Archive for February, 2011

Griping About the Students Hunger Strike

February 28, 2011


I did not write much about the hunger strike by the students. I was in the middle of moving, thus I had many distractions. By now, the hunger strike is over, the Government capitulated and it was supposed to be a victory by the opposition.

Well, not to me.

The reason is that I think countries can only function under the rule of law and the student’s victory required bypassing the rule of law. If we complain because Chavez and his Government do what they want with the judicial system, having them bypass the rule of law in order to satisfy the demands of the students leaves a bitter taste in my mouth.

When in hours after the agreement, the Prosecutors office released the elected Deputy in order to comply with the agrement with the students, the rule of law was bypasssed. The “victory” ratified what we say, there is no judicial independence, Chavez and his Government, not Judges, decide who goes to jail, who stays in jail and who is freed.

This can’t be good going forward. We are accepting the autocracy.

And since I am on the subject of the hunger strike by the students, I found the behavior of the pro-Chavez students, holding a barbecue right in front of where the striking students were, absolutely disrespectful and tasteless. I hope the balding student that led the barbecue display is removed from the The Government’s payroll or PSUV’s payroll. Next time, at least find some real students.

Despite the oil windfall GDP per capita is only up 3.5% over the last twelve years in Venezuela

February 27, 2011

And from the website algodeeconomia.com, a very simple graph; using BCV data, GDP per capita in constant Bs. , since 1998. Over half a trillion dollars in oil income and all you can show for it is an improvement of 3.5% in twelve years. It is not even worth calculating how much that is per year: Tiny.

The mystery of Giordani’s 18% Debt/GDP ratio

February 26, 2011

Everyone was a little puzzled by Minister of Finance and Planning Jorge Giordani emphatically saying that Venezuela still has a low debt to GDP ratio of 18.6% and that it has actually improved in the last few years.

This one is only one of many puzzling things he said, he also suggested this Government inherited high inflation from its predecessors, ignoring the fact that not only have 12 years elapsed since then, but the “structural” and “inertial” factors invoked by Giordani to cause the current 27% inflation, were apparently absent when during his tenure as Minister of Planning in 2002, inflation was 12.2% for the full year, the remainder 15% then has to come from other sources, related to the irresponsible printing of money by the Venezuelan Government. The money supply has increased by a factor of 15 (Yes, 1,500%) since 2003. So much for structural or inertial.

Structurally Incompetent perhaps.

But going back to the Debt/GDP ratio and Giordani’s 18.6%, let’s look at some simple numbers:

1) Venezuela’s GDP in 2010 was estimated to be around US$ 355 billion, before the January devaluation. Since the currency was devalued from Bs. 2.6 to Bs. 4.3, this says that Venezuela’s GDP in foreign currency opened the year 2011 at US$ 233 billion.

2) Venezuela’s total debt as of Dec. 2010 was composed of two parts: 1) Bonds outstanding in the amount of US$ 31.1 billion (my calculation) and US$ 5.6 billion in debt with multilateral organizations. bilateral organizations and banks. This gives a total of US$ 36.7 (31.1+5.6) billion for the Republic’s debt, ignoring debt held by Government companies.

If this is all Minister Giordani was talking about, then the ratio is 21.3% (36.7/172.3), using the current “official” exchange rate.

But given the relationship between the Government and PDVSA, one can not separate the two. Thus, we need to take into account PDVSA’s debt:

3) PDVSA’s debt as of today, after the issuing of the PDVSA 2022 bond and ignoring (for now) other debt held by the company, amounts to US$ 20.5 billion.

Thus, between the two PDVSA and the Republic, Venezuela’s debt is US$ 57.22 billion.

But, whether you use last year’s number (which yields 20%) or this years number, which yields 24%, you still can’t get 18%.

But it gets better. First of all, Giordani has this unconventional interpretation that the US$ 20 billion borrowed from the Chinese is not debt.

Huh?

Imagine you borrow money from someone and agree that you will pay for it working for them, it may not be debt, but you are a slave, or not?

