Saturday, December 28, 2019

2019 in review part 3: the dollar bubble

The economy of Venezuela keeps tanking. And yet some papers are talking "improvement". This is bullshit and only reflects on the superficiality of Venezuelan coverage, still, after all of these years.  Then again if you limit yourself to Caracas you could be fooled, the more so that traveling inside the country is becoming more and more difficult.

Why? Two reasons. Caracas is the showcase of the regime, and this one has relented and allowed public use of the US dollar (other currencies come to nought in spite of the regime attempts at favoring Euros).

By being the capital and the place where most of the chavista "elite" resides, Caracas has been spared the worst of what happens inside the country. Namely Caracas and Caraqueños have more electricity, more water, more gas and more food than the second class provincials. In fact, it is noted that vehicular traffic went up again as those with some income from inside Venezuela migrate to Caracas!  And yet this does not mean much since the deterioration of utilities in Caracas has been noticeable through 2019.

But what is fooling the casual observer is the transformation of the US dollar into the de facto currency. And this almost in a flash!  When I left in February the Bolivar was still the main currency. To survive I had to sell dollars or euros on occasion, but through my debit and credit card I could do 90% of my economic activity in  Bs. My family reports to me that you can pay with greenbacks almost everything now, calculated at the day's un/official rate.  The Zelle payment platform is now obligatory to pay for many services as it makes almost immediate transfers for small amounts of dollars.

The demise of the Bs. is due to the hyperinflation, of course. By calculating prices in dollars you can keep the value of your goods.  But how can one explain the speed and extent of this wild "dollarization"?  There are 5 groups of people today in Venezuela:

Those that do not have dollars or no access to them. They might as well eat shit and die.

Those who receive dollars from their relatives and friends overseas.  This is now an important source of currency and allow many to maintain a subsistence level.  But most of them cannot cover heavier expenses, like medical bills.  But at least they can eat (?).

Those who had savings dutifully earned before Chavez (or even during his first years).  According to their savings they can live more or less at ease but they avoid unecessary expenses. After all they did work for their money! (there I am).

Those who got or get their money through many of the corrupt schemes of the regime, from drug dealing to the billion of dollars stolen by the regime "businessmen", called enchufados (connected).  These are the folks of brand new homes, lavish parties and what not. This has been made worse lately as international sanctions are forcing many of them to come back to live in Venezuela and bring in the monies thay cannot hide.  Hence their lavish dance-by-the-grave lifestyle.

Those, finally, who can make dollars out of their activity. For example the enchufados have no problem paying whatever they need in dollars and those drip down through the economy, but at the artisan level, we should say.  Also a counted numbers of businesses can earn some dollars, but these are mostly services.

But there is NO source of dollar coming from bona fide production. That is, local production is not increasing, in particular in agricultural activities. The dollars in Venezuela are destined to import goods. period. That tells you that the dollar economic upsurge is a bubble that will eventually either burst, or create a violent popular reaction by those with no or insufficient dollars.

And yet, meanwhile, Caracas and some other cities have seen a multiplication of bodegones which are places where now you can find all sorts of imported goods, but payable in dollars.  Only a minority of the population can use these places regularly, but enough to create a false sense of economic improvement. It must be said that these bodegones are a huge money laundering system: the seed money to start a bodegon is of dubious origin and managed by a figurehead. The sale receipts are in cash, but billed and thus "clean".

But the worst aspect of that dollarization is that corruption comes now in dollars. For example, gas is now free, and scarce. But if you want to jump ahead of the line you need to pay significant amounts of dollars......

So if you see any report of "improvements" in Venezuela, do not believe it, the more so if it comes from some tanki source.....  What is in store for Venezuela is more misery, as long as the economic model does not change.



  1. Island Canuck12:00 PM

    The reality here in Margarita is that every business will accept either BsS. or US$.
    We went to the new supermarket chain Rio which has become wildly popular.
    We tried going a month or so ago and literally couldn't get in and there was a long lineup of people waiting to enter.
    Many places will give you a higher rate than the "official" rate for your $$ cash.
    At Rio yesterday the rate was BsS.50.000 to US$1 whereas the official rate is around BsS.46.000.
    At another local liquor store the rate was BsS.47.000.
    Nobody insists on $$.
    They all will accept BsS.
    The rumour is that by late January or early February the cash $$ will run out. I guess it all depends where the greatest quantity of cash $$ are coming from and if the local merchants are taking the cash back out of the country to offshore banks.
    In any event everything is available these days.
    We were even able to buy a large bag of pretzels for about the same cost of 2 small bags of local chips.

    1. This is funny about prices, some items are way more expensive than in the US and others about the same price, if not a little bit cheaper. I suppose it is a speculation of sorts, betting on the irrepresible taste of Venezuelans for crap like Nutelle and Pringles.

      I am also told that these bodegones supply themselves at Costco et al. So sometimes you have US products but not brand names. True?

    2. Island Canuck12:20 PM

      "I am also told that these bodegones supply themselves at Costco et al. So sometimes you have US products but not brand names. True?"
      Quite true. The pretzels are from the US but the brand name is "Penny Sticks" by "Pareve".from Altoona, PA. Never heard of them from any of the Fla. supermarkets we are familiar with.
      Also many products are from places like Turkey, Iran and other Eastern countries incl. China of course.
      Makes sense knowing the politics and that many of the importers are probably enchufadas.
      Here's a good example.
      250 gms of long pasta imported was BsS.18.000 in Rio while the local Polar brand Primor at Sigo was was over BsS.40.000. No rhyme or reason.


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