They found out.....

Electronic ration card. C for practicality. D- for possible corruption. F for ethics and admission of economic failure.

So the regime revived an old Rosales proposal of 2006, the "tarjeta mi negra" which was intended to give a pre loaded credit card to the poor so they could use it for only some specific services. Now it is a card from the Banco Venezuela, with chip and all, that will be given to social Mision holders. And probably will be used first as a ration card...  But in front of the black market crisis and the huge lines that the poor suffer the most and the impossibility that the country produces enough in the near future I suppose that we should look at it as the lesser evil. The real problem here is through which political hoops will people have to jump to get it............

Conclusion. D- (and I am generous)

I think that Maduro was forced into a plan that he did not want. His first intention (and Cabello probably) was to make a last stand, to take down Polar and see what happened (suffer a coup and leave as martyrs of the revolution?). The military knowing full well the unrest that massive shortages will result from Polar demise put a stop to it and had Salas fired (the point man of the PODEMOS wacko school from Spain). After all they would be blamed for the repression.

The creation of CAMIMPEG was immediately seen by all observers, and yours truly, as a way to hide assets from a likely bankruptcy of the state oil company PDVSA (amen of creating a gigantic military cartel, Sino-Korean style circa early years of their capitalism, or what has been done in Cuba already for its army). Expect more creations like that to shield whatever assets the regime can hide, and to bolster the army fortunes.

What happened today was the beginning of the exit of Maduro. The measures taken are woefully inadequate if they are not accompanied by less controls, some fiscal restraint, a loosening of labor market, quick investment in basic health care so workers can show up for work, etc. Yet they are anti chavista in nature, in particular the hike in gas price that Chavez promised that it would never happen while he was president (perhaps the only promise he ever kept, to our great disgrace). This is the unavoidable turn in economic policies and Maduro cannot take the helm. He pronounced them but he cannot run them, he will sabotage them if he must. So he is planing to leave (or some devious scheme to backtrack at some point, it is possible).

However the real benefit here is that the regime can now go to the IMF with part of its homework done and claim that the austerity measures were taken out of its own seriousness and not because they were imposed. Appearance of independence is preserved. Utter hypocrisy but in the end who cares if it helps us avoid starvation.  Too bad for them that what the IMF (or any lender) really wants is fiscal restraint and realistic exchange rate.


  1. Good post. I think i know how Serrano thinks. The ration card will be accessible, but the amount coded in the card will be variable. PSUV members will get more, others will get less. Those who are scheduled for punishment will find their cards don't get much. This is fairly easy to do in an opaque fashion.

    To avoid ration card gerrymandering the Unity faction should demand the ability to audit the software and the card coding. They can even suggest an audit by the UN.

    I continue to see access to on the air tv as a key item. I have friends in the barrios, and they don't get Globovision, nor Internet. They do have radios. So if the unity faction can't get air time on VTV then they need to go for a radio license and broadcast using whatever equipment they can scrounge up. If they can't do it with a Conatel license, the AN can pass a law authorizing "people's radio". Do take this seriously, ask Deputy Pizarro what he thinks, he seems to be tuned to the barrio population a bit better.

    Off topic: I saw the list of Andorra Bank account holders. I think I may write a brief description of say the juiciest five boligarchs on the list, but I won't bother if somebody else gets it out within 24 hours.

  2. Great post as always Daniel.

  3. Why not do what Castro did and run make buddies with Obama? Maybe Venezuela can become a socialist tourist trap like Cuba. They might even buy more oil. The capitalist countries seem to be the only ones with money. Wonder why that is? I thought socialism solved all problems. Can they get Chavez's daughter to give them back some of the 4 billion dollars she never worked to get?

    1. Are you suggesting Chavez daughter is the ultimate capitalist? Socialism without a doubt is the downfall of opportunity, investment and wealth but bringing lame politics from USA into Venezuela's problems to try and sway voters in USA is just as lame.

  4. IMF expects 720 % inflation in Venezuela this year. OMG....good luck Daniel......



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