Tuesday, July 05, 2022

Venezuela se arreglo. Not.

 "Venezuela se arreglo", Venezuela is fixed up.

This is what the regime would like us to believe, but not they alone. There are also a few people that are tired to be opposition. There are also a few more in the US that are desperate to recover their lost funds. And some in the Biden administration that would love to have Venezuela supply what we do not want anymore from Russia.

Pipe dreams all.  Nothing will improve significantly as long as those in place remain at Miraflores palace. I am not going to repeat my tired tirade on what we have there are not politicians but a narco mafia set. With criminals there is no negotiation possible unless you show at the same time determination to exert force AND offer a safe haven to some of the gang if they surrender power.

So, why is there an erroneous perception that Venezuela is improving? 

The first impression comes from the country dollarized economy. This process is unfortunately on shaky grounds. First, the financial players remaining in Venezuela are in no position to secure a durable dollarization since there is no way to guarantee that $$ banknotes are legit, there are no coins, and too many transactions are opaque and mere money laundering. But the problem goes deeper: not only the regime has allowed dollarization without any agreement with the US, but the legal sort of framework upon which it is built can be pulled off easily, with the risk that all dollars in banking accounts could be blocked from one day to the next. In such a situation people are not going to invest long term. Period.

A second misleading perception is that Caracas, and a few rare spots outside of Caracas, have now bodegones, that is stores that import whatever they want with few if any custom taxes. Their preferred currency is of course the green back. Bodegones are just a gigantic laundering operation where illicit funds are used to buy cash stuff to resell in Venezuela creating thus a legal receipt. All this is made possible with the desperate situation of people that have some income or savings in dollars. In particular those who have relatives that fled the country and are now able to send a little bit of currency to their relatives left behind. Beyond the regime cynicism of washing its loot out of people it ruined, the casual observer will be mislead that shortages are over in Venezuela. They are over only for those who can dispose of at least 400 $ a month. And a rising amount at that.

A third misleading perception is that some services have improved and that restaurants in Eastern Caracas are full. The essential services, water, electricity, telephone, internet, garbage have not improved. But for those with dollars it is easier now to hire plumbers, electricians, private internet or even dig a well if they are on some sedimentary land with water under. As for the restaurants, keep in mind that international sanctions have induced a lot of those who became rich on looting the state to now be forced to stay in Venezuela. Of course, they are not going to suffer and will pay what it takes to enjoy their riches.

A fourth mirage is that suddenly we see positive GDP growth rates, relatively big even. But look, when you are in the gutter, managing to sit in that gutter looks good even if you are still soaked in garbage. As long as you do not have the strength to start climbing out, well, your head may be drying but you are still in the gutter. The Venezuelan economy is so downtrodden that to reach pre Chavez level will require many years of double digit growth rate.

I could go on but you get the picture. If you do not get it, in particular if you are a journo or a tankie visiting for a few days, I suggest you leave the comforts of Eastern Caracas and go spend a week end in a town less than 25,000 people and see the reality of Venezuelans descended to poverty level everywhere.

All that recovery is potemkinesque and too many people that should know better are falling for it, or are using it to get personal benefit. But recovery is NOT happening because the key element is missing: there is no significant production growth. Why not? Because nobody trusts the regime, a true scorpion on the back of the toad crossing the river: everybody knows that sooner or later the regime will strike back and like the scorpion it will sting the toad even if it means that killing the toad will drown the scorpion. Any legal tolerance can be easily reversed as there is no more institutions or justice left. 

So, who is going to invest in Venezuela? Nobody serious, not even in the oil industry since it is run down and it would take a few years until it can produce enough to replace some of the Russian deficit. People that "invest" in Venezuela are either those that gamble on short term high yield ventures, or those who need to bring their money back to Venezuela before some tribunal seizes it. But these last ones are not investing in productive ventures, not yet. They are much more into laundering facilities such as bodegones of building brand new office buildings that remain empty but that they resell among themselves to get clean billing. These people are not used to work hard the way a normal entrepreneur works so investing in manufacturing or agricultural objectives is not what they want.

It is thus crystal clear, I hope, that there is no real recovery in Venezuela. As long as production of real goods does not start, it will not happen.

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