What’s Up With Merentes’ Proposed “New” And “Improved” Currency Swap System?

September 12, 2013

swapFor the last two weeks the Government has begun talking about the possibility of reviving the swap (permuta) market, given that Sicad has been a gigantic failure, in that it has done nothing to lower the parallel black exchange rate and the Government has discovered all sorts of scams in it, aided from within.

So, are we to believe this talk about a new foreign exchange swap market, where people will be able to go and buy foreign currency at prices determined by free market forces and without any limitation?

Well, call me skeptical, dubious and  incredulous. I just don’t think so.

Not under the current conditions of limited foreign currency, excess monetary liquidity (and growing!) and artificially low official exchange rate.

Just as a reminder about swaps, when the Government imposed exchange controls in 2003, it banned the use of Brady bonds as a foreign exchange mechanism, which was the parallel mechanism in the Caldera exchange controls in the 90′s.

But then a clever guy, realized that the permuta (swap), whereby you can exchange an object for another, was an instrument which is part of Venezuela’s Codigo de Comercio (Commercial Code) and had nothing to do with securities. Thus, you were forbidden to buy or sell dollars, but you were not forbidden from swapping your house in Caracas for one in Madrid, or a chocolate ice cream for a vanilla ice cream, like the picture above, or more importantly a dollar denominated bond for a Bolivar denominated bond, at a rate determined by you.

And thus the permuta or swap market was born.

Almost three years later, the Government gave its Seal of Approval to the permuta market, when it approved the Foreign Exchange Illicits Bill,in which the Government, recognizing the need for a escape valve, exempted securities explicitly in the Bill. Before this, there was no punishment for the swaps, after this, the Government was acknowledging that it was legal.

The market boomed, until May 2010, when Chávez, upset over how much the swap or parallel rate had gone up, decided to intervene that market, which was mostly supplied by Government dollars, and in the process, jailed a dozen brokers and intervened and shut down some 48 brokerage houses.

So now, the Government wants to revive this relief valve, but it is clear that it does not want the rate to be public or to go up. Furthermore, it wants official rates, those of Cadivi and Sicad to be lower than they should be. When they launched Sicad, there were all sorts of expectations that the Government would make that exchange rate higher and instead, the Government sold the dollars lower.

But suppose the Government overcomes this, decides it does not care at what price dollars go. Well, the problem is that I don’t think they have the foreign currency to supply this new market so that it does not go up.

Let me explain…

When the Government stopped the swap market in 2010, multi-nationals had not been given any foreign currency to repatriate dividends at the official rate of exchange for three years. It has now been six. These companies have lots of Bolivars just sitting there losing value, day after day. The moment the Government creates a legal foreign exchange parallel market, these companies are going to want to go to it and buy dollars. At almost any price.

Add to that the many Venezuelans that have savings. The many companies that would see such a market as a way of reactivating their business. The arbitrage between the official rate and the parallel rate.

And what you have is a lot of pent up demand to buy dollars.

But the Government has given signals that it does not want to give dollars to the private sector. It has given signals that it does not have as much money in parallel funds as it did in 2010. To top it all off, it would be very costly for the Government to issue debt, as it did in 2009 and 2010 to sell bonds to ease off demand in the parallel market.

Thus, I believe that if the Government really created a legal parallel market, the black (now) parallel rate (then) would move up. Strongly.

And thus my skepticism…

But let’s suppose I am wrong. The Government has realized that things are getting worse. It does not mind if the rate goes up. It is willing to sell lots of dollars into the new swap market.

What will happen?

Well, let’s do the following Gedanken experiment:

Let’s assume that the conditions in 2010, prior to the shutdown of the swap market, were “equilibrium” conditions. That is, the swap market, which was roughly a free market, provided a good measure of supply and demand, in the context of the exchange controls, which kept the official rate at Bs. 4.3 per US$. All the Bolivars that did not get US$ at Bs. 4.3, went to the swap market for imports.

