Tuesday, February 23, 2021

The economy: road block to transition

Time is running out before Venezuela becomes a failed state. It is true that a failed/war-destroyed state can be rebuilt, but it takes a long time, it takes a powerful political center, it takes outside help, or at the very least no more meddling. Before writing about any possible political solution we need to discuss the distressed economy and how difficult it would be to restart it.

When Maduro was elected in 2013 he could have taken a few token measures that would have avoided the extent of the crisis today. He did not, and took even additional wrong steps. Then this mismanagement was magnified through a nasty political crisis and recently US sanctions.

The root of the economical crisis comes way back. Even before Chavez. In a way we could say that Chavez invented no new deleterious practice: he just magnified them to unsuspected levels. It is too long to review that descent into economical hell, books have already been written about it. Let's just look at today's situation. 

The very first problem is the legal and security limbo of Venezuela. Today any entrepreneur, any company that has not yet closed its door must face a whole set of issues. Large expenses just to ensure the security at workplace and transportation/distribution of goods. Legal fees galore to face the repressive nature of the fiscal system. The ever present risk of expropriation without compensation. The constant harassment from extorsion. And more. Just on that aspect we can truly talk of a fight for survival, and thus thinking about expansion requires a serious leap of faith.

The main day to day concern is the destroyed infrastructure. There is no reliable supply of electricity and water. There is considerable difficulty in finding spare parts, motor fuel, etc. Ruined roads make transportation difficult. How can you program a production plan when you do not whether you will have light all day? Many business have had to invest heavily on their own generation plant, on large water tanks. Lots of places had to resort to dig water wells if they detected, luckily, decent ground water. These are forced investments that are not used to improve training and tools.

And what about your people? Emigration and recession have created havoc with human resources. It is difficult today to retain your workers when your company cannot manage significant resources in a country devoured by hyperinflation and production problems. And to hire new people is even more difficult: even if you can offer a decent dollarized paycheck there is simply precious few available candidates at the level you need.

And what about business environment? Some point out at the reactivation of commerce in Caracas and a very few other spots as a sure sign that the worst is behind and that recovery is on the way. Far from it!! The "recovery" we see and apparently not understood by many is an economy of money laundering. It is very simple: a lot of the corrupt officials and associates of the regime have stolen hundreds of millions of dollars (1). The problem is that an increasing number of them are being tracked abroad and have had quite significant sums blocked. So, before financial police take away more they are bringing some back to Venezuela and invest them in three ways. One is using government contact to obtain difficult to get goods at low prices, that is, material to build luxury business buildings in selected areas, office buildings that remain empty. The other one is to buy business on difficulty for cheap, or more recently signing contracts with the regime for its bankrupt  expropriations which amount to a hidden privatization. 

The third way is the most obvious: the economy of "bodegon" and notorious parties. These unfortunate souls forced to live in impoverished Venezuela have decided to live well and not suffer the consequences of their previous depredation. So, they pick up adequate fronts and open fancy grocery stores, bodegones, which at exorbitant prices for the hoi polloi cater to their luxury tastes.  Quite clearly we could think that brand new fancy buildings at Las Mercedes o La Castellana, a few fancy shops carrying champagne on their shelves give the impression of prosperity. The more so that their employees get paid with a few dollars and that Venezuelans in exile who can send dollars to help their relatives. So yes, there is a circulation of dollars that stimulates some the economy, but it is a Potemkin village.

All the new "dollarized" economy is a mirage. What you see are dollars getting inside Venezuela and used to import goods or build stuff with no productive value. Basically the business that are needed to produce food, medicine, industrial products are not producing much more than two years ago, and have neither the incentive nor the means to relaunch their business. These laundered investments are not going where they should go.

The root of the problem is that the regime and its cronies have had control of currency exchange since 2003. Over the years they have built their fortune over the looting of the country. And they do not want to relinquish that control.  They also do not have any inkling of what an entrepreneur does. This is at the root of the chavista regime, and goes a long way to explain how their greed promoted crime and drug trafficking. Their looting going unpunished certainly helped them into believing that other crimes would also go unpunished. 

To start a political transition also requires a change in the economic practices of the country, a return to a normal model. Yet, this would mean for the regime to loosen up the nook around the private sector neck, which can only be done with a political relaxation. The regime has too many vested interests, too many compromissions. Is it possible to reopen separately the economy and freedom?


1) The amounts stolen will probably be never calculated exactly since sometimes waste and corruption can get mixed up. Yet estimates of 400 billion have been advanced. 

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