Same here, PDVSA has to ship oil to pay for the US$ 20 billion, we Venezuelans own PDVSA, and we have to pump oil to pay that, we are the slaves. It’s pure debt.

But let’s agree with Jorge for a while. Venezuela owes only US$ 57.22 billion, except that PDVSA, besides its bonds has liabilities in long term debt of about US$ 4 billion more, which is owed to banks. (We are ignoring employee liabilities, just straight debt)

Thus, the total debt is US$ 61.22 billion or 26%% of GDP

But wait, is the true exchange rate Bs. 4.3 per US$?

Or is it the SITME rate of Bs. 5.3 per US$. If we use the SITME rate, GDP goes down to US$ 189 billion, so that Debt to GDP goes up to a Debt/GDP ratio of 44%.

And yes, if you let the Bs. float, the equilibrium rate would be more like Bs. 6.5 per US$, thus GDP would drop, this time to US$ 113 billion, which would mean Debt/GDP ratio would go up to 33%. But if you add the 20 billion Chinese loan, then it goes up to 71.7%, which is quite high, very high. In fact, The Economist has taken notice.

And God forbid, the World Bank rules against Venezuelan in arbitration.

From all this, the only thing that is clear is that Giordani’s value is simply wrong. In fact, for a man that likes to talk about equations (Deputes are apparently scared of them) which are simply algebraic sums of factors like the Gini Index, throwing that mysterious 18.6% number out is simply irresponsible. He is simply ignorant or a big liar.

Take your pick.

What is clear is that “the man in charge” is either full of hot air, or has no clue, neither of which is encouraging for those of us concerned about the future of the country.

Thank You All From The Devil

February 24, 2011

I am still here. It is not that I will blog less, it has simply been a complicated week as I moved, I have many stories to tell from what was  going on in Venezuela this week, but energy levels are low, after full days of many errands and lots of work.

But I could not pass up the opportunity to thank everyone. My post explaining that I was leaving arose more from the need to be fair to all of you in disclosing my departure, rather than from explaining what or why I was doing it. But I really did not expect the outpouring of good wishes, compliments and cariño that I felt. I admit that I was touched, overwhelmed and humbled by all of you. I consider my blog a labor of love towards my country and I can see that it has generated lots of equally lovable feelings from my readers.

Thank you.

I also wanted to tell in that post a little bit more about who I am. I had tried unsuccessfully to hide who I was as much as possible over the years, some details got out slowly, but with my departure I felt I could tell you a little more about myself. I am still surprised by how many people thought when I meet them that the Devil was young  (no such luck!), lived outside Venezuela (Now I do!) and was an economist (Only an amateur one)

Discussing with various friends the strong reaction to my post, there were over hundred comments and some blog posts by friends Daniel, Alek, Kepler, Instapundit took note and even Nadox in Codigo Venezuela, there seems to be two reasons for the emotional reaction coming from two different poles: Those that have already left, identify themselves with the difficulties and conflicts of my decision, those that are considering leaving, wonder if they should leave too or whether they will one day have to do the same.

I don’t know if the above interpretation is correct, but there clearly was a strong resonance with my farewell post. I liked Daniel’s title “The good Devil moves out of Venezuela”.  I also loved the title of Naldoxx’s post “Even the devil is leaving Venezuela”, he called me a sort of handyman of life, which I take as a very nice compliment. And even if some are worried by the fact that he published my picture, don’t worry, it is a 29 years old picture, all my hair is white by now. And I don’t do low temperature experiments any more.

You can be sure I will make the best of my departure. Despite everything, life is good and beautiful and I have many, many plans. And that includes to keep writing and interpreting Venezuela as well as I can.

Thank You again!

The Devil Does Not Live Here Anymore

February 21, 2011

Thirty three years ago I came back to Venezuela fresh from a Ph.D. in Physics from well-known US University. It was an exciting time, Venezuela was moving forward, we all felt we were ready to take the country to the next stage of development, you could get research funding and lots of people were either leaving to study abroad or coming back with degrees in many fields. The first few years were exciting, things went well, I came back to Venezuela to work in a lab which already had good equipment and I was able to get more, got grants in Venezuela and abroad, my career took off. I also helped start an engineering research institute.