What would be the equivalent Gedanken “equilibirum” be today?

Well, let’s use May 1st. 2010 as the reference date for that moment. On that date, international reserves stood at US$ 28.2 billion and M2, monetary liquidity stood at Bs 238 billion, so that the “intrinsic” exchange rate stood at Bs. 8.3 per US$. That is if you compare how many Bolivars there were for each dollars in reserves, there are Bs. 8.3 per US$, fairly close to the swap exchange rate of Bs. 8 at the time the swap market was closed.

If we do the same today, international reserves sit at US$ 22.17 billion, while monetary liquidity sits at Bs. 912.9 billion, so that the same “intrinsic” value is at Bs. 41.18.

Thus, going back to our Gedanken experiment, if we think that the conditions in 2010 were those of an ideal equilibrium, with a fixed official rate of exchange at Bs. 4.3 per US$, what should be that same rate today, to make conditions in terms of M2, international reserves and the official rate of exchange identically the same to those of May 2010?

The answer is that the official rate of exchange should be today at Bs. 22 per US$! ((4.3/8)xBlack Rate)

And therein lies the problem. By holding the official rate so low, the Government has created an artificial system, in which any item that gets officials dollars is so cheap, compared the huge amount of Bolivars that have been created at a rate of 65% increase per year and the inflation rate of over 20% per year for the last three years, that everyone wants to buy it.

Thus, if the Government created this fantastic new swap market, all you can buy, and absolutely legal, it would have to devalue to Bs. 22 or near that, in order for conditions to be similar to those of 2010.

Except that things are worse:

-The Government has fewer dollars.

-Pent up demand is much higher.

-The Government could issue much less to in bonds to supply the new market

-The Government is not ready to devalue to Bs. 22, nor does it want the unmentionable parallel rate to be higher than it is.

This, my friends is why I am such a skeptic of all these announcements about the newfangled swap market.

Thus, I think the Government will set up a controlled, regulated, limited, maximum, minimum, rules, regulated “market” at a rate much lower than the current black rate, which in the end will do nothing to stop the other rate from rising. Maybe, just maybe, after this new market fails, will the Government will be ready to implement something more realistic.

And this would require both a sharp devaluation and a slow down in the growth of monetary liquidity.

Thus, I find nothing in these announcements that makes me excited.

38 Responses to “What’s Up With Merentes’ Proposed “New” And “Improved” Currency Swap System?”

  1. Morpheous Says:

    The more they wait to lift the exchange control the worse the people’s suffering of economic hardship. But if they lift the controls the people will suffer anyway. The question is how the people would suffer the less? and therefore, How the government will lose less popularity? … I believe that people would be better off after a period of adjustment (say one year) if the controls are lifted properly. The government probably won’t understand this and will make people to suffer even more. So, there is no way around this crisis. The prize of bad economic thinking will be paid one way or another. They know it, and that is why Maduro is desperately blaming the White House and the opposition saying that every problem is sabotage. Are people still believing these lies? If so, I am no longer saying that this is because of people’s ignorance but because of people’s stupidity instead.
    The first time you fool me is your fault, the second time you fool me is my fault. — Arabian proverb.

  2. Milton Says:

    Excellent article. Given the current demand of hard currency, any exchange control system is doomed to fail without a sustainable/ huge supply of dollars . That would not happen simply because the government has very few options to source foreign currency . Since solving the structural problems in the economy seems not to be an option,we should get ready to keep seeing an skyrocketing black market.

  3. captainccs Says:

    Nicely explained Miguel, thanks!

