Tuesday, August 28, 2018

Apocalypse Saturday

There is no need to go into details of the latest measures of Maduro. Their objective is simple: take over the private sector without using the N word. That is, we make them go bankrupt so they give themselves to the regime without having to go through tedious nationalizations.  Il suffisait d'y penser.

You need, truly need, to understand this clearly to avoid any confusion.

For example Maduro just announced that we will be able to buy gold at fixed prices. That is right, even gold has its price fixed. How could possibly a country near starvation consider savings of any type? The only savings worth today are canned goods and grains. Who can buy that gold? They exist. The international pressure is having an effect and the loot from the narko-kleptocracy must return home before Europe or the US puts its hand on it.  But the bolivar soberano, as the "new" currency is called has already lost 30% of its value in a single week.  So the gold will be a convenient way to launder solidly some of that cash. They sell dollars at the black market and with those they buy gold, legally, at a fixed rate that someday they will resell at, you can bet, market rate.

But gold futures is too far for us to worry about. Apocalypse comes next Saturday.

Business must decide by Friday whether they remain open. Starting Saturday, with the new mandatory minimum wage, they will not be able to fire anyone.  How so? In Venezuela, where there is no jobless protection system, the governments have farmed that out to the private sector. You are by law obliged to set accounts where money is regularly deposited according to the current pay check of the worker. When the worker leaves you need to provide them with a substantial amount of money. And if you fire them, besides requiring a permit for that, you must pay about 80% more.

Let me explain roughly. If I am making 100 right now, and I have been working for 5 years, my severance package will be based on THE CURRENT paycheck, no matter what hyperinflation has done to my pay check. So, assuming I had loans from my employer, etc, etc, My severance pay would be at least 3 month equivalent and as high as 10, depending on how many years I worked at my employers. If I am fired then it goes up to a minimum of a year wages to sky is the limit.

Thus business have in general provisions to settle that amount of cash. But now, on September 1 my new wage will, by decree, increase 35 fold. There is no business in Venezuela that can fork out the 35 fold increase in severance pay checks, NONE.

In other words for my business I have three choices: 1) stay as is and go into bankruptcy within the next 2-3 months and default on my debt to employees: 2) fire about half of my employees by Friday and hope that I can still produce enough to weather the Hyper-hyper-super-duper inflation coming and 3) close outright and fire everyone on Friday.  Next Monday will be too late.

You do need to understand that with the new wave of price controls, the lack of any measures to ease the scarcity of raw material, we are going straight to the wall: no food whatsoever within one month.

Of course I have passed on many details that make the above even worse. But you do have the core of the problem.

Since the regime is doing such a wild, crazy wild gamble, there must be reasons. Already I have pointed the obvious: wreck once and for all the private sector and become a new Cuba. But there are two possible additional shades.

The first one is that as they need to bring back in stolen money. In addition to the gold scheme, they want to be able to force sell the few operating business for cheap, . That is, if my business is worth 100 I may have to settle for 20 once it is factored that I am bankrupt.  Note; too long for here but the announced temporary wage subsidy of the regime is also intended that not being able to pay back the subsidies you will need to take in the state as business partners.

Another reason for the haste is the need for a fresh electoral victory. I suspect that the regime is going to pop out a new constitution in the next weeks and may gamble on the people elation as they will be flush in cash, worthless for sure but flush of it, to risk a referendum on the new constitution.

But the regime is even more perverse than what you are reading above. The decrees validating these measures as well as their applications are not known yet in their final forms. The regime could even decide to wait after September 1 and make them retroactive to September 1 since Maduro had announced them mid August. Thus as a business owner I need to manage all possible scenarios and if the decrees are not issued by Wednesday, well, make a pick and hope for the best.

My friends, the situation is dire. But be glad that there are still some blogs to read because I doubt you will read such on the ground observations like you read above. Many brainy studies everywhere, very little meat if you ask me.


  1. I see no solution. Even the Cuban solution would not work or they would have tried it. Of course, it requires sending people to the farm collectives and putting those who refuse up against the wall. They have stolen everything and now their going to buy gold with this stolen money. Mon Dieu!

    1. The solution is that the people need crates of Ak-47s and ammunition. The Maduro death grip will not be broken without a popular uprising.

  2. If you can spend $1000-1200 per month, fire everybody, close business, go to Chile and rent a small house in Padre Hurtado, a working class suburb very close to Santiago. I have friends there who can take you in while you find an place, its a small house but its well located. Chile has tens of thousands of Venezuelans, the air is a bit hostile at times, but if they see you are self sufficient they seem fine.

  3. I don't get it. I thought you just change the old funny money for the new funny money and you are good to go.

  4. How then will the population, excluding many Chavistas, feed themselves?

  5. IslandCanuck11:37 PM

    Right now due to more populist actions like controlled prices and rolling back prices to last July the stores are empty.
    No meat, no chicken.
    As my butcher explained this morning the cost to buy it is higher than they can legally sell it for.
    We know from experience that this will slowly fall away and things will be available at realistic prices once the government loses interest again. Remember eggs?
    Our business has been inoperative for almost two years. No foreign tourism and prices too high for our target market.
    Today our long time employee accepted a payout of prestaciones far above the legal requirement and signed a letter to leave the business. She will continue to work for my wife and I privately.
    I see no end in sight to this gang of idiots.
    They will use the "Carnet de Patria" to control everyone.
    A demonstration - stop everyone and take away their carnets - no gasoline, bonuses or pensions. You can't even graduate now without one.

  6. Daniel correct me if I am wrong but you cannot buy gold ingots even if you had the money. Is another bogus currency. All you can buy is a certificate backed by gold ingot. Then that certificate is suppose to be used to loan against to buy a house or something. So whether their is or isn't actual gold against all certificates would not matter as the gov't would hold all the gold anyways and the certificate will ultimately be worthless.

  7. Thus business have in general provisions to settle that amount of cash. But now, on September 1 my new wage will, by decree, increase 35 fold. There is no business in Venezuela that can fork out the 35 fold increase in severance pay checks, NONE.
    Yes...but many will hold out there hands for it because is the law..
    Fire everyone....close....hunker down...wait.....all these years wasted on Venezuela the political hobbie....vacation destination (sick)
    I think this shit is about to get real.


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