Archive for January 8th, 2009

Government reduces travel quotas for Venezuelan residents

January 8, 2009

Right before the end of the year, the Government made the decision to cut in half the travel quota for foreign currency given to Venezuelan residents to travel abroad. The quota was reduced from US$ 5,000 for credit card use to US$ 2,500 and the cash advance was reduced from US$ 500 to US$ 400.

The decision makes sense. Last year the Government gave out almost US$ 5 billion (US$ 4.76 billion to be precise). Thus, by reducing the allocation in half the Government should save at least US$ 2.4 billion, more than ten percent of what I estimate the Government will receive in foreign currency in 2009 if oil prices stay at current levels.

But the savings are likely to be much larger than that. First of all, the Government also gave out US$ 1 billion for airfares, which is likely to be reduced significantly as people travel less or closer, given that they have less money to spend using this subsidy to the rich.

But beyond that, the reduction also limits arbitrage opportunities which I mocked in my Oligarco Burguesito post a year and a half ago. In fact, the Government has wasted huge amounts of money by financing people who take travelers to Central America and the Caribbean for a weekend, all expenses paid, in exchange for a fraction of the quota. The organizers of these trips would then sell the dollars obtained in this way and sell them in the parallel swap market at the prevailing rate, which today stands at more than twice the value of the official rate.  Since the total amount is now smaller, profits will be reduced significantly and the business is likely to be quite limited in 2009. Thus, the Government will probably save much more than 50% of the amount given last year.

The fact that this was the first measure by the Government to save foreign currency in 2009, indicates that there are no plans to devalue the currency so far, since reducing the gap between the fficial and the swap rate would have generated savings in itself.

Of course, the Government is simply reducing a distortion introduced by the Government itself. Besides the waste in the arbitrage created, the quota represents a perverse and silly subsidy to those that are better off and certainly makes little sense economically and least of all for a Government that calls itself revolutionary.

The decision to cut the quota also indicates that the Government has given up on trying to attract the middle class which was the main beneficiary of the subsidy and is likely o reduce the Government’s popularity within that strata of the population.

In fact, I have been amazed at how unpopular the measure has been, with groups going to the Supreme Court to argue that this was somehow a right that the Government could not take away as it represents a limitation on the freedom of movement.

Of course, what is perverse and incredible is that while Venezuelans are restricted in this way, the oil subsidies to Cuba, the Caribbean, Argentina, Central America and yes, the US, as in the previous post, continue in earnest. Venezuelans are indeed second class citizens for the robolution. Politics rules and Venezuelans be damned!!!

Those that can afford it will continue traveling by going to the parallel market, which will see more pressure in 2009, as the Government has moved many items off the CADIVI list. It is in some sense a stealth devaluation as more goods have to be purcahsed at the higher rate and it is the Government that sells foreign currency in the swap market to get Bolivars at the higher rate.

Quite a convoluted and distorted economic framework which Chavez still dares call as being part of the robust economy he has created.

Nothing robust about it, as we are likely to learn slowly over the next few months.

Citgo backtracks on oil cutoff to the US poor

January 8, 2009

And today everyone was wondering why it was that CITGO backtracked on cutting off cheaper oil supplies to the US poor, which is distributed via Joe Kennedy’s Citizen Energy Corporation.

The press release two days ago by Citizen Energy certainly transmitted a feeling of being left out in the cold:

“Citizens Energy has recently been informed by CITGO that due to falling oil prices and the world economic crisis, CITGO has been forced to re-evaluate all their social programs, including the heating oil program, which has provided hundreds of thousands of low-income U.S. households with much-needed fuel these past three years.

I have reached out repeatedly to government officials in Venezuela at the highest levels, including former Venezuelan Ambassador Bernardo Alvarez, Oil Minister Rafael Ramirez and President Hugo Chavez.  While I have yet to receive any indication of their ultimate decision, I will continue to fight and advocate for a continuation of this critical assistance for our most vulnerable citizens.

As you all know, I oppose this program and was actually surprised it was the first one to be cutoff, since it is the cheapest one in terms of cost of Chavez’ cheaper oil aid programs to other countries. In fact, I was wondering how priorities were going to be managed, since cutting Kennedy off (He makes about 400,000 grand a year as President of this noble cause for himself) was certainly going to have a bigger splash than for example, asking PetroCaribe nations to pay up 75% rather than 50% up front.

But the impact must have been felt and today CITGO backtracked and Kennedy apparently managed to reach out to someone and solve his problem. Thus, as Venezuelans are being asked to tighten their pants, their imports get more expensive as the Government reduces items that receive dollars at the official rate of exchange and the country’s reserves are threatened, Chavez once again, establishes politics as his main priority.

What else is new?