    I have my own personal currency indicator, the supermarket Shopping Cart Indicator (SCI). Since I always buy pretty much the same stuff it works pretty much like the CPI. I don’t do fancy math to it like governments do, my SCI is honest! LOL

    I returned to Venezuela in 1990 and the SCI has oscillated between $100 and $125 ever since. Yesterday was a shocker! The supermarket was rather bare, no chicken, no sugar, no powdered milk. There was plenty rice for those who can afford imported Basmati rice. No Italian olive oil just a few brands of Spanish oil at three times the price of a couple of years ago. Many brands have disappeared from the shelves. No one was shopping in the fresh vegetables section. The attendant was busy texting. A woman almost fainted when she saw the price of imported butter. At the checkout counter they exchanged intelligence about where sugar might be available but the source said to be prepared to be ripped off, BsF.12 per Kilo. Good grief! that’s US$0.30! 13.6 cents a pound!

    My cart was half empty so figure it should have been US$50 or so. In fact it was US$32.72, just 60% of the 1990-2012 average exchange.

    For those earning in bees it’s a disaster. For those with reserve dollars it just gets cheaper and cheaper. It reminds me of the German hyper-inflation, foreigners would visit Germany to buy stuff dirt cheap and the locals hated them for it. When will these Socialist IDIOTS learn that you can’t both control the economy and make stuff cheap. Only the free market has the ability to squeeze out excess profits by allowing competition.

    • captainccs Says:

      Sorry guys, I forgot to report the glorious good news. The supermarket had 12 pack toilette paper. Over the past few months I could only find the occasional 4 pack and they would only sell you two at a time. My toilette paper savings account now holds 54 rolls. I call it a savings account because hoarding is illegal. By the magic of euphemism I convert crime into virtue! And it’s not all that far fetched to call it a savings account. I paid BsF.48.94 for the 12 rolls. Next year, with inflation at 30% (the average rate since 1984), the 12 pack will cost BsF.63.63. Had I put my money in a savings account at 12%, I would only have BsF.54.81, not enough to buy a 12 pack.

      How does this affect poverty? The poor can’t afford to hoard, I mean, to save. Rampant inflation hurts the poor a heck of a lot harder that the affluent. How can you possibly say that socialism is good for the needy? If makes everyone worse off but the needy much worse off than the affluent.

      The only way you can spread the wealth is by first creating it. That’s what increasing efficiency fostered by capitalism does. You save $100 in wages, you invest the $100 in machinery and thousands of customers get a the same product for less while the enterprise earns more. By earning more it can now raise wages, as it must as it competes for labor. Socialism does not have this virtuous cycle, to the contrary, all it does is spread misery.

      Ohoh, just got some bad news, water rationing again…

    • Ronaldo Says:

      Captainccs,
      Nice comments. To summarize-

      1. Essentially the implicit devaluation makes it much easier for the imperialist U.S. to come in a buy up all of Venezuela. This is counter to the Chavista goal of economic sovereignty and hatred of the U.S.

      2. “Only the free market has the ability to squeeze out excess profits by allowing competition.” Socialism as practiced by the Chavistas actually boosts profits because there is always a way around government contriols.


    • Captainccs,

      Have you ever heard of the 30 years of daily indexing in terms of a daily index, for example the Unidade Real de Valor, during hyperinflation from 1964 till 1994 in Brazil? And daily indexing called daily monetary correction or daily price level accounting in other Latin American countries during that period?

      They indexed all non-monetary items as well as some monetary items daily in terms of a daily index. Brazil had a hyperinflationary monetary economy, but a relatively stable non-monetary economy with positive economic growth during those 30 years. Have you ever heard of that?

      Don´t you think it would work in Venezuela too?.

      • captainccs Says:

        There is some indexing in Venezuela. I don’t know how it compares to indexing in other Latin American countries. Suppose you buy a house for a million bees and sell it ten years later for 5 million, in theory you have a 4 million bee profit, (17.5% annually). For tax purposes you can increase the cost by the IPC factor (CPI) reducing your inflated profit.