Then came “El Viernes Negro” (Black Friday), when the country’s economy had its first large devaluation in decades. This was February 18th. 1983. Within months the Venezuelan currency had lost almost 60% of its value, things got more difficult. It was a sign of things to come.

Things began to oscillate a lot. There were good years and bad years. Not much new funding. I was working in a field that required ever more sophisticated equipment, lots of running expenses. It was hard to stay at the edge, but I gave it my best try for quite a while.

Then politics got in the way. Technical employees where I worked began demanding the same perks as researchers, without being willing to assume all of the duties and responsibilities. Then there was a tough strike and I decided I had to either leave the country to do Physics or switch fields. Staying in the country, where my extended family resided, was important to me. I stayed. I was then consulting for a small local broker on how to construct indexes for markets, they had actually started by offering me a job. I decided to give it a try, see how things developed, maybe there would be improvements at the Institute where I had worked since I was 18 years old. It was downhill at that place from there, by now the revolution has insured that what was once one of the top scientific institutes in Latin America, has slid down into an irreversible path to complete mediocrity.

The new job went well. There were ups and downs, but the ups were always exhilarating, I learned so much new stuff along the way. We did lots of things, all of them quite well and with professionalism. Then last year Chavez decided to blame someone for his economic mismanagement and targeted one of the companies of the group that I worked for. It was the equivalent of our “farm” being illegally taken over by the Government.

It was time to go.

Thus, this weekend I moved with my family to another country. I will go back periodically for work reasons, but my main residence will be elsewhere. There were two main reasons for this tough decision, one that came from the mind, not the heart: Crime and the absence of the rule of law. I stared at both of these in the face and it is something I don’t wish on anyone. You feel like you are not playing on a level field. If the crooks don’t get you, the other “crooks” will and you have no way to defend yourself. There are no instances, no appeals, you have no rights. Time to leave.

And so it goes…it’s called self-preservation.

The blog will continue. I started this eight and a half years ago and will continue to document the absurdity of it all, as long as it continues. I think Quico, Alex, Daniel and I have played an important role over the years in telling the story of Chavez outside the country. That job is mostly done. But as blogs have lost some sex appeal, there are lots of stories still to tell about what is going in Venezuela, which can not be Tweeted or Facebooked. Clearly, not being on the ground will deny me some of the insights one gets from being there. But I will go back regularly and hope to compensate partially with it. I hope to sustain the quality, if I don’t, let me know (In private, of course :-) )

So, the Devil will continue to be around. I won many battles in my dear Venezuela during the last three decades, but I lost the overall war. Time to move on with some sorrow.

But, in the end…

Semper diabolus vincit

Hugo: Tell me who your friends are…

February 20, 2011

From La Patilla, this magnificent collage of Hugo and his Lybian buddy. As the saying goes: “Dime con quien andas y te dire quien eres”. (Tell me who your friends are and I will tell you who you are)

Brisas de Oriente: When Anarchy and Chaos Become Routine in Venezuela

February 19, 2011

Yesterday, there was an eight hour protest near Los Teques, right outside Caracas. Neighbors of the Brisas de Oriente barrio, a barrio that sits on the ridge of a hill, right next to the Panamerican Highway, near Km. 21, right before Los Teques, blocked the road for eight hours. This wasn’ t even huge news, they are part of the routine anarchic and chaotic life these days in Venezuela, while an indifferent and indolent Government claims everything is fine. These people were mad, that the police and the National Guard did not even dare to stop them from blocking the traffic for such a long time. I estimate this affected some 100,000 people, who simply could not move on the highway during that time or chose to stay home, rather than try to find a way to get down to Caracas to work or go to school.

