After announcing the results of the first “modified” Sicad auction, where the Government sold some US$ 180 million dollars at an exchange rate probably close to
three two times the official rate and around half one third of the unmentionable black rate, Minister of Finance Nelosn Merentes announced two more upcoming auctions and said:
The country is going well.
Yeap. As the Government formalized another devaluation, introducing a “second” official exchange rate (or third for that matter, the rate is secret), the Minister said things are going well, as inflation has soared and shortages are still out there. Even more boldly, the man who has so often predicted single digit inflation and economic growth and who has no clue as to what an econometric model is, said confidently that inflation will go down in the second half of the year and growth will be stronger. He even challenged those that do know economics, to wait until the year is over to see who is right.
Unfortunately, Dr (in Math). Merentes does not even appear to understand that growth in the next two quarters will not be compared to the last quarter, but that economists have this quirk, that it is measured with respect to the same quarter a year ago. Given that the economy has likely shrank for the first six months of the year, it will have to make up the loss and then show a gain for the third and fourth quarters to show growth, something that looks difficult right now. Additionally, given that the growth last year was driven by Government spending and that spending is down by double digits so far in 2013, it seems unlikely that growth will be positive for all of 2013.
But the real trouble is inflation. As recently as October Merentes was “questioning” predictions of 28% in 2013 and inflation is up 25% in the first six months of 2013 alone. In fact, a month after saying that, he said it was “feasible” to achieve 14-16% inflation in 2013. Jeez, Nelson, you will be off by 100% at least in that econometric prediction.At least as a Mathematician, you should be able to understand how bad that is.
But the real problem is that the Government has built in continued inflation into the system with its policies. By holding back price increases, there is a guarantee that there will be shortages and later more inflation as goods get scarce. In fact, inflation for controlled goods was 21% in the first six months of the year, another sign the whole system does not work. Reportedly, Vice-President Arreaza has presented Maduro with a list of 10 items whose prices need to be increased, which will do little to slow down inflation.
Neither will the fact that what used to be imported at the SITME rate of Bs. 5.3, will now be purchased at Bs. 16 or so. Yes, some of that stuff was being bought at the black rate, but the truth is that much of that stuff, like auto parts, was simply not being imported, as importers were not willing to buy parts at the black rate with the scant dollars they could find in that market.
Meanwhile, the black rate is likely to slow down for a while, until people realize that they will get little from Sicad. Individuals only got half of what they asked for in today’s Sicad auction and despite estimates that there were requests for US$ 800 million,
the Government mysteriously sold US$ 20 million less than expected in the auction.
But Merentes was not alone this week in making statements that make you wonder if these people are brain dead or what. Maduro said, even before the auction, that the new Sicad auction “had generated great positive expectations”. Somehow it seems par for the course that this Government accomplishes so little that it boasts about expectations that simply can’t and will not be satisfied.
And Central Bank Director Armando Leon, he of the Bolivar Fuerte creation, dared say that inflation in the second half will be significantly lower and that this new auction does not imply a devaluation. Sure Armando, and the Bolivar Fuerte is your most important creation.
And then, of course, is the price-Nazi, Eduardo Saman, who not only said that the institution he runs is “a repressive institution of the State”, which reveals a very definite state of mind and attitude towards the citizens of Venezuela, which seems to have permeated the Government. Most institutions of the Government are run as repressive institutions, with little regard and concern for the people.
But Saman’s crowning glory was to suggest that if a company is losing money because of price controls, it should just go borrow money from a bank, which will help “capitalize” the company. Mr. Saman clearly has no understanding of how a productive system or the economy works, he seems to believe loans are free, banks are charitable institutions and has no understanding about how a loan really works or what it is.
And so it goes… Venezuelan is going well in the mind of the guy in charge of the Minsitry of Finance. Maybe he should go and ask the opinion of his friend at Merril Lynch who is talking about a deep reecession. Speaking of ML: Whatever happened to Merentes’ visit to New York in the first half of July?
I guess since things are going so well, he no longer needs it…