        Google: “indice de precios al consumidor venezuela”

  4. Island Canuck Says:

    Announced today that PDVSA will inject $6.6 billion into the new exchange system.
    http://www.eluniversal.com/economia/130913/pdvsa-ofertara-hasta-unos-6600-millones-en-nuevo-sistema-cambiario

    “El presidente de la Comisión de Finanzas de la Asamblea Nacional, Ricardo Sanguino, señaló que 30% de los 22.000 millones de dólares que se obtienen a través los convenios en la Faja del Orinoco (unos 6.600 millones de dólares) son depositados en dólares en bancos nacionales, monto que junto a los bonos de deuda venezolana, se podrán ofertar en el sistema alternativo de divisas que implantará el Gobierno próximamente.”

  5. moctavio Says:

    Wow! Where are those 22 billion? Certainly not in PDVSA’s balance sheet. Is he talking about future earnings? These guys are really amazing.

    • moctavio Says:

      He laso said:
      Sobre los papeles de deuda, Sanguino dijo que el potencial de inyección de divisas a ese nuevo mecanismo es de unos 5.000 millones a 6.000 millones de dólares, que representa al equivalente de bonos que están en manos de personas naturales y jurídicas.

      Really, thos companeis and individuals are sudeenly going to sell their bonds to raise Bolivars?

      Amazing!

  6. xp Says:

    The Regime is beginning to grapple with reality.

    I begin to hear the one hand clapping.

    cheers

    • xp Says:

      Assets in Vzla priced to the realistic FX,
      will bring a tsunami of outside money, and
      would fuel an economic recovery, such
      that has not been seen since the 50′s
      cheers

  7. Susan Says:

    We like the shopping cart illustration. If the government wanted to cement its position for a long time, it would issue debit cards to every householder. Then inject petro profit dollars into the cards. People could spend the money which the government taxes. Perhaps the women of Venesuela need to be mobilized since needed food for their families has been threatened for years.

    • extorres Says:

      Yes, but your suggestion should be extended to the opposition, as well, what with the belt tightening that has to follow regardless of who is in government. I further suggest debit cards to every citizen, not just the householders.


  8. Miguel, you stated:

    “Bolivars that have been created at a rate of 65% increase per year and the inflation rate of over 20% per year for the last three years,”

    Hyperinflation can also be defined as the excessive creation of local currency:

    That means that from what you stated above, hyperinflation in Venezuela is 65% per year.

    What is the difference between “the inflation rate of over 20% per year” and “Bolivars that have been created at a rate of 65% increase per year” ?


  9. Money Supply M2 grows 65% per year, inflation as measuredby the Government has averaged more like 30% per year, it is now at 45% the last 12 months.


    • Thank you. I forgot about the large number of price controlled items which brings down the inflation rate from 65% per annum to the lower values. There were not so many price controls in Zimbabwe. Most consumer goods were priced at the parallel rate.

      There the government did not have oil. So they printed 100 trillion ZimDollar notes and then went into the streets buying dollars with that. It created hyperinflation with 23 zeros.


    • I have written an email to Mr Hans Hoogervorst, the Chairman of the International Accounting Standards Board and suggested he gets the IASB to change IAS 29 Financial Reporting in Hyperinflationary Economies, which Venezuelan companies have been implementing in Venezuela since 2009, to REQUIRE daily indexing. That would stabilise the Venezuelan economy via IAS 29 without your government being involved.

      Let´s wait and see what he is going to do.

      You can read the email on my blog at

      http://realvalueaccounting.blogspot.pt/2013/09/ias-29-needs-to-be-implemented-in-terms.html

  10. Island Canuck Says:

    “That would stabilise the Venezuelan economy via IAS 29 without your government being involved.”

    That’s a total crock.

    How’s that going to control the economy when we are facing severe shortages?

    Does this supply dollars to the market because without them we will continue to have severe inflation?

    What will this do to the black market which jumped another 8% today?

    Really Nicolaas, you obviously do not live here & don’t understand the market forces that are driving the economy.


