Some comments from afar on Venezuela and its daily events

April 27, 2010

(I am going to burn all of this)

Away and disconnected. sort of, hard to be with primaries and all, but here are some things that caught my attention out of the main news:

1) The Miami Herald reports that the US Government is investigating payments made by US companies to PDVSA as bribes to obtain contracts, as well as for payments made to custom officials.

Of course, not  a beep from the Comptroller or anyone in office in Venezuela, as it becomes clear that corruption is everywhere you look, but particularly in Ramirez’ PDVSA and Ruffian the Comptroller looks the other way while asking even bank tellers of nationalized banks to file their holdings just in case they are ever investigated for corruption. (Obviously an unlikely occurrence)

2) Former rabid pro-Chavez supporter Luis Fuenmayor accused the President of the Armed Forces University (UNEFA) of fraud, saying the students quote by Chavez don’t exist. He also said recent untrained graduates become the Professors in order to grow.

It’s a great socialist model, graduate students who become Professors instantly so that the whole country can go to the University and be Professors.

3) Chavez’ corrupt friends the Kirchners came to town a few years ago and got Chavez to agree to give an Argentinean company IMPSA the contract for the expansion of the hydroelectric power plant Macagua I. The contract was forced on power company EDELCA who objected because IMPSA did not even qualify to work for it because it had failed in the past to fulfill a contract. A contract was signed for US$ 142 million, mysteriously expanded to US$ 242 million and US$ 350 million have been spent on it by now. After all this money has been spent, the power has not increased and the contract ahs little to show for it.

Viva Chavez! Viva Kirchner! Viva Argentina! Viva Venezuela!

4) General Rivero who recently retired after five years as Head of Civil Defense, said that one reason for retiring was the presence of Cuban military officials “beyond what should be allowed”. Rivero implied there was a threat to National Security by allowing this and  forced Chavez to acknowledge on his Sunday Variety Show Alo Presidente that the Cubans were indeed here “helping out”. As long as they don’t help themselves out to a country, for Chavez this is all right.

Wasn’t Chavez the guy who used to argue sovereignty at every turn? What happened to it? His personal survival is more important than the country? Who is the traitor in this?

5) And yes, there were primaries. Pity that they took place only in some areas, but they go done wrinkles and all, but at least a bunch of candidates in September will be able to proudly say they were selected and elected according to the law and the Constitution, not a small achievement for the country.

In my district I would have voted for the loser, but democracy went for the better known, I will vote for her in September in any case.

Back to the beach!

115 Responses to “Some comments from afar on Venezuela and its daily events”


  1. Come on Miguel, Maria Corina Machado is more than a pretty face. She ran a great campaign, has tons of charisma and is really smart. That sort of comment is beneath you…

  2. moctavio Says:

    If it offends you so much, I changed it, but I still think the voters went for the pretty face. Not much has changed in Venezuela in 11 years Juan, she was prettier, had more money, had more name recognition and the voters went for it. Certainly does not make me happy. The important questions were not asked, as usual. But she did win and is the legitimate candidate.

  3. danielS Says:

    Off topic:
    Here where I live in los Altos Mirandinos, this morning at around 5 am, there was an intermittent blackout.
    Continually, every 7~8 seconds, electricity go off for a blink of half second. I got awakened by the strange sounds of some electronic appliances, and quickly proceeded to disconnect everything from the network.
    I looked through the windows, and verified that it was happening in all the city. Fortunately in my case I reacted quickly and nothing got damaged.
    The strange phenomenon continued for at least half an hour. I got sleep again, and don’t know how much more it lasted.


  4. It didn’t offend me, I just thought it wasn’t accurate. And I can agree that her looks, name recognition and money may have played a role, but that’s politics for you, those are always factors.

    I do believe she had more content than you give her credit for – and she and the other candidates are to be commended for running a relatively clean primary campaign. At least it didn’t get ugly like the Mendoza fracas.

  5. Roberto N Says:

    DanielS:

    http://www.eluniversal.com/2010/04/27/grccs_ava_por-sobrecarga-se-pr_27A3812491.shtml

    There’s your answer. Better get used to it, this is what it’s going to be like for a while.

  6. Steven Says:

    Cubanos are welcome (Chavez) but colombianos are spies (Rangel). Got it. We’ve always been at war with Eastasia.

  7. bruni Says:

    Maria Corina is a golden girl, being born cute, rich and tall. Being cute and tall means that she could have competed in the Miss Venezuela, as many cute and tall venezuelan women of her generation did. Being rich, means that she could have stayed home and minded her own business or manipulating politics from afar, as the members of the rich venezuelan families usually do.

    Instead, she chose to be known for fighting against the goverment and now she is seeking public office. She is in fact, in my memory, the first representative of the old venezuelan economic and social elite that seeks public office.

    She has all my respect for that.

    Is she the best representative for the opposition in the National Assembly? That is a tricky one, she will definitely represents an important segment of the opposition, like the Cafetal ladies that voted for her, but I do not think that she will have any appeal in the rest of the electorate, in particular the Ni-Nis that we so desperately need to get rid of Chavez in the 2012 elections. So she’ll get elected in the NA, and she will have my vote but I am not sure that with her we are getting closer to defeating Chavez in 2012 and, in that respect, I totally agree with Miguel.

  8. moctavio Says:

    Well, all I saw from her was the constant presence of her name in the media, not much content and I think her sights should be elsewhere, but it is a democracy, she won and I will vote for her in September


  9. Gosh, Miguel and Bruni, I really don’t understand this notion that MCM’s looks have any place in a discussion of her politics. It’s just not right. We can mention it as a possible factor, but her appeal surely goes beyond that.

    As for content, she’s spoken about keeping tabs on institutions, on violence and crime being her focus, etc. Sure, it’s been vague, but can you honestly say she has less content than other people? What content did Carlos Vecchio have?

    Seriously, in a campaign where half our candidates can’t even hold a press conference because they’re either in prison or in exile, she’s the wonkiest of them all.

    As for her limited appeal – I wonder about that. I think I’m going to blog about it one of these days.