To most Venezuelans the name Brisas de Oriente means very little, but many people that live in or near Caracas have actually been at the entrance of that barrio: the barrio grew out of a food stop on the highway. First came the food stop, then a news stand, then someone built a very simple house, almost but not quite a rancho, behind it and before you knew it, Brisas de Oriente was born. By now, Brisas de Oriente is a long road along the ridge and down, from which other roads, a minority of them unpaved, branch out in between the dense concentration of rudimentary houses, the further you go out, the closer they are to a “rancho” or shack, while the closer to the road you are, the closer to the now famous food store that goes by the name of Los Golfeados de Los Teques, the more developed the houses are.

The people that live in Brisas de Oriente are poor, but they most likely have one or two people that work at home, kids that go to school and even the university. A well constructed house in the barrio costs around five to ten thousand US dollars. Rentals are about 50 dollars a month.

For years, residents of Brisas de Oriente have known that you have to arrive before 10 PM and leave after 6 AM to go to work. In between the “malandros” (hoodlums) take control of the barrio and either rob you outright or charge a fee just to be allowed to go by the spot where they are hanging out. So, you better have an alternate place to sleep if you don’t want to get mugged when you get home late or have to leave early.

Lately, however, crime has taken a turn for the worse. From no murders five years ago, the number of homicides has picked up at a fast pace. The crooks have gotten younger, they are now mostly underage and armed with loaded guns, while their style has changed. This week two residents of Brisas de Oriente were murdered in two separate incidents. A total of sixteen have been killed so far this year. This is what led to the protests.

When the protests began, the police did little, some of them even live there and are victims themselves, all part of an anarchy that just grows by the day. And so do the protests and to the media it becomes almost normal and simply boring. Ask the Minister of the Interior and he will likely spew out some made up statistics about how he has reduced crime in the last six months, despite the fact that each year the number of murders beats the record from the prior. And Government media does not show the protest and the non-Government media minimizes it too for fear of retribution from the Government.

And there is no policy response from the Government, they would not know where to start. And chaos and anarchy just grow, much like crime around the country. Probably at the same rate.

You may wonder how I know about Brisas de Oriente. For almost 20 years I lived not two kilometers away from it, had breakfast at Los Golfeados daily and got to know and even work with a number of its residents. The barrio was heavily pro-Chavez until 2006 and by now, according to my friends, it has become mostly opposition, except they could care little about politics now. They only worry about survival.

Chavez Becomes Blameless on Wasteful Gasoline Use in Venezuela. His Solution: Rationing!

February 15, 2011

Yesterday, I sincerely could not believe the Dictator when he started talking and pontificating about the problem with cheap gasoline in Venezuela. “You are filling your tank with the cheapest gasoline in the world” said the President, speaking with his scolding tone, as if saying “you bad guys have been doing this behind my back”. Then, as if his inauguration was just last week, rather than twelve years ago, Chavez told us in his pedagogical tone, that the Government subsidizes 90% of the price of gasoline, a topic we have covered many times.

Wow! When did he find this out?

Because for twelve years, Hugo Chavez has done very little to change the price of gasoline. In fact, he forced Former President Rafael Caldera in 1997 NOT to increase the price of gasoline to take advantage of that populist stance.

In 2000, his cronies at PDVSA cancelled the natural gas car program for vehicles, which was rapidly expanding and they have now tried to revive without much success (Surprise!)

And it was Chavez himself in Alo presidente the fact that he had not built major roads, because that would only attract more people to cities.

And it was also Chavez who sent oil and gasoline to Iran, London, Petrocaribe, Cuba, Argentina, Central America and Uruguay, the latter a country with a much higher standard of living than Venezuela.

But rather than eliminate these subsidies and/or increase the prce of gasoline, Chavez solution is very simple:

Gasoline rationing. The Government will force us to consume in 2011 100,000 barrels less a day than in 2010.

What’s next? Rationing sand? Because after all, we have had water and electricity rationing, food shortages and now gasoline rationing, all once abundant in Venezuela.