    • Island Canuck,

      Thank you for your comment.

      I lived and worked as financial director in Angola´s hyperinflationary economy from Oct 1994 till Feb 1997. I stopped the EFFECT of THE STABLE MEASURING UNIT ASSUMPTION (not the monetary effect of hyperinflation in the Kwanza, the local currency) in our company´s [Auto-Sueco Angola (the Volvo agent in Angola)] CONSTANT REAL VALUE NON-MONETARY ITEMS (e.g. salaries, wages, trade debtors,trade creditors, issued share capital, etc.) after 15 months of personally experiencing how everyone priced consumer products and property, cars, trucks, etc. EVERY DAY in terms of the DAILY US Dollar parallel rate.

      I followed hyperinflation day by day during 2007 till Nov 2008 in Zimbabwe on an online discussion forum on the internet. Zimbabwe did the same as far as pricing of consumer products, property, cars, trucks, etc. daily in terms of the daily US Dollar parallel rate was concerned, BUT Zimbabwe did not measure salaries, wages, trade debtors, etc. DAILY in terms of the daily US Dollar parallel rate as I did in our company in Angola. Zimbabwe measured these items mainly in fixed nominal Historical Cost Terms. They updated them only now and then during hyperinflation of billions percent per annum. That is why the Zimbabwean economy imploded on 20 November 2008. Their economy spontaneously dollarized.

      After my experience in Angola, I studied, for example, how Brazil indexed its economy very successfully in terms of a DAILY INDEX – they called it monetary correction – during 30 years from 1964 to 1994. Other Latin American countries did the same during that period. Chile and Colombia use it till today.

      Daily indexing stabilises non-monetary items´ REAL VALUES (not their NOMINAL monetary values – these still increase daily in terms of the Daily Index ) in the NON-MONETARY ECONOMY. Daily indexing (or daily monetary correction or daily price level accounting) DOES NOT stabilise the monetary economy. While a Central Bank prints too much local currency, there will always be hyperinflation, BUT daily indexing of NON-MONETARY ITEMS (selling prices, salaries, wages, trade debtors, trade creditors, issued share capital, capital reserves, provisions, etc.) stabilises the NON-MONETARY ECONOMY in REAL VALUES.

      It stabilises the NON-MONETARY ECONOMY as follows:

      1. The first step is to update selling prices DAILY. The selling price includes the profit margin. This is currently being done in Venezuela with the products that are priced in terms of the parallel market rate.

      2. The second step is to update trade debtors and trade creditors DAILY. They are not monetary items. They are constant real value non-monetary items. When it is a sale on credit, then the trade debtor is also updated DAILY, so, the profit margin is LOCKED IN. So too in the case of trade creditors. No loss because of the use of the stable measuring unit assumption as it is used today in Venezuela where companies use the Historical Cost Accounting model, i.e., your accountants assume the Bolivar is perfectly stable as far as the value of trade debtors, trade creditors, etc. is concerned.

      3. Thirdly, salaries, wages, rents, etc. are to be updated DAILY in terms of the Daily Index. How can a business do that? Because the profits are locked in, in the daily updated selling prices and the daily updated trade debtors. No loss anywhere. So, they have the money to update salaries and wages daily in terms of the Daily Index – as was done for 30 years in Brazil and other LA countries. This is not something new. I am not simply imagining these things. I am simply saying to Venezuela: copy Brazil.

      Brazil still had hyperinflation in its monetary economy, but they had a relatively stable non-monetary economy with positive economic (GDP) growth during those 30 years.

      4. Of course you cannot keep Bolivars overnight. You have to either pay your creditors, buy non-monetary items (anything you can later sell at the daily updated price) to lock in real value, or buy US Dollars or Colombian money – or buy the shares of international companies quoted on the Caracas stock exchange. I don´t know whether there are any quoted on the Caracas Exchange.