  10. Juan Cristobal

    Wait until they read my endorsement of MCM…… I probably will be banned from this blog after that….

  11. bruni Says:

    Juan,

    I used the beauty aspect to give her credit. In Venezuela, a cute girl that is tall enough would most likely think in competing for the Miss Venezuela, not the National Assembly.

    The other point was the fact that she is the only representative of the old money to ever run for office.

    So I used both features as a positive thing, not a negative one.

  12. bruni Says:

    As for the place of her looks in politics…well in Venezuela looks are important. In particular in the eastern part of Caracas. People are attracted to some personalities by his/her looks.

    It plays both ways: it helps them in the eastern part of Caracas and it does not help them elsewhere. In fact, I have always said that LL is too cute for his own sake.

    Have you seen the looks of the Venezuelan Presidents? None has been handsome! Not one.


  13. OK, I understand now. Looks are important not just in Venezuela, but in politics in general. But I dislike it when it becomes part of the discussion.

  14. Deanna Says:

    Bruni, “Have you seen the looks of the Venezuelan Presidents? None has been handsome! Not one.” I don’t know about that; I thought that Caldera was not bad looking when he was younger, but then age (sometimes obesity) has a way of changing one’s looks from attractive to so-so!!!

  15. Kepler Says:

    Venezuelans are extremely obsessed by the looks and yet if someone had some content, that person would definitely stand out and most would appreciate the content.

    LL and any other would get a lot of points not just in Western Caracas but outside the main three cities, where 70%> of the population lives, if they thought for more than a second a week about how those people are living and what solutions to offer them.

  16. Antonio Says:

    Hey friends!!, not all are beautiful face and body with María Corina Machado.

    She is UCAB’s Industrial Engineer with Finance Specialization in IESA, talk several languages, she a professor in UCAB, and she has relation with Yale Univ. and World Economic Forum; and shows a lot of resistance to Chavez in the front line of SUMATE organization.

    This curriculum looks pretty far long comparate to from Venezuelan beauty queen.

    But I agree with most of the comments, that we should give her a chance.

  17. bruni Says:

    In any case, I am extremely dissatisfied with the opposition. We are two years away from the presidential elections and we not only do not have a candidate that stands up and gets prepared, but we have the same names and the same politicians that come back again in different flavors and, on top of that, internal fights.

    I want presidential primaries as soon as possible and a leader that can led us to Chávez defeat in 2012.


  18. I get the sense that a consensus is forming around holding a primary to select the 2012 candidate.

  19. concerned Says:

    Why did the parallel rate jump to 7.6 this afternoon?

  20. FC Says:

    “…that we so desperately need to get rid of Chavez in the 2012 elections.”

    Wait, do you seriously think Chavez would ever allow himself to lose the 2012 elections? Considering what Chavez has done after 11 years, I find this way of thinking extremely naive. Chavez will have to pried out of the presidential chair with a crowbar, there’s too much at stake for him to risk losing in a fair fight. Not only will he stack the deck (like he did in 2006) he will shed other venezuelans’s blood and cheat big time before recognizing a presidential electoral defeat.

  21. moctavio Says:

    Juan: I dont mind the looks, what I do mind is when looks are what is important and that is what Venezuelans’s del Este de Caracas go for. If that is what they like, mor power to them, but I think they should have learned they want and need someone with wide appeal and a vision for Venezuela. I dont think MC embodies that, but that is not the point.

    The point is that you need the future candidates to come from the “activists” and not the “living room politicians” (like me). We had too many living room politicians in the IVth. we should have learned that we need people more in touch with the “people”. Is Carlos Vecchio more in touch? I think so, but it may be a biased view, so to have MC become like the leading figure of these primaries bothers me somewhat.

    But as I said before, I will vote for her, that is what democracy is all about and let’s give Venezuela as much of it as possible, whoever does will come out on top!


  22. [...] Some comments from afar on Venezuela and its daily events “ The … By moctavio Observations focused on the problems of an underdeveloped country, Venezuela, with some serendipity about the world (orchids, techs, science, investments, politics) at large. A famous Venezuelan, Juan Pablo Perez Alfonzo, … devilsexcrement.com/2010/04/27/some-comments-from-afar-on-venezuela-and-its-daily-events/ [...]


  23. @Concerned: The parallel has been goin almost straight up from 5.0 in October 2009 to 7.6 now.

    Tell me, do grocery stores update prices at the parallel rate or at the 2% per month increase in the inflation rate?

  24. Arturo Says:

    Now that MCM is going to stand as a candidate for the safest opposition AN seat in the country, I suppose that you all now trust Tibisay Lucena….as MCM obviously does even though she ran a compaign to discredit her for several years.

    Don’t you realize that to outsiders with no ax to grind that this appears somwhat contradictory and could even be construed as a dishonest campaign when MCM was head of Zumbate?

    MO – have you no positive news to post from the beach?

  25. Kepler Says:

    Arturo,

    What do you advise the opposition in Zimbabwe to do?
    Do you think the last elections there were fair? (and mind: I am sure
    Mugabe is way way more popular in Zimbabwe than in Venezuela)

    What about Russia? (and again and I do know the case in Russia well: Medvedev-Putin are way more popular than Hugo the Small)
    Do you advise Kasparov et alia to pull out completely at this stage?

    You haven’t answered about your backgrounds.
    What did you study? Were your parents extreme left? Was one of your siblings called Vladimir or Fidel? How many of you have a state job?

  26. island canuck Says:

    NS asked: “Tell me, do grocery stores update prices at the parallel rate or at the 2% per month increase in the inflation rate?”

    Many items in supermarkets are priced controlled. Some have not had prices altered in years. Other items were recently allowed price increases by the government that amounted to 20%+ which is pretty funny when you considered that he only raised the salaries (minimum wage) by 10%.


  27. Thank you Island Canuck.

    Are Plumrose and Oscar Mayer hams price controlled? I suppose not.

    Island Canuck, what I mean is the following: the prices that are NOT price controlled – how are they updated?

    At the inflation rate (about 2% per month) or a the parallel rate? That is what I am after.

