What Will Happen In Venezuela In 2014?

December 29, 2013

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Now that I have your attention with that provocative title, I will give you my answer to that question right away and then I will try to justify it: I don’t think there will be economic collapse, dramatic social unrest or anything of the sort. I think that Venezuela under Chavismo will continued to plod along, drifting lower, as conditions get worse and worse, but I don’t think there will be some sort of dramatic collapse of the economy that will lead to some form of political instability.

My reasoning is simple, very few times in history do economies collapse in predictable fashion, nor do I think Venezuela is at an extreme. Yes, things are bad, but the Government has a number of degrees of freedom to act if necessary and it enjoys a level of popularity such that there is ways to go before its popularity is down to levels that could create sufficient social unrest for anything to happen.

Think about this year (2013): The Government had a shortage of dollars all year, it devalued to Bs. 6.3 from Bs. 4.3 per US$, Chávez died and was replaced by nebish Maduro, the Government spent like there was no tomorrow, inflation went up 100% from 25+% to 50+%, the unmentionable rate increased by a factor of 3.7 (It started the year at Bs. 17.4 per US$), scarcity went up from 20% to unknown and in the end, Chavismo actually got more votes than the opposition, with over 50% popularity in the Mayoral election.

Venezuela has The Devil’s Excrement, for better or for worse, we know the flow of foreign currency can sustain the types of distortions that the Venezuelan economy has enjoyed the last few years with total inaction. At some point,  things will unravel. but I believe this will happen only after the Government devalues sharply, which it does not seem ready to do and/or attempts to fix some of the distortions in the economy.

Because it is precisely the fact that it has not tried to fix these distortions that will allow the Government to make some adjustments. It can reign in spending, it can cut Petrocaribe and Cuba, it can devalue, it can increase the price of gas, sell the gold, mortgage more of the future than it has take over the banking system to issue even more local debt, issue more foreign debt and many other measures, before its popularity goes below 40%. Think Mugabe, for example, he had gizillion inflation and even held on to power.

Oh yeah, things will get worse and people will be unhappy, nobody enjoys 75%-80% inflation like we will see in the first half of 2014, but the Government will blame Obama, Capriles, Economic War or even Martians for the problems. And given the control f the media they will sell it yet again, once or twice more, but it will not be enough at some point. But this is not close, oil needs to weaken, some measures taken and maybe, just maybe something will happen. But I doubt it will be in 2014 and I doubt it will be dramatic.

Of course, the longer they plod along, the bigger the distortions and the sharper the eventual collapse, but we are not there yet.

Oil is indeed the Devil’s Excrement. Just watch!

57 Responses to “What Will Happen In Venezuela In 2014?”

  1. TV Says:

    The tragedy of Venezuela is that it is collapsing slowly and prevantably for years on end. Most countries take measures to stop it somewhere in the middle, or else are unable to stop the quick deterrioation. This is the collapse in slow motion.

  2. doca1950@gmail.com Says:

    Desgraciadamente muy de acuerdo. Feliz Fin …..de ano.
    Enviado desde mi BlackBerry de Movistar

  3. captainccs Says:

    “Nebish Maduro” For that you must be congratulated!

    I wrote my answer to economic collapse eleven years ago to the day, Nothing has changed, we continue down the drain in a vortex of government bureaucracy that stifles private initiative and drives the flight of brains and capital. How did the USA get so smart? It absorbed all the brains fleeing the multitude of repressive regimes the world over ever since the very first European settlers arrived. For a while Venezuela did it too but now we are in reverse, exporting out best brains and enterprising citizens. I have two young cousins recently graduated and working in Germany, producing wealth in Germany, not in their home country, Venezuela.

    Why Oil Rich Countries Are Poor
    http://softwaretimes.com/files/why%20oil%20rich%20countries%20are.html

    I wish you the very best for 2014 in your country of exile.

  4. m_astera Says:

    “It can reign in spending, it can cut Petrocaribe and Cuba”

    I think the one thing the government cannot do is cut Cuba, for the simple reason that Cuba completely controls the government. By the same token, I think the one thing that would bring about a real change is if it were public knowledge just how large a percentage of Venezuelan national income is going to Cuba/cubanos. My guess is at least one-third, off the top.