      This process stabilises the non-monetary economy. Not the monetary economy.

      You would state that using the US Dollar parallel rate is illegal in Venezuela. I know that.

      Using the Consumer Price Index is not illegal in Venezuela. Your companies are using the monthly published CPI to implement IAS 29 Financial Reporting in Hyperinflationary Economies since 2009. The Daily CPI is also a Consumer Price Index. The Daily CPI is a daily interpolation of the monthly published CPI. The Venezuelan government uses the Venezuelan Daily CPI to price the Venezuelan government capital inflation-indexed Bolivar bonds on a daily basis. These bonds – Miguel Octavio informed me that they are issued by the Venezuelan government – CAN trade on a daily basis. I am not saying they do trade on a daily basis. According to Miguel, they are tightly held by the major banks in Venezuela. But, they CAN trade on a DAILY basis. So, they are being priced DAILY by the Venezuelan government in terms of the Venezuelan Daily CPI. The Venezuelan Daily CPI already exists.

      This already existing Venezuelan Daily CPI can be used – LEGALLY – as the Daily Index in Venezuela. It already exists.

      So, Daily Indexing can be implemented right now in Venezuela by implementing IAS 29 in terms of the already existing Venezuelan Daily CPI. No-one will do that because it is NOT REQUIRED in IAS 29. IAS 29 has been implemented incorrectly in terms of the monthly published CPI since its inception in 1990.

      That is why I wrote an email to Mr. Hans Hoogervorst, the Chairman of the International Accounting Standards Board
      http://realvalueaccounting.blogspot.pt/2013/09/ias-29-needs-to-be-implemented-in-terms.html
      to try and motivate him to take the lead in getting the IASB to change IAS 29 to REQUIRE it to be implemented in terms of the DAILY CPI.

      So, when IAS 29 is changed to REQUIRE the use of the Daily CPI, Venezuelan companies will be forced to update salaries, wages, rents, trade debtors, trade creditors, capital, etc DAILY in terms of the Daily CPI – without the involvement of the Venezuelan government. This would stabilise the Venezuelan non-monetary economy (as it happened in Brazil from 1964 till 1994) – not the monetary economy – over a short period of time.

      Island Canuck,

      You stated:

      “How’s that going to control the economy when we are facing severe shortages?”

      Stabilising the Venezuelan non-monetary economy wouldl result in a huge improvement of normal economic activity which would in turn result in the reduction of severe shortages.

      You stated:

      “Does this supply dollars to the market because without them we will continue to have severe inflation?”

      Daily Indexing or daily monetary correction would do nothing to severe inflation: as long as the Central Bank of Venezuela increases the Bolivar money supply at 65% per annum then hyperinflation will always have the possibility of getting to 65% per annum. Daily indexing of the entire non-monetary economy – as I described above – makes the level of hyperinflation irrelevant. When you index the entire non-monetary economy daily in terms of a Daily Index that follows the change in the general price level closely, then the non-monetary economy will be stabilised no matter what the level of hyperinflation: see Brazil from 1964 to 1994.

      You stated:

      “What will this do to the black market which jumped another 8% today?”

      It will do nothing to the black market rate. The black market rate will continue rising by up to 65% per annum as long as the Central Bank of Venezuela increases the Bolivar money supply by 65% per annum.

      Daily indexing of the entire non-monetary economy in Venezuela via the Daily CPI being REQUIRED in IAS 29 (without the intervention of the Venezuelan governement) would stabilise only the Venezuelan non-monetary economy as it did in Brazil from 1964 to 1994.


      • I know that the situation in Venezuela is not the same as in Brazil from 1964 to 1994.

        Brazil did not have an illegal US Dollar parallel rate like Venezuela has today. The different governments during those 30 years supplied the Daily Index to the whole Brazilian economy daily using different daily indices. The final Unidad Real de Valor Daily Index was based almost entirely on the official daily US Dollar exchange rate.