  28. concerned Says:

    When the rate makes large step changes like yesterday from 7.4 to 7.6 from morning to afternoon, it is usually triggered by something. Looks like the government is not interested in holding it down at this time, which also makes you wonder what their plan is or if they have one at all. If they are not interested in holding it down, the sky is the limit.

    It is OK if you are changing dollars, but as almost all goods are having to be purchased from dollars on the parallel market, the costs are passed on to the consumers eventually.


  29. So Concerned you are saying that the selling prices of all goods not price controlled are being updated at the change in the parallel rate? Is that right?

  30. m_astera Says:

    Nicolaas, I answered this on another thread but you must have missed it.

    From what I see, prices are only updated when new stock comes in that has been purchased at a higher price. Old stock stays at the same price until it is sold.

  31. concerned Says:

    As mentioned by I.C., some of the items in the grocery stores are price controlled. This is OK if they can actually stock the shelves with these items, and they themselves can purchase these items at the controlled prices. Unfortunately, as more items need to be imported to stock the shelves due to lack of internal production, dollars are needed to purchase these items, and the government subsidized dollars are getting hard to come by. The government has done a pretty good job of suppressing necessary price increases through fear of expropriation…Exito,etc. The losers at present are the store owners who may be taking a loss to stay open. Eventually these prices will have to increase or they will close.

    The restaurants have been floating on the parallel rate for some time as most of the items are imported. One method mentioned before is the “Big Mac Index”, where the price of a Big Mac floats on the parallel rate. At the official rate, back when it was 2.15, the burger would have cost around $12.


  32. @m_astera Thank you. I read and replied to your answer on the Obama thread.

    @Concerned: Thank you. I think I am getting the picture now: who buys stock at the parallel rate sells at the parallel rate and will update selling prices at the parallel rate. That is correct.

    Others sell and update at what they can get away with and what the market will take.

    The 2.6 rate and the 4.3 rate are not actually used as selling rates inside Venezuela.

    The 2.6 and 4.3 are buying rates – not selling rates.

    Is that correct?


  33. What happened to selling prices in Venezuela for imported goods sold at the parallel rate when the parallel rate dropped from 7.0 in April 2009 to 5.0 in October 2009=

    Did all selling prices in Venezuela also drop by 40% from April to October – or did the selling prices just stay the same while the parallel rate dropped by 40%?

  34. moctavio Says:

    In general they dont adjust down very fast becuase the inventory was bought at the higher prices


  35. Thanks Miguel.

    Yes :-) Everybody would claim they had six month´s stock bought at the higher April 2009 price. :-) That is normal in business.

    Miguel, do you agree that the 2.6 and 4.3 rates are only buying rates for getting Government Dollars?

    They are certainly not selling rates.

  36. Miguel Octavio Says:

    Certain exporters have to sell at 4.3 but they can keep part of their dollars and is not huge amounts compared to the parallel rate


  37. Thanks Miguel.

    Do you know whether any local subsidiaries have already received Cadavi (is that right) Dollars at 4.3 to repatriate dividens this year?

    Is that information available anywhere on governement sites?

  38. Miguel Octavio Says:

    I have heard of only one company.


  39. I personally think local subsidiaries of foreign companies should do their accounting at the parallel rate even if they have been promised that they will be able to repatriate their dividends at 4.3.

    If they are so lucky as to get the Dollars at 4.3, they can account the gain as a foreign exchange gain. Same result.

    If they set their selling margins at such levels as to make a normal profit expecting to repatriate their dividends at 4.3 – and then they do not get the Dollars at 4.3 after a long wait and have to repatriate their dividends at the parallel rate (as it happened with the 2.15 rate), their profit margins may have been set to low and they will show net losses.

  40. Roberto N Says:

    Arturo: Sounds like you know Tibisay. Please ask her for the results she still owes us. Also please ask her why Venezuelans who voted overseas had their votes hijacked.

    “Don’t you realize that to outsiders with no ax to grind that this appears somwhat contradictory and could even be construed as a dishonest campaign when MCM was head of Zumbate?”

    AS if any candidate had a choice in the makeup of the CNE!

    That’s SUMATE.

    You want to defend Chavez and his policies? Then come up with cogent arguments so we can have a worthwhile debate, and get the names right while you’re at it.

    ZUMBATE tu por un barranco largo, Arturo.

  41. An Interested Observer Says:

    Arturo, even you might get it right once in a while, but it doesn’t mean we trust you. We certainly can’t trust you to follow through on a topic you raise: http://devilsexcrement.com/2010/04/21/mrs-k-talks-about-moral-and-ethics-by-teodoro-petkoff/#comments

    Let alone explain why you will happily play a role in shutting down a farmacia for raising a single price 30%, while ignoring the fact that a government-owned business raises its price on its primary product 50%. Or did you have the guts to make that denuncia?

  42. concerned Says:

    7.7

  43. Carirubana Says:

    I have to disagree with bruni about the oposition not placing a candidate for 2012 as yet. I think they should not name nobody until time is closer. Why ? because whoever dares to do it will be surely put in jail, politically debarred, killed (?), criminally charged … who knows…. You forget this is a dictatorship.


  44. If I travel to Venezuela and want to exchange USD for BsF, do I exchange them at 4.3 at the airport?

    And when I leave, do I exchange my spare BsF at 4.3 back to USD?


  45. I am silly: it is obviously better to sell my USD in the parallel market. How is that done in Caracas?

  46. island canuck Says:

    “And when I leave, do I exchange my spare BsF at 4.3 back to USD?”

    LOL! Good luck with that. :-)

    Think more in terms of BsF.7,7 to buy back US$.
    Virtually no one gets US$ at BsF.4,3 any more.


  47. Island Canuck, don´t foreign companies´ subsidiairies in Venezuela get USD at 4.3 do repatriate dividends, for example, USD 40 million at a time?

  48. concerned Says:

    Don’t exchange more than you think you will need is the best bet. They will not offer the best exchange rates, but there are no shortage of people hanging around the arriving terminals, or tax payment booths offering to buy dollars at a rate close to the parallel rate. Don’t be afraid to barter for a better rate as they will always start out on the low end.