Hugo Chavez vs. Hugo Chavez

January 8, 2009

It was only about a year and a half ago that Hugo Chavez said in unequival fashion when talking about the 2007 Constitutional referendum to allow his indefinite reelection:

“No, no and one thousand times no. If there is continuos reelection here it should be only for the President…No, no, let’s forget about it..they are defending party interests. I will do what the people say, not what one group or the other says, the people own the sovereignty”

Of course, the people rejected that exact proposal in Dic. 2007, but he wanted to try again, but those silly polls put him so far behind that he had this sovereign revelation that the people somehow now want everyone to be allowed to be reelected indefinitely.

I wonder what happens now to the recently reelected President of the National Assembly Cilia Flores who said that it was not the same to reelect the Governor, or a Mayor than the President of the country, who directs national and international politics.

Or Deputy Carlos Escarra, who barely two or three weeks ago justified Chavez’ proposal to limit reelection to the President with these now infamous words: “To extend reelection to  other levels would be to split the Republic into fragments. Our vision is that of a State-Nation”

And he turned out to have a very short term vision, no?

So now everyone has to change their tune. The idea is that now that everyone can benefit from the indefinite reelection, they will work for it rather than against it like they did for the December 2007 Constitutional referendum.

Which still makes it illegal and now, in the eyes of the voters, the “people”, the owners of the sovereignty, extremely confusing. And the opposition has to take advantage of that. Show them Chavez versus Chavez, arguing both sides of the equation in his best incoherent style that we are accustomed to.

There is no Nation-State concept. It is just how to perpetuate Chavez in power stepping over the law and the Constitution and why not, everything said by Hugo Chavez before about the perversion of allowing everyone to be reelected indefinitely.

Government reduces travel quotas for Venezuelan residents

January 8, 2009

Right before the
end of the year, the Government made the decision to cut in half the
travel quota for foreign currency given to Venezuelan residents to
travel abroad. The quota was reduced from US$ 5,000 for credit card use
to US$ 2,500 and the cash advance was reduced from US$ 500 to US$ 400.

The decision makes sense. Last year the Government gave out
almost US$ 5 billion (US$ 4.76 billion to be precise). Thus, by
reducing the allocation in half the Government should save at least US$
2.4 billion, more than ten percent of what I estimate the Government will receive in foreign currency in 2009 if oil prices stay at current levels.

But the savings are likely to be much larger than that. First of
all, the Government also gave out US$ 1 billion for airfares, which is
likely to be reduced significantly as people travel less or closer,
given that they have less money to spend using this subsidy to the rich.

But beyond that, the reduction also limits arbitrage opportunities which I mocked in my Oligarco Burguesito post
a year and a half ago. In fact, the Government has wasted huge amounts
of money by financing people who take travelers to Central America and
the Caribbean for a weekend, all expenses paid, in exchange for a
fraction of the quota. The organizers of these trips would then sell
the dollars obtained in this way and sell them in the parallel swap
market at the prevailing rate, which today stands at more than twice
the value of the official rate.  Since the total amount is now smaller,
profits will be reduced significantly and the business is likely to be
quite limited in 2009. Thus, the Government will probably save much
more than 50% of the amount given last year.

The fact that this was the first measure by the Government to save
foreign currency in 2009, indicates that there are no plans to devalue
the currency so far, since reducing the gap between the fficial and the
swap rate would have generated savings in itself.

Of course, the Government is simply reducing a distortion introduced
by the Government itself. Besides the waste in the arbitrage created,
the quota represents a perverse and silly subsidy to those that are
better off and certainly makes little sense economically and least of
all for a Government that calls itself revolutionary.

The decision to cut the quota also indicates that the Government has
given up on trying to attract the middle class which was the main
beneficiary of the subsidy and is likely o reduce the Government’s
popularity within that strata of the population.

In fact, I have been amazed at how unpopular the measure has been,
with groups going to the Supreme Court to argue that this was somehow a
right that the Government could not take away as it represents a
limitation on the freedom of movement.

Of course, what is perverse and incredible is that while Venezuelans are restricted in this way, the oil subsidies
to Cuba, the Caribbean, Argentina, Central America and yes, the US, as
in the previous post, continue in earnest. Venezuelans are indeed
second class citizens for the robolution. Politics rules and
Venezuelans be damned!!!

Those that can afford it will continue traveling by going to the
parallel market, which will see more pressure in 2009, as the
Government has moved many items off the CADIVI list. It is in some
sense a stealth devaluation as more goods have to be purchased at the
higher rate and it is the Government that sells foreign currency in the
swap market to get Bolivars at the higher rate.

Quite a convoluted and distorted economic framework which Chavez
still dares call as being part of the robust economy he has created.

Nothing robust about it, as we are likely to learn slowly over the next few months.

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