    • Virginia Says:

      Makes total sense! The Cuban’s are really those who ‘rule’ in Venezuela now..They are everywhere!
      What a tragedy for what was once a fairly good country..Certainly a very beautiful one, and always with it’s caste system & ranchos on the hill tops.
      BUT, That was long ago now, and to begin really TRYING to bring it back close to those times, will take decades !!

    • jau Says:

      My understanding is that Cuba is getting less and less money from Vzla.
      That is the main reason for opening up their economy, even a little bit.

  5. Humberto Says:

    You suck MIguel!

    … but you are probably right.

    Happy New Year anyway!

  6. firepigette Says:

    Exactly what I have thought all along.Muddling along will be in the cards, just as it has been for so long now.

  7. Coriolis Effect Says:

    They can’t blame the Martians, Miguel. Don’t you remember that Chavez blamed capitalism for the destruction of the Martian civilization?

  8. xp Says:

    Conventional wisdom is the body of ideas or explanations
    generally accepted as true by the public or by experts in a field.
    Such ideas or explanations, though widely held, are unexamined.
    Unqualified societal discourse preserves the status quo.

    More homicides, more days off, mo’ printed money, mo’ cars,
    cheap gas, cheap housing, no taxes, a parandear!

    • xp Says:

      ‘Salir a parandear’ – tomar, fumar, pasarmela bien con amigos..

    • xp Says:

      Ticking away the moments that make up a dull day
      You fritter and waste the hours in an offhand way.
      Kicking around on a piece of ground in your home town
      Waiting for someone or something to show you the way.

      Tired of lying in the sunshine staying home to watch the rain.
      You are young and life is long and there is time to kill today.
      And then one day you find ten years have got behind you.
      No one told you when to run, you missed the starting gun.

      So you run and you run to catch up with the sun but it’s sinking
      Racing around to come up behind you again.
      The sun is the same in a relative way but you’re older,
      Shorter of breath and one day closer to death.

      Every year is getting shorter never seem to find the time.
      Plans that either come to naught or half a page of scribbled lines
      Hanging on in quiet desperation is the English way
      The time is gone, the song is over,
      Thought I’d something more to say.

      Pink Floyd

  9. Milton Says:

    I agree. 2013 was potentially a more dangerous year for the chavismo and they passed the test with flying colours. They are solid in power and nothing is stopping them now.

    As you mentioned they have a few degrees of freedom in economic terms and a few measures are in the pipeline. It seems that we will be witnessing some sort of devaluation. It could take the form of straightly devaluing the official exchange rate or (most likely) channeling more resources through SICAD at a higher rate. The second one seems to be the increase in the gasoline price. That would be give the Government some room to improve the fiscal accounts.

    Of course we should not expect a massive adjustment, they will surely do the bear minimum. We have enough evidence that they always prefer to cover the deficit through money printing and more debt. The rest of the economy does not matter at all. It is not about reducing shortages or allowing a better resource allocation in the economy. The measures will purely respond to their spending needs. Given the massive amount of dollars that Venezuela receives from oil and their voracity at the time of getting indebted, the adjustments will be small and inefective to solve the distortions in the economy.

    Of course there will be more inflation, due to devaluation and money printing. Of course there will be more shortages. But they do not care much about it. The government stability has very little chance to be affected by it. At the end of the day that is the economic war. They have been successful in selling that argument to the people and will continue to do so. With a few more bucks they can buy some popularity back to the chavismo and advance in their socialist plans.

    As you can see I am quite pessimistic about next year in Venezuela. The main problem is that the people bought the economic war argument and supported “chavismo” in the past elections. These will allow them to move further in their socialist plans. Surely there will be some pragmatism, but just to the bear minimum in order to keep the government spending going. No chance that the pragmatism will be enough to correct any distortion in the economy or benefit the private sector.

  10. Keyla Lazardi Says:

    Right on Miguel!

  11. Eduardo Says:

    Globovisión reports that China has given 5 billion dollars to Venezuela. Nobody knows what guarantees this loan.

    Of course it will last only a few weeks, but who cares about the long-range planning in Venezuela now?

  12. Morpheous Says:

    You may be right, Miguel. But don’t be surprised if things end up quite differently. Consider the following insights that I translated from an article of “El Nacional” (see link at the bottom).