  49. Roberto N Says:

    Nicolaas:

    Don’t do it at the airport. I assume from your various posts that there will be someone here you will interact with in the normal course of your business here, ask them.

    If you’re worried about cabfare from the airport, only use the “official” taxi line. Using a freelancer can result in physical harm to you. Better yet if someone from the local office meets you at the airport.

    Don’t dress spiffy, don’t wear a watch or jewelry in public and bring the worst suitcase you have. In other words, don’t look like you have money!

    Good Luck


  50. Thank you. It will still be some time before I go – if I go. I first have to convince the European parent company – north of Portugal – that I can show them how not to lose money in a hyperinflationary economy. :-) At the moment I have only got them interested. Now I still have to convince them that I know what I am talking about and that I can show them how to practically account and control their 5 companies in Venezuela in terms of units of constant purchasing power.

    Thanks, anyway, for all the good advice.


  51. The truth is that a whole economy, like Venezuela´s economy, has in fact got to be run in units of constant purchasing power during inflation. Even more so during hyperinflation. Inflation can only destroy the real value of the Bolivar – over time – in Venezuela and nothing else. But, a lot of real value is destroyed in Venezuela´s non-monetary economy because of the implementation of the traditional Historical Cost Accounting model. I know how to stop that. But, to stop that, all accountants in Venezuela have to do accounting in units of constant purchasing power as authorized in International Financial Accounting Standards 21 years ago.

    Brazil did it for 30 years. Look at them now. Venezuela can also do it. But, that is a big national operation. That is not easy to achieve in any country.


  52. Internation Financial Reporting Standards


  53. International Financial Reporting Standards or IFRS

  54. HalfEmpty Says:

    Just the damn friction the monentary system causes must cut GDP by some fair amount. It’s crazy. But yeah, I guess someones getting a cut.

    Seriously, it’s crazy, this sort of hoop jumping and math acrobats to settle on a price…. nutz. Meh. Provides a niche for arbitragers of all classes I guess.

  55. Robert Says:

    How bad is it? The Greece meltdown is compared to Venezuela as it’s credit default swaps and cost of insuring debts surpasses that of Venezuela. Miguel tells us about it all the time but it never really hit home until Greece goes bust and someone holds it up against Venezuela.

    http://www.reuters.com/article/idUSNLDE63R0S420100428?type=marketsNews

  56. Arturo Says:

    AIO – to answer your unnecessarily aggressively phrased question:

    The arepa @ Bs.F.5 you could previously buy at an arepera sopcialista was to start up the outlets. Now it is Bs.F. 7.5 as planned. Why, you may ask? This was permitted since the areperas socilaistas informed Indepabis of what they would be doing soon after the launch of these outlets. So….nothing is amiss and Bs.F. 7.5 for an arepa is still the best deal in town.

    Bs.F. 5 was the launch price. Check it out for yourself. Hence no need to denounce this planned and Indepabis informed sales and pricing strategy since it was all legal and not speculation as your wishful thinking would like it to be.

    Happy now!!??

  57. Arturo Says:

    Whatever the risk perception is of Venezuela’s external debt and how much insurance costs is surely not the point when making comparisons with Greece.

    Venezuela’s external debt is around 11% of GDP. Greece owes some US$360 billion and it’s GDP (according to 2010 estimates in Wikipedia) is US$330 billion. Thus Greece’s external debt is more than 100% of GDP.

    Venezuela has approaching 29 million inhabitants and Greece has just over 11 million. Thus each individual Greek is more highly indebted than the average Venezuelan when seen in terms of external debt.

    Greece and otehr countries such as Portugal, Spain, Ireland, Italy could indeed go bust. Most of these countries are in worse shape then Greece if you check out the figures. Venezuela going bust? MO would love to see it but he knows that thre is no chance of it happening with oil approaching 80 dollars.

  58. An Interested Observer Says:

    Arturo, if that was indeed the plan, then your answer makes sense. Please feel free to back it up with a source.

    You think that was “aggressive”? Yes, I’m happy now. You put a smile on my face. Though I less enjoy the amusement of a silly comment from you than I would the satisfaction of seeing you follow through with a thoughtful response to an argument you started. Unless you simply can’t – you did kind of paint yourself into a corner.

    P.D. Don’t forget Venezuela’s internal debt. Under Chavez, there have been far fewer international issuances (for fear of attachment? I don’t know) and many, many more domestic ones. I suspect the Greeks are more indebted than Venezuelans, but the ratio isn’t nearly as stark as you make it out to be. But as we know from your comments on CFK, you’re all about the nits, and not about the whole truth.

  59. moctavio Says:

    As usual, taht is absolute BULSHIT from our usual BULLSHIT source, arepa prices are not regulated therefore, you dont need Indepabis to approve anything.

    It was a 50% increase with or without justification as in the epic Artruro drugstore case.

    TROLLS WILL ALWAYS BE TROLLS

  60. moctavio Says:

    As for Greece, you are also wrong, Greece’s debt per GDP is the second in the world, to…

    Japan

    Spain’s problem is the size of the debt, not its size compared to GDP. So please check your facts before you write, on the circle of fire plot, Venezuela sits around Spain. Greece and Japan are the only ones worse than Venezuela.

  61. Antonio Says:

    The problem with Venezuelan debs is that everybody knows that sooner or later Venezuela will default because, they knows, banks and investors everywhere, that Chavez regime is a shit, and its economy (socialism? Communist? “Shitilism”? is a whole big shit failure.

    That is why the interest and the insurance of its debs are so high, and by the time Chavez, or his successor, calls for default, most of the investors have enough return from their investment by the interest they are receiving right now, or they will be have insurance debs.

  62. island canuck Says:

    http://lasarmasdecoronel.blogspot.com/2010/04/venezuela-has-greatest-risk-of.html

    The World’s Riskiest Sovereign Debt
    Country 5-Year CPD
    Venezuela 57.7%
    Ukraine 54.6%
    Argentina 49.1%
    Latvia 30.1%
    Iceland 25.4%
    Dubai 25.1%
    Lithuania 19.3%
    Greece 17.4%
    Romania 17.2%
    Lebanon 17%

  63. HalfEmpty Says:

    Island Canuck bores us with the numbers. ;)

  64. m_astera Says:

    Quote: “The arepa @ Bs.F.5 you could previously buy at an arepera sopcialista was to start up the outlets.