But it is the paradox of Venezuela, Chavez, the revolution and gasoline. After twelve years of inaction, he puts his angelic and pedagogic face and blames us for his incompetence. Even managing to scold us. We should feel guilty. But not him. Like the cartoon above, Chavez is well meaning, generous and smart.

It is the Venezuelan people who are simply very dumb, to continue to put up with Chavez’ charade. The “Yo no fui” parade of his own incompetence.

Bolivarian Bond Arbitrage for Dummies

February 13, 2011

I- The Question

I have been getting some emails asking about why it is that the PDVSA bond issued last week, the so called PDVSA 2022, has a price that is so much below the identical Global 2022 Venezuela bond issued by the Republic last summer.

II.-Bonds in general

But to understand why this is relevant, let me start at the beginning: Typically, when a country or a company issues a bond, it has a price and a yield to maturity which depends on the perceived “risk” associated with the issuer. Such a bond is simply a promise that I will pay the annual payments, the coupon, and at maturity, the day the bond ends, you will get 100% of the nominal or face value of the bond.

III.- Venezuela’s bonds and risk

Venezuela currently is perceived as being high risk, in fact, very high risk. There are two reasons for that, one is simply political, the feeling that one day Hugo may wake up and decide not to pay the country’s debt. The second one is that Venezuela has been issuing more and more debt and at some point this can’t go on, the country has to pay at maturity, as well as the increasing annual or coupon payments to the bond holders, which are already near US$ 5 billion per year.

As this risk has increased over the last few years, this coupon has gotten higher, meaning that the country or PDVSA has to pay more to convince someone to buy your bond. As an example, in 2009, PDVSA issued bonds maturing in 2014,2015 and 2016 with coupons around 5%. That means that if you hold $100,000 of the bond PDVSA has to pay you $5,000 per year and then at maturity give you back your money.

IV.- How Venezuela issues bonds

This is where things get complicated. Because of exchange controls, these bonds are not issued internationally, where they would trade very close to each other, but instead are sold to Venezuelan individuals or companies for Bs. That is, you pay so many Bolivars for each dollar face value of the bond at Bs. 4.3 per US$, but you know based of the coupon, that the bond will not trade at 100%, but at a lower value.

Why?

Because Venezuela would have to pay coupons of 14-16% for the bond to trade near 100% if issued in US$ directly. Instead, what the Government or PDVSA do, is to set a lower coupon, knowing that the bond will trade below 100%. Thus, if you are a Venezuelan and you pay say Bs. 4,300 per $1,000 of a bond that should trade around 70%, you buy it, sell the bond for 70% of its face value (You get $700) and then you are simply buying dollars at Bs. (4,300/700) or Bs. 6.14 per US$.

Since exchange controls are so strict now, people love these bond issues, because other than what the foreign exchange control office sells you at Bs. 4.3, there is no way for an individual to buy dollars as it is completely illegal to do so since last May. The same applies to companies. If the Government does not give them dollars for imports, they have to either use their own money or simply stop importing, it is illegal to buy foreign currency other than from the Government.

V.- The Venezuela Global 2022 bond

Last summer, Venezuela issued a bond maturing in 2022 (It actually matures in three parts, one third in each of 2020, 2021 and 2022) with a coupon of 12.75%. This is a very high coupon, very few companies or countries in the world issue at such high coupons. Even worse, these bonds trade at a discount in order to equilibrate with what investors expect from Venezuela. Last week, for example, this Global 2022 bond, as it is called, was trading at 88% of its face value just before PDVSA announced its bond. At that price it was yielding around 15.3%. The difference between coupon and yield is that coupon is what you get paid every year over the face value, yield to maturity is what your annual return will be if you keep the bond until it matures.

VI.- The PDVSA 2022 bond

And here is where the Bolivarian arbitrage and the topic of this post begins. You see, this week PDVSA announced an issue of a bond also maturing in 2022, also having a coupon of 12.75% and also having maturity in three parts in 2020,2021, 2022. That means the two bonds are identical. Given that PDVSA and Venezuela are so inter twinned, you would think they should have very similar prices and very similar yields. Right? Well, yes and no, because of all of the artificialities in the Venezuelan economy due to the controls, at the beginning of the trading of a bonds this does not happen. In time they will be very close, but it will take time.