        The parallel rate is currently illegal in Venezuela. That is normal in hyperinflationary economies. It was like that in Angola and Zimbabwe too.

        That is why the already existing Venezuelan Daily CPI can be used – LEGALLY – as the Daily Index.

        I know many products have their prices fixed at very low levels by the government in Venezuela. I know the profit on these products are being made in the illegal arbitrage market mainly in Colombia.

        However, daily indexing stabilised the non-monetary and part of the monetary economy in Brazil during hyperinflation from 1964 to 1994. That is a historical fact. It cannot be denied. Now (2013) daily indexing can be forced onto the Venezuelan economy via it being REQUIRED in IAS 29 – without the intervention of the Venezuelan government.

        Unfortunately Daily Indexing is not yet REQUIRED in IAS 29. I am working on that via my communication with Mr. Hans Hoogervorst, the chairman of the IASB. I copied Dr. Rafael Rodriguez Ramos, the President of the Venezuelan Institute of Chartered Accountants.

        Nevertheless, it is important that people in Venezuela are made aware of the advantages of daily indexing and its success in the past in Brazil and other Latin American countries.

        Once there is a momentum to have it implemented in Venezuela under current conditions, then the ways of getting it done will become evident to people in Venezuela involved in the country´s hyperinflationary economy day by day.

        Changing IAS 29 to REQUIRE daily indexing is essential in this process. Whether that is possible in the short term is difficult to judge. It all depends on Mr. Hoogervorst´s reaction to my communication.

        Notwithstanding all the above problems, it is important that people in Venezuela are made aware that the answer to stabilising their non-monetary economy during hyperinflation can be done via IAS 29 – without the intervention of the Venezuelan government.

  11. Carlos Says:

    Miguel, as a I told a few months the only way to freee the exchange market is by freezing the banks deposits, like Brasil and Argentina did in 1989 and 1990. Plan Color de Melo and Plan Menen.
    I remember bank deposits were frozen and government bonds were issued. Many people lost a lot of money selling discounted bonds and some smart guy made a lot of money buying at dirt cheap prices and holdng them a few years.
    Venezuela has the ability to issue (AND PAY!!!) 50 billions dollar denominated 20 year bonds and exchange bolivares in banks with these bonds at a whoknows rate (20 bs per dollar??)..This will clean all the M2 in just one day. Maybe you do noy need to freeze all, leave small investor with some small savibg accounts untouched until say..100.000 Bs
    The the bond market will asjust itself, probably with a price decline for massive selling and progressive improvement.
    Venezuela oil will be more than enough to pay these bonds un 20 years assuming that a fiscal discipline will follows.
    Unfortunately I see no other way… Do you?
    BTW.. it is not fair but it is the unique way to clean this mess (muchos bolos, pocos verdes). Looking the BCV balance sheet I estimate there is 1 dollar for every 50 bolos, but if you take out the frozen and unsalable gold there are 300 Bs for every real dollar.

  12. Island Canuck Says:

    Well. we can all stop worrying because Maburro has it all figured out:

    Maduro: Órgano Superior busca “estabilizar” la economía del país
    http://www.noticierodigital.com/2013/09/maduro-organo-superior-busca-estabilizar-la-economia-del-pais/

    Comentó que el Órgano Superior para la Defensa Popular de la Economía tiene “la función de desarrollar todas las iniciativas para completar ciclo de la estabilización de la economía del país en base a la ley”.

    Now, if someone could just explain this babble to me I’d feel a lot better.

  13. Alex Says:

    The other issue is that they would look plain stupid if they go back to the permuta model they agressively stopped. “Oh we imprisoned a bunch of people for three years, sent a bunch others to exile, fucked their personal lives, destroyed their businesses and now we have to act as if none of that happenned.”

    I’m sorry I just don’t see the perpetrators of the May 2010 events- Sanguino, Merentes, Giordani – reverting their actions. It’s as if they were accepting their mistake and I haven’t seen the first chavista willing to take blame for their own actions.