    Now it is Bs.F. 7.5 as planned.”

    Wow, classic predatory capitalism. Take a loss on the initial sales in order to secure market position and hurt the competition, then raise the price.

    WalMart couldn’t have done it better.

    What’s even sweeter about the whole thing is that the capital to do this was supplied by the state and guaranteed by the citizens, in order to compete with and damage the private enterprises owned by the citizens, and upon which they depend for income to pay the government to harm them.

    “Why, you may ask? This was permitted since the areperas socilaistas informed Indepabis of what they would be doing soon after the launch of these outlets. So….nothing is amiss and Bs.F. 7.5 for an arepa is still the best deal in town.”

    Nice to know it is all legal, too.

  65. island canuck Says:

    Well the Emperor must really be running scared.

    He just advanced the announced September raise of 15% to May 1.
    That raise he gave the armed forces of 40% must really have upset a lot of people.

    The parallel rate will explode again this week & I predict inflation of at least 80% for 2010.

    I have been keeping a record of prices from Jan. 1 over a large area of consumer goods, food & services here in Margarita on one of my websites (which for obvious reasons I can’t reveal here). I will do a complete total & % increase on June 30 & report here.

  66. Roger Says:

    Considering what most Venezuelans make thats a lot of money. Also, were talking about Caracas a very expensive place to live. So does anybody know what they sell for at the roadside stands in barrios and such in say PLC or El Tigre? For those who don go out, what is a Kilo of HarinaPan selling for? Then what do you put in it? My mind thinks of Brazilian corn beef and processed ham! Of course there are eggs, chicken and what ever is at the market. My favorite is cold Arepa filled with tuna salad and Im sure its hard to get atune these days.

  67. HalfEmpty Says:

    This capitalist-lackey doesn’t know Arepas, does anyone have anything bad to say about them? In the US it would take me about 10 minutes to find 10 PhDs who would rail against Baseball, Hog Dawgs, Apple Pie and Chevrolet.

    tl;dr
    It’s nice to have a national anything, hold on to it.


  68. Miguel,

    You told me before that the Caracas Stock Exchange trades about half a million USD per day.

    However, Colagate-Palmolive states the following in their 2009 Annual Report:

    “During the second half of 2009, the Company purchased $210 million of U.S. dollar-denominated bonds issued by a Venezuelan state-owned corporation with stated maturities ranging from two to seven years and $50 million of U.S. dollar-linked, devaluation-protected bonds issued by the Venezuelan government with stated maturities ranging from six to eight years. Each investment is classified as available-for-sale and included
    within Other assets in the Consolidated Balance Sheet. These investments are considered Level 1 as they have quoted prices on an active exchange with daily liquidity.”

    “On an active exchange with daily liquidity”.

    Which market is this? The bond market? Is it part of the Caracas Stock Exchange? Or how does it work?


  69. Colgate-Palmolive

  70. karl Says:

    In Venezuela most business use a LIFO (last in, first out) method of accounting for their inventory and are keenly aware of the reposition cost of an article, thus prices can go up but very seldom down. To keep from changing prices everyday, they assume a $ price according to inventory rotation and multiply their cost by that.
    As in any economic system, risk, (int his case devaluation) is the main factor in prices


  71. Karl, I suppose you mean Venezuelan accountants use Lifo (last in first out) for calculating their cost of sales in order to add the correct percentage margin to maintain their real margin percentage on a product. I agree with that, but, not implementing Historical Cost Accounting (as all Venezuelan accountants are doing) but Constant Purchasing Power Accounting

    http://en.wikipedia.org/wiki/Constant_Purchasing_Power_Accounting

    which is accounting in units of constant purchasing power for all non-monetary items in the case of Venezuela’s hyperinflationary economy.

    Karl, it helps a lot if you can give me one simple example.

    Devaluation

    Devaluation can only hurt you if you keep your wealth in actual VEF.

    For a Venezuelan keeping his capital in land or property devaluation makes no difference: his land and property is priced in $ and he will just up his price with the devaluation percentage. So, no problem for him.

    For a Venezuelan trader who buys his stock at the parallel rate, adds his margin and sells at the parallel rate, making a profit, a devaluation will also not make any difference. He will just carry on a usual. His rate is the parallel rate. He is not bothered by the 4.3 rate as long as he makes a profit at the parallel rate.

    For a Venezuelan trader who buys his stock at 4.3 and sells at 4.3 (increased by his margin) a devaluation will also not make any difference. If the devaluation is set at 6 he will simply sell his current stock at 6.

    You only lose value with devaluation if you keep your wealth in VEF and if your salary is not increased to compensate for the devaluation: that is if your salary is treated as a monetary item. Salaries are non-monetary items.

  72. moctavio Says:

    This is bonds which trade mostly over the counter in the swap market. I was talking about stocks. The swap market is like 80-100 million a day.

  73. An Interested Observer Says:

    m_astera, it’s great to have guaranteed monopoly power, isn’t it?

  74. Karl Says:

    Nicolas

    Thanks for your response.
    Without wanting to get overly technical on this blog, I must argue that devaluation itself is not the only culprit. I agree with your analysis overall on that subject but would argue that, in hyper-inflationary economies, individuals base their decisions on the present value of future earnings in local currency and thus, they are treated as monetary items.
    In that sense, any rational individual would seek to maximize return by purchasing items that retain value in real terms or moving into a “safer” currency. This trend in Venezuela results in distortions throughout the whole economy as they react to simple economic phenomena such as negative interest rates on savings and artificial price controls by the government.
    Thus prices are not only adjusted to inflation, they are in fact linked to perceived inflation or the risk thereof and at the end, without sound economic policies and excessive liquidity in the short term, higher prices become a self- fulfilling prophecy as any increased supply of durable items is met by safety-net driven demand.
    As you can see, Venezuelan stagflation is alive and well and impossible to control with current economic policies, thus it becomes a very simple scenario to understand, even by uneducated folk: Spend all you can now, even if you borrow to do it, because you have no guarantee of finding equal value in the future.