In fact, last Thursday when the PDVSA 2022 began trading, it was being sold at 74% of its face value, while the Global 2022, essentially the same risk, same yield, same coupon, was trading at 86.4%, a full 12.4 points above the new PDVSA 2022 issue. Illogical. right?

VII.- The Bolivarian Arbitrage

You would think these two prices would become the same immediately, but they don’t. This is the Bolivarian Arbitrage, the subject of this post and the question I have been getting from readers: Why are they different, why doesn’t the gap close immediately? How can it make sense for Venezuela to be yielding 15.7% (same coupon, higher price of 86.4%), while an identical bond from PDVSA yields almost 19% (same coupon, lower price of 74%)? Aren’t markets “efficient”?

The answer is that this exists because of the dynamics of the bond sales by the Government and the banks. Eventually, the difference will close, but it will take time. Here is why:

Companies don’t want to buy the bonds, they want to get the dollars when they get the bonds and sell them. So, they go to a local bank and say: I will place an order with you, of say US$ 50 million, if you can guarantee a price for each dollar such that no matter what amount I get, the price will not change.

For the bank this is not easy. The client could be assigned zero of the bonds or it could be assigned the 50 million, the rules are never clear and vary from bond to bond. So, suppose that the bank expects the new bond to have a fair value of 82%, that means that each dollar costs (Bs. 4.3/0.82)=Bs. 5.24, but the company wants a guaranteed price, so you say I will pay you 70% for the bond, no matter how much you are assigned. This means, for the company, that the dollars will cost Bs. 6.14. This is a great deal in a country where there are no dollars to be had, so if your objective is to get dollars cheap, you are not very sensitive to the price, between not having access to any dollars or paying Bs 6.14 per US$, it is still a bargain. In fact, I bet most companies would pay even higher values, if they could get all they wanted.

VII.-Why the Government wants to sell cheap dollars

And here is another distortion. The Government knows that people would pay more, but it does not want to sell the dollars at a more expensive price (offering a lower coupon) because it wants to keep inflation down. Thus, it prefers to give away the dollars cheap, than to have the political risk of higher inflation. (Although in the end it is not as important for inflation as the Government thinks, it is mostly financing capital flight)

VII.- How local banks affect the international markets

But now, the bank has a problem. If six customers show up, each asking for a US$ 50 million guarantee of purchase, then the bank has undertaken US$ 300 million of risk, which could be dangerous. So, the bank measures how much risk it can take and starts selling these bonds in the international markets at say 74%, like the first day of the PDVSA 2022. It guarantees it will make a four point profit and lowers the size of its risk.

What is the risk? Well, the bank could have the opposite problem, that all customers are given nothing and then it has to go buy the bonds that it promised to deliver. Or that prices will go down because oil goes down or too many bonds hitting the market.

The problem is that these are huge issues for the markets, US$ 3 billion. To give you an idea, two weeks ago Petrobras issued the largest corporate bond in Brazilian history, a US$ 6 billion issue. PDVSA has issued US$ 9.15 billion since last November! Thus, there is an over supply of PDVSA bonds and when the bank tries to sell US$ 100 million, there are only buyers at a low price, if there is no bargain, there are no big buyers.In time, prices will go up as the bonds leaving Venezuela are absorbed by the international markets.

This is the Bolivarian Arbitrage, another artifact of the distortions and complicated schemes the Government has built in around the exchange controls and the large and frequent issuance of bonds. These type of arbitrage has allowed many people in the past few years to make a lot of money, it was just not as obvious to the average person because the bonds were never identical like this time.

