Archive for July 31st, 2010

Venezuela: Unsafe at this speed

July 31, 2010

(The bad thing about this Government is that one always expects the worst and one is always right)

While Venezuela’s economy continues to show distortions in basically every parameter of the economy, I never ceases to amaze me how little urgency the Government feels about fixing those problems. The last example of this is the foreign exchange system set up by the Venezuelan Central Bank. It has now been three months since the swap market was banned and about two since the Sitme was created and everyone agrees it is a dysfunctional system. Then El Nacional says that the Government will tweak this and that, create a New Market for public paper, allow the sale of other dollar denominated bonds and blah, blah, blah. But what impressed me the most was the ending: In two months.

So, you ste up a system, it does not work well and you are going to improve it in two months. What if what you do does not help either? Will they wait until January to fix it?

Absolutely nobody runs a business or a Government this way. If you detect a significant problem (shortages, lower economic activity, stupid policies, are important problems) you fix it today, or as soon as it can be implemented. Nothing that is being proposed can not be done by Monday.

But this represents a style. Almost a year ago, the first week in September 2009, The Government announced that it would announce 64 economic measures to get the economy growing. Well, I stopped counting at seven measures, because no more were announced, since then we have had four quarters if shrinking GDP and tye Government feels no urgency to change he slope, other than announce that next quarter GDP will actually go up YoY. Except it has been saying that for six quarters and nothing doing…

Some believe this simply reflects disagreements among Government officials. After all, Armando Leon, one of the few trained economists at the Venezuelan Central Bank said the other day Sitme is working fine, while the President of the Central Bank, a Mathematician, understands it does not work. Never thought I would agree with Merentes so much.

And this slowness at decision making is killing Venezuela and its economy. The Government has known for two years how putrid Pudreval was and but did not even want to do anything about it. Next week Venezuela will have to pay 1.5 billion dollars if a maturing bond and apparently two weeks ago the Government had not even thought about how it would go about paying it.

Running a country like this is simply unsafe. For a Government that switches political tactics at the speed of light and in unison according to what polls are saying, it is remarkable the tortoise speed they have at economic decision making.

Running the Venezuelan economy at this speed is certainly very unsafe.

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