  75. Karl

    Your excellent analysis will most probably end up as quote in my about to be published book.

    I agree and understand your analysis completely.

    Yes, devaluation is just a political shock mainly affecting people holding VEF before the devaluation and wanting to buy USD.

    Let me first rebut not refute your very good points with four words:

    How come Brazil managed?

    How come Brazil managed to GROW their economy (positive economic growth) for 30 years from 1964 to 1994 during high and hyperinflation of up to 2000 % per annum?

    Well, obviously I will give you the answer:

    Their several governments over those 30 years supplied the population with a DAILY index (a non-monetary rate) to index all (or most) non-monetary items in their economy. They indexed prices, salaries, wages, debtors, creditors, capital, retained profits, etc DAILY.

    Thus: they maintained their non-monetary or real economy more or less stable, while they had hyperinflation of up to 2000 % per annum ONLY in their monetary economy.

    How does this work and why does DAILY indexing in a hyperinflationary economy work?

    Because inflation and hyperinflation (the same thing) can ONLY destroy the real value of money and other monetary items – NOTHING ELSE. It is IMPOSSIBLE for hyperinflation to affect, erode or destroy the real value of any non-monetary item ever. It never has in the past.

    So, what then affects, erodes and destroys the real value of non-monetary items?

    Historical Cost Accounting!! Or Historical Cost Accountants!!

    DAILY indexing with an index that was 99% based on the DAILY movement in their USD rate is the same as financial capital maintenance in units of constant purchasing power as authorized in International Financial Reporting Standards in the Framework, Par 104 (a) in 1989 which states: “Financial capital maintenance can be measured in either nominal monetary units OR UNITS OF CONSTANT PURCHASING POWER.”

    Unfortunately no-one, except Brazil during those 30 years, did it.

    Daily indexing in Venezuela would mean that the whole of Venezuela has to do everything at your daily parallel rate.

    The problem in Venezuela is the three or more rates: 2.6, 4.3, the parallel rate as well as preferential rates in specified industries, e.g. çthe agricultural industry.


  76. Karl

    The only way to control a company or an economy is to do and control everything in real values/margins/rates.

    It is relatively easy with one rate, like in Brazil. It is more complicated with the three or more rates in Venezuela. However, it just needs a little bit better maths (I think):

    In Venezuela: when you have VEF 1000 you can land up with $384 at 2.6 or $232 at 4.3 or $13 at 7.7 or some other value if you have a preferential rate.

    So, it seems to me (at the moment) that an accountant has to correctly balance and present a company´s accounts and management has to control operations in real values with correct real gross and real net profit or loss margins by correctly calculating an average US Dollar rate to present the accounts and operations.

    That is what some companies did in Zimbabwe when they were in hundreds of millions percent per annum hyperinflation.


  77. VEF 1000 at 7.7 is $130 not $13 : my mistake, sorry.

  78. Robert Says:

    So what happened to chavez idea when he invented these two exchange rates that the government would intervene in the parallel rate and drive it down? Rate keeps increasing.

    Was buying BFs on the black market too profitable to the government after all?


  79. When there are different rates the people with the right “connections” get rich very quickly and very easily. It is always like that – and everybody knows that.

  80. Antonio Says:

    Eureka!!!

    Nicolaas Stone Discovery the Philosophic Stone in the Venezuelan Economist Regime!!!

    You solve the labyrinth!!!

    :-)


  81. If even Harvard economics professors know that, then it much be easy to understand :-) They normally understand very little in the real world.

  82. Karl Says:

    Nocolaas

    I believe you are right on the money and look forward to reading your book.
    The problem in Venezuela seems to be that the government has, up to now, improvised economic policy and seems frankly ignorant of its consequences. As former Chavez planning minister Haiman El Troudi wrote in his book “Empresas de Producción Social. Instrumento para el Socialismo del Siglo XXI, (2006)”, Venezuela is now governed by policies geared to 21st century socialism and that in itself is a TRIAL AND ERROR process. He goes on to say that mistakes will be made in the present but they will lead to greater good in the future.
    Maybe someday they will stumble into indexing as a way to preserve real value but I would not hold my breath…..

  83. Karl Says:

    By the way, sorry about misspelling your name. Sometimes I type too fast for my own good


  84. Don´t worry about the typing: I make the same mistake.


  85. Karl,

    The International Accounting Standards Boards´ Framework for the Preparation and Presentation of Financial Statements (1989), Pargraph 104 (a) states: “Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.” This is part of International Financial Reporting Standards.

    Financial capital maintenance in units of constant purchasing power is the same as daily indexing was in Brazil for those 30 years. It is available as an IFRS authorized basic accounting model to the world since 1989. Venezuelan companies can freely decide to implement that now and state they are doing it as authorized in IFRS. When they all freely choose to do it, they will stablize the real or non-monetary economy in Venezuela. That would make Chavez very happy and will be very good for Venezuela and her people.

    Each individual company that does it, will maintain the real value of its shareholders´ equity (its capital and retained earnings) constant forever – all else being equal – as long as the company breaks even.

  86. Karl Says:

    Nicolaas

    I see the value of your proposal but I am not sure that it can be implemented because the mere mention of “black market rate” is now illegal in Venezuela and the law is specific on the fact that the official rate is the only one allowed, for transaction reporting purposes in the country.
    Regardless , I suppose that we could always create a way to reflect black market units (using permuta) but in a country governed by the whims of a few, I would wait for the SENIAT to confirm that Venezuelans can abide by the rules of The International Accounting Standards Boards, since I am sure someone in the government will venture to say that we can not be manhandled by such a capitalistic organization . (I wish I was being sarcastic but to my dismay, I am not.)


  87. Karl,

    The IASB actually requires companies in hyperinflationary countries to implement IAS 29 Financial Reporting in Hyperinflationary Economies which is financial capital maintenance in units of constant purchasing power during hyperinflation. I am dealing with a European parent company whose subsidiary in Venezuela has done that for its 2009 year end because officially hyperinflation began in November 2009, thus the whole year has to be remeasured.