VIII.- Making money with the Bolivarian Arbitrage

Let me give you an example. Suppose you had a Venezuela 2010 bond in 2009 which you bought at 70-75% in the middle of the world financial crisis. In August of 2009, that bond was back up at 94% when PDVSA announced a Petrobono 2011 with no coupon. This 2011 bond came out at around 64%, you could have sold the 2010 and bought the Petrobono 2011. Then, PDVSA issued the PDVSA 2014, which was sold at around 56% when the Petrobono was already at 82%. Then, you could have sold the PDVSA 2014 at around 63% to buy the Global 2022 at 76%. In that sequence, ignoring interest, you would have made over 100% profit in less than two years and now you are ready to make some more money again, switching to the PDVSA 2022.

IX.- The risk of playing this game.

The risk, obviously is that one day you will not get paid if Venezuela decides not to pay and the bond will drop to around 30-35% of its face value, the so called recovery value. (That is why some people buy the long dated bond, which trade around 45%) You will lose a lot of money, in fact, you will lose all your gains. Of course, everyone assumes they are so smart that if that ever happens or comes close to happening, they will have no Venezuelan bonds in their portfolio by then. They did not expect Russia to default in the 90’s or Argentina in the new century. They both did.

Of course, that is what markets are about. Some think oil is going to soar. Others that the Government will change. Many that Venezuela can do this for a few years without defaulting. Everyone has a different opinion on it.

In the meantime, they will continue riding the Bolivarian Arbitrage.

X.- Why this is so crazy.

But this whole thing is absolutely crazy and it should not be this way. Venezuela’s risk premium is high because of the constant  supply of bonds to the market and the non-transparent way in which things are done. If the Government set up a road map every year telling markets exactly how much it will issue and in roughly which part of the year, the risk premium would go down, the debt would not be as costly. Instead, after telling investors for weeks there would be no issuance in the first few months of the year, PDVSA surprised them with this bond. A road show abroad by the Government once in a while to explain its finances, would also not hurt either.

Additionally, there is no justification for the overvaluation of the currency in these sales. Venezuela has high inflation because monetary liquidity keeps going up and up while productivity goes down and down. It is the classic inflationary set up. But instead of attacking the real causes of inflation, the Government decides to sell these dollars cheap to those that have access to them. It is in the end a subsidy to the well to do and to foreign investors, who are as happy as can be investing in yields that are impossible to find anywhere else in the world.

But it is a crazy scam that will one day come back and get us. It is the Bolivarian Arbitrage.

The Devil Gets Stunned at the Supermarket

February 12, 2011

I don’t know if I have been distracted lately or if I was just not paying attention. I have been hearing for weeks about the problems with shortages of diapers and sanitary napkins (an almost daily topic of discussion by the women in my office), but to tell you the truth, I was stunned when I went to the supermarket on Tuesday and saw all the empty or semi-empty shelves. Thinking that it was just coincidental, maybe the shelves had not been replenished from the weekend, I thought by today things would go back to normal.

No such luck, the shelves looked even worse. On the left you can see the paper products shelf, looking truly empty, only one brand of diapers available. On the right, the ready-cut  meat shelves looked depressingly empty:

On the left below, the vegetable oil shelf. It may look full at first sight, but when you look closer you realize there is only one brand today and a sign that says: “Limit one bottle per costumer”. On the right the cleaning products section also looked somewhat desertic and once again, for many products you could only find a single brand.

On the left below, a “good” shelf, that one with grains and imported can goods, lots of soy sauce and olives have reappeared on the shelves, something I had noticed was getting scarce. I guess Sushi and Gran Martinis’s can still be made. On the right, about the only healthy looking area: That of fruits, vegetables and greens. Most of this stuff is produced locally and not subject to price controls, therefore you can find plenty of almost everything, another example of supply and demand and market forces at work. Of course, these products rose in price in triple digits in 2010 as reported by the Island Canuck Index earlier.

And just as I left and was paying (No Coke in cans, but that is another story), I was greeted by this happy sign at the cashier: “Two kilos of powdered milk per person”:

How there can be shortages of a product I despise, is difficult to comprehend.

The pretty revolution at work!

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