  14. moctavio Says:

    From today’s El Nacional front page:

    El ala radical del Gobierno se opone a que se le llame “de permuta” para no reconocer el fracaso del cierre de casas de bolsa y sociedades de corretaje.

    The Government also does not understand that for a market like that to work, the counterparts have to be trusted, they need capital, etc. In 2010 they intervened some of the bigger (by capital) brokers, forced banks to divest their brokers and others simply handed back their brokerage licenses.

  15. Ira Says:

    Capriles is in South Florida this weekend, with a big conference/some kind of event happening today.

    I wonder if Miguel is going.


    • Didnt even know about it

      • Ira Says:

        Did you see the news coverage when he arrived at MIA?

        I couldn’t understand the Spanish, and my wife was zoning in and out of sleep, but she said he was here for some kind of press event.

        I’m guessing he was a GUEST at some press association event, maybe where they question leaders about freedom of the press.

  16. Kepler Says:

    Miguel, you might probably say it’s good because Miami voters make a difference. I doubt it.
    The real number of people who can and will vote for ??? is not much higher than it currently is. Instead, what Capriles does now is to spend time for the second time this year in the “Empire”…and we know what that is for PR.

    What is he expecting? To get 50000 more people to vote in the USA? For when?
    Instead, he should go to Southern Valencia, where half the population lives and where he hasn’t been (admittedly, he tried to hold an event there but Chavistas prevented that…he instead went to Naguanagua…in a very secure area). He hasn’t been to Los Guayos, which he could have easily reached, which is 5 minutes by car from the Panamericana, which is next to Valencia’s International Airport and where we have the highest density of Chavista voters in Carabobo.

    And what will he do after the December elections? Fly to NY?
    Sorry, you and I can do that but the leader of the opposition in a country called Venezuela? Not the best way to get more votes.

    • moctavio Says:

      Capriles was invited by a University and decided to come for a day, I dont think it was meant to raise votes. In fact, the university that invited him did a poor job at publicizing the event if I found out via my blog. People here will not vote in the Decemeber elections.

      • Ira Says:

        Okay–I posted above before reading/seeing your post here.

        Yeah, that makes sense.

      • Kepler Says:

        I am aware they won’t vote in December, so I was wondering why he was spending time there, perhaps to gather support for some referendum in 2 years or so, I thought.

        In any case: he should stop travelling abroad so much. His thing should be now Venezuela.

  17. Rafael Says:

    Devil,

    Very interesting analysis but I’m not sure I (fully) agree with you.

    A different thesis is that the official rate per se does not matter all that much for the equilibrium of the exchange rate market, it mainly determines how much rent the standard Venezuelan that has access to those cheap dollars gets. What matters is the supply and the demand of dollars: how many dollars the government has and is making available through cadivi, sitme, sicad, etc and how many dollars venezuelans want. This is where all the excess liquidity and scarce dollars come in. But this is already reflected in the black market rate, which is the only rate that truly matters.

    A higher spread between official and parallel rate just means more rent for those lucky few but that’s about it. It’s a fiscal issue more than a monetary issue because the government is losing buckets of money by subsidizing those dollars. Of course, the larger the spread the more attention it gets as it illustrates the follies of macro management Venezuelan style. But I dont really see how bringing the spread to 2010 levels will restore normalcy to the FX market.

    Of course the black market is a particularly opaque (!) market: there are lots of crooks waiting to fleece you and is also particularly thin. So there is probably a sizeable premium that could (in principle) disappear if a more transparent fx market sees the light of day. A counterargument is that the dollar could become even more unanchored once everybody realizes there really are no hidden dollar stash and the swap market is all there is (and the emperor has no clothes).

    The real test is whether Merentes has the spheres to open the swap market and let the chips fall where they may. Everything else is window dressing.


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