    Colgate-Palmolive state in their 2009 Annual Report:

    “Venezuela has been designated hyper-inflationary effective January 1, 2010. Consequently, the functional currency for the Company’s Venezuelan subsidiary will be the U.S. dollar.”

    So, they will do their Venezuelan accounts in US Dollars in 2010.

    Dollarizing their accounting and operations is virtually the same as accounting in units of constant purchasing power – it only assumes US very low inflation is zero inflation.

    Accounting in constant purchasing power units – either through Dollarizing or inflation adjusting all non-monetary items in terms of the CPI is the only way companies can actually know what is going on in their businesses in real values in a hyperinflationary economy.

    When I state that Venezuelan companies should all use one rate, the parallel rate, I know I am stating something that is not going to happen. Even using the 4.3 rate to implement accounting in units of constant purchasing power is better than Historical Cost Accounting. Every company that does that will save itself from unnecessary destruction of real value by wrong accounting and will be good for the country. The more companies that do that the better for themselves and for Venezuela. The best is obviously when all companies do that.

    Chavez would actually agree with it because accounting in units of constant purchasing power stabilizes the real economy at any level and under any economic model. It would do to the economy what he wants to do: stabilize the non-monetary or real economy and create an environment under which positive economic growth is possible – like Brazil did for 30 years during 2000% annual hyperinflation.

    Chavez can discuss it with Lula at their next quarterly meeting. Lula would be able to help him a lot with implementing a daily index, but, Venezuela needs one daily rate for that – and Venezuela has to accept that it is in hyperinflation: I do not think the Venezuelan government and population accept that yet.


  88. Hyperinflation in Venezuela is currently relatively low: just over 100% cumulative inflation for three years and running at about 2% per month or about 26 to 30% per annum A daily rate is not actually necessary at this relatively low hyperinflation.

    The change in the monthly Consumer Price Index can be used to implement accounting in units of constant purchasing power on a montly basis. When most entities do that, the real or non-monetary economy will most probably stabilize and you can then see what is necessary to start growing again.

    A daily index is not actually needed at the moment. But, if inflaition increases a lot and prices start changing daily, then you have to use a daily index and then that daily index is the parallel rate or a government supplied daily index like in Brazil.

    Venezuela is not at that level of inflation yet. If the government can pass a law that all companies have to do accounting in units of constant purchasing power on a monthly basis, then you can succeed to stabilise the non-monetary or real economy. Well, each company that does that will stabilize its operations.


  89. The government does not actually need to pass a law. The government should just state that it expects Venezuelan companies to comply with IFRS – as they normally would and as some Venezuelan companies already are – and thus all companies have to implement IAS 29 Financial Reporting in Hyperinflationary Economies which is accounting in units of constant purchasing power on a monthly basis.

  90. Aristo Says:

    Very interesting stuff, but where the heck is MO? Is the honeymoon over yet?

  91. Miguel Octavio Says:

    I am back, a decade older, but somewhat tired from a late night flight, will be back soon…I promise…

  92. m_astera Says:

    Nicolaas, you seem to be under the illusion that there are rational people involved at the higher levels of Venezuela’s government. You also seem the have the mistaken impresion that those making the rules care about the overall good of the country and its people.

    There are a multitude of intelligent and rational solutions to most problems. They will not be considered nor implemented by the ignorant and irrational.


  93. m_astera I know that.

    But, if you owned a company in Venezuela you can fix your company´s accounting and maintain real value in your company and look after your own self-interest. No-one stops company owners from doing that.

    You do not need the government´s permission or anyone in the world´s permission to change over from real value destroying traditional Historical Cost Accounting to real value maintaining financial capital maintenance in units of constant purchasing power as authorized in IFRS in the Framework, Par 104 (a) in 1989. Why? Because it has been authorized by the International Accounting Standards Board in the Framework, Par 104 (a) twenty one years ago.

    So, you would be doing right thing AND it has also been authorized in IFRS.

    You would just quietly do it and maintain real value in your company. No-one would even have to know about it. You would know that your company will remain profitable – if it was profitable before – and you would actually know the real position in your company – something that not a single company in Venezuela knows at the moment.


  94. m_astera: street vendors do it in Caracas: they update their prices all the time: they keep their capital updated all the time.

    However, multi-million and multi-billion dollar companies in Venezuela let their accountants unknowingly and unnecessarily destroy the real value of that portion of their capital and retained profits that are not backed by revaluable fixed assets under the Historical Cost Accounting model at the annual rate of inflation – currently at about 30% per annum (imagine that: your accountant can wipe out the real value of your capital not backed by revaluable fixed property in less than three years).

    Because the only way you can maintain the real value of your financial capital constant in nominal monetary units, i.e. under traditional Historical Cost Accounting as all companies in Venezuela are implementing at the moment, is when you have 100% of the original real value of all contributions to shareholders´ equity (capital and retained profits and reserves) invested in revaluable fixed properties.

    Only maybe hotel and property companies do that. Most companies do not have 100% of the original updated real value of all contributions to their shareholders´ equity invested in revaluable fixed properties.

    When you implement financial capital maintenance in units of constant purchasing power (as authorized in IFRS) you would maintain the real value of all constant real value non-monetary items (including capital and retained profits) constant FOREVER – all else being equal – as long as you break even – whether you own revaluable fixed assets or not and without the need for extra money for extra capital or extra retained profits to maintain the real value of existing constant items constant.

  95. island canuck Says:

    NS said:
    “Hyperinflation in Venezuela is currently relatively low: just over 100% cumulative inflation for three years and running at about 2% per month or about 26 to 30% per annum A daily rate is not actually necessary at this relatively low hyperinflation.”

    Of course the government numbers have been totally cooked for the last 3 years. They changed the method of calculating to enable lower numbers.

    I track 64 items & services & while my list is not totally up to date (I haven’t updated prices on about 25 of the items) my current increase since Jan. 1 is +20.2%.