    With Daka the government tested the controlled looting. What we saw was a kind of test. From a sociological point of view, the discontent over shortages can lead to social explosions, but it was reaffirmed the perception that the government is not going to allow the situation to escape. It would be like trials to more radical measures, such as increasing gasoline. Given the harsh economic adjustments to come, these tests serve the government to see how far they can force the bar, how far can control social unrest.

    Chaos is the form of government imposed by Hugo Chavez; and Maduro now continues it: It consists of measuring the resistance of the people, how far and how long you can postpone acceptable solutions to their demands. What happens is that in this exercise, some demands become inelastic and unwanted outcome by all can occur.

    The protests can end in looting shortage, just as protests insecurity have reached the end of lynching. Clearly, the first corresponding to the constitutional right to demonstrate peacefully and unarmed, while the latter are crimes. In both cases the actions of the authorities makes the difference, self-righteousness is incurred when the state fails in its duty to ensure the rights of citizens, when it is not able to curb the insecurity and shortage crisis.

    http://www.el-nacional.com/politica/conclictividad-protestas-saqueos_0_326967404.html

  13. Jeffry A. House Says:

    The hell with it; I am predicting Maduro will be gone one year from now, and with him the whole cabal of scumbags. And, if I’m not right, at least I should be.

    • Sydney Australia Says:

      The Cubans control the country since 2009. They colonized Venezuela. Many people like the above have yet to recognize or understand this. I think they (Chavistas, Bolivarians, thugs) understand that w/o Cuba support, they risk losing it all. Thus Maduro stays. I warned about this for years and was ridiculed by many. GFU

  14. Tomate Says:

    Economic dislocations tend to occur due to some sort black swan event. Something that comes from the left field that is not in the radar screen. Base scenario or most likely scenario is what Miguel describes.

    However, I’m not convinced anymore that an economic collapse will bring this regime down. Even in a very negative scenario, there are plenty of dollars and assets to bring in food and keep all of Venezuela entertained “en colas” to feed themselves and their families.

    It might be the winter blues. But I’m pessimistic that this nightmare will go away anytime soon. These “Prans” are in for the long game and they are very well entrenched!

    • Morpheous Says:

      Like republicans say: “the only way to beat a bad guy with a gun is by a good guy with a gun”

      • RattInnaCage Says:

        Morpheous – There has been over 11,400 deaths in the USA since those 7 and 8 year olds were massacred in Newtown. Could you take a moment and break down how many were good guys and how many were bad guys?

        • RattInnaCage Says:

          Geeeeez Morpheous, my number was really off. My old data didn’t include the month of December and all those new Christmas toy deaths.
          Make it 11,900 gun deaths since December 14, 2012.
          You might be interested to know that Christmas 2013 was actually kind of a slow day . . . only twenty men, one woman, two boys, and two girls were killed with guns in the US.

          • Ira Says:

            With a population of 320 million? 350 million?

            Compared to VZ’s population of what?

            It’s always funny when I hear such comparisons of U.S. gun deaths compared to third world countries. Yes, the U.S. has its problems in this regard, overwhelmingly in the black inner city.

            But on 99% of American streets and in 99% of American towns and cities, people aren’t afraid to walk our of their front doors to buy a loaf of bread.

            • RattInnaCage Says:

              Ira, my comment had absolutely nothing to do with Venezuela – it was in reply to the comment “the only way to beat a bad guy with a gun is by a good guy with a gun”.
              About 7,500 people under the age of 18 were admitted to hospitals with gunshot wounds in the US this year. The vast majority of those wounds were not on the street, but in their parents homes or property.
              Since Newtown Ct, there has been:
              > Twenty seven school shootings.
              > 194 grade school age children (under 12 years old) have died by gunfire. (up to first week of Dec.)

              And quite frankly the comment that gun problems are mostly ” overwhelmingly in the black inner city ” is an insult to EVERY African American. It’s also patently false.

        • Morpheous Says:

          I just wanted to mean that when freedom and justice is seized by a criminal government that threatens the people with armed militias and even the military, a country can end-up like North Korea or Cuba unless its people or a least an organized part of them stops them; and I think at some point, that is only possible by organized and armed good people. Once a country has recovered its freedom and justice, I absolutely agree that access to guns by civilians should be strongly restricted… So, I agree that I used a really bad example…

  15. Caracas Canadian Says:

    Miguel….your thoughts please.