    On our next shopping trip I will update the missing items.

    With the salary increase of 15% which was implemented on May 1 & the increase in the permuta rate I suspect we are looking at inflation in the range of 60 to 80% this year.


  96. island canuck I am smiling :-) when I wrote the above, I was already expecting your current reply :-) For my purposes it is Ok for me to quote the conservative values – at the moment.

    I agree with you: the parallel rate is up 55% from 5 in Oct 09 to 7.75 now: that is 110% over a year.

    Companies simply have to switch over to financial capital maintenance in units of constant purchasing power: not just some items, but, all non-monetary items.

    Can you please explain “the permuta” for me?

  97. island canuck Says:

    “Can you please explain “the permuta” for me?”

    Black market rate based on the bond sales in world markets.

    Veneconomia has a good explanation at http://www.veneconomia.com/site/ . Just hold your mouse over the tab that says Px Bonds

    Para calcular la equivalencia entre Venezuela y el Exterior, tome el precio local (Caracas) multiplíquelo por 2,60 y divídalo entre el exterior (New York).

    To calculate the rate between Venezuela & the Exterior take the local price (Caracas) multiplied by 2.6 & divide it by the New York price.

    In yesterday’s example Caracas rate was BsF.94 while NY was US$31.74.

    94 x 2.6 = 244.4 / 31.74 = 7.7

  98. Antonio Says:

    Nicolaas, for “permuta” dollar or “paralelo” I recommend to you the following blog web page: http://bonosvenezuela.blogspot.com/

    It has a graphic with the history of de value of the “paralelo”. The only problem is that is in Spanish, but most of the articles can be copy and translated with a appropriate program. It is good to follow the “permuta” market.

    Regards


  99. Antonio, thank you for the link.

    I have my own weekly chart of the parallel rate from January 2008 and I am plotting it daily as from March this year. Unfortunately my chart is a nominal value chart. I need to plot it on a semi-log chart to see the real picture.

    I speak Portuguese, so the Spanish is not a problem for me.

  100. island canuck Says:

    7.95 today

  101. megaescualidus Says:

    I just watched in http://www.globovision.com the interview granted to Televen journalist Adriana Núñez last Sunday, May 02, during the PSUV primaries.

    First, I’m really surprised that someone not in-line with the Venezuelan Government was allowed to ask anything directly to Chavez. This is rare since interviews are usually pre-scripted and given only to people that will ask questions approved by Chavez himself.

    Second, Chavez’s prolongued, derogatory, and totally off-point answer is a good example of the one-sidedness of the political discourse in Venezuela. It also shows how the State uses official resources to advance their agenda. Chavez’s response is absolutely repulsive.

    On the other hand, I applaud Adriana for having the guts of asking tough questions in the midst of a Government gathering and showing no sign of fear while at the sime time Chavez was visibly unconfortable particularly about the question on cubans within the Venezuelan armed forces.

  102. m_astera Says:

    re Mega-E’s comment;

    Methinks chubo is a bubble boy. Not used to anyone questioning him or disagreeing with him. Surrounds himself with sycophants who tell him what he wants to hear, something they do gladly because it lines their pockets and increases their personal power.

    I think it is safe to assume that chubo hears very little bad news and very little reality. He has no clue what is really going on, and likely couldn’t understand it if it were patiently explained to him.

    What we have here is a combination of two phenomena:

    1. The Peter principle: In a hierarchy, people tend to rise to the level at which they are incompetent, and then they stay there. Any hierarchy will eventually fill up with incompetents at all management levels.

    2. In any contest where those without conscience or guilt (call them narcissists, sociopaths, psychopaths whatever) are allowed to compete on an equal footing with normal humans, the conscienceless will win, simply because they will do anything at all to win.

    And there you have Venezuela circa 2010: Conscienceless incompetents filling all of the important positions in government, military, and state businesses.

  103. firepigette Says:

    GREAT COMMENT! M_Astera


  104. Robert: Here is your answer from El Universal today:

    “Barclays Capital: Pdvsa to sell US dollar-denominated bonds

    The British global financial services provider says that the Venezuelan state-run oil company may sell USD 3 billion in bonds in coming weeks to curb the swap market

    Barclays believes that the Central Bank of Venezuela will purchase the securities from Pdvsa

    Economy
    According to a report issued on Thursday by Barclays Capital, the Venezuelan government, through state-run oil company Petróleos de Venezuela (Pdvsa), will sell US dollar-denominated bonds in coming weeks to increase foreign exchange supply and curb the US dollar rally in the swap market.

    Barclays says that as depreciation of the Venezuelan bolívar increases in the parallel market, thus affecting the prices of a wide array of products, the possibility of a bond issue amounting to USD 3 billion grows.

    Barclays considers that Pdvsa bonds will be purchased by the Central Bank of Venezuela. They would be resold in the secondary market through weekly operations as the Central Bank has done so far this year. “


  105. They do it to try and bring the swap rate down, isn´t it? They don´t really worry about the world situation. It is really an internal operation between the oil company and the Central Bank to increase the supply of USD in Venezuela, is it not?


  106. I have to brush up my bond jargon – which I never had before since I have never traded in the bond market.

    I still think in terms of loans to and from and interest rates, etc.


  107. You obviously understand this market very well. I don´t. If I ever need specific advice I know where to find you :-)


  108. island canuck

    I see the food basket is up 5.8% in April. That is 96% per annum.

    So, your prediction of 80% inflation is most probably correct.


  109. What has changed so much?

    The last three years inflation has been about 27 to 30% per annum. Now it seems this year it is going to be somewhere between 80 and 96%.

    What changed so dramatically from the previous 3 years?

  110. Miguel Octavio Says:

    Repressed prices that have to be freed, 100% devaluation for many items, 20% for the rest, shortages, Government having fewer funds to subisidize, a distorted economy.

    I dont think it will be as high as 80%, probably like 50%, this is the first big adjustment after devaluation.


  111. From my extended family’s perspective, it now appears that Chavez’s xunta is desperate for black sources of exchange capital, and is aiding and abetting professional paramilitary kidnappers in their crimes.

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