    After flying to Toronto last week from Caracas via Roma and Paris I returned today to Caracas via Houston. Out of principal I always pay using a USD credit card (call me stupid, but it has its advantages, especially when shit hits the fan and you need to bail). The purser searched me out and said that United had asked them to advise only their USD paying customers on the Caracas route that come March next year they are puling out of Venezuela and are planning concerted action with Air Canada, Delta, American, Air France and Lufthansa to all pull out on the same day unless they are paid in full by CADIVI.
    Do you think CADIVI has the money to pay them, or will this just be another nail in the coffin.

    • Sydney Australia Says:

      Does a bear shit in the woods? Does Howdy Doody have wooden balls? Nails in what coffin? What you talking about Willis?

      • RattInnaCage Says:

        Stop acting so damn North American. You’re embarrassing the rest of us since we are basically guests here, especially with that twenty year old, lowest common denominator American sitcom quote.

  16. gabo Says:

    One thing is missing: what happens with the debt? I don’t have the figures in front of me but I believe over the next three to four years, Vene and PDVSA are facing a crushing maturity and amortization schedule with almost $10bn coming due in 2017. A default or badly managed liability management exercise could force the government’s hand on the deval front.

    • Milton Says:

      Next year debt service in USD is around 10bn from which approximately is 50% pdvsa and 50% government debt. 5bn will be to pay interests and 5bn to pay principal. The amounts seems manageable under current debt market conditions, oil prices and some sort of devaluation. The roll over will obviously be costly at the levels venny is trading nowadays.


    • I am onky talking 2014, 2017 is very ling term in Venezuela

  17. Island Canuck Says:

    Numbers just released for inflation in November & December:
    http://www.bcv.org.ve/Upload/Comunicados/aviso301213.pdf

    November – 4.8%
    December – 2.2%

    I don’t believe either.

    Real inflation this year is well over 100%

  18. agla Says:

    I agree with Miguel, unfortunately really, because many of us would like to see this nightmare to go away. But it will not. Not in the near future. After reading Omar’s exellent blog “Distortionland” I have recently aked myself wether Venezuela will “really” collapse financially or, not. People don’t seem to realize how close we are. Conventional economists have predicted this collapse maybe 10 years ago. But it will not happen. The Devil’s Excrement certainly helps a lot. To interpret and predict the regime’s financial policy don’t think like an Oxford economics graduate but use more a mixture of surrealism “a la Magritte” and realismo magico. The regime will succeed in muddling through, all the while making life miserable for what’s left of the the private sector and for those who still think Venezuela is not a comunist state. This post by Miguel explains it very well. Congratulations.
    Anyway, I wish you a Happy and Prosperous new year 2014.

  19. Ira Says:

    First, I can’t believe you used the word “nebish.” My mother and Sholom Alechem would be proud of you, but I don’t know how many people know what that means.

    For the unenlightened, the best English translation is a “nothing,” a person of no consequence to the world.

    Second, I believe that 2014 is going to be full of SURPRISES, with some coming from Colombia, but some coming from God knows where.

    It’s the unpredictable which no one can predict, and while this is an obvious and infantile claim to make, it’s these events which typically shape history,

    • RattInnaCage Says:

      Ira – it’s only the 30th, I’m sure the bus driver will have more news . . . for instance, the Venezuela inflation report came out today and it’s a real hoot. There was also NO mention of the scarcity report . . . I’m guessing TV’s and stereo systems have been added to the now secret report.

      • Ira Says:

        This is what I find so ridiculous about this inflation report:

        Every article I read online is attributing its “falseness ” to Maduro’s actions on radical November and December price controls, including the obviously last minute political moves on what–ONE major retailer? Or TWO!?

        And this would somehow affect the inflation number for the entire COUNTRY!? With how many total outlets in the country ANYWAY!?

        Adding the TARDINESS of the report’s release, it is in no way believable.

        And of course, there’s the “minor” issue of shortages!!!

    • moctavio Says:

      Hey! If they would be proud that I use any word, then I am proud of myself. Not bad for my second language learned later in life, no?

      • Roy Says:

        Miguel,

        You have reason to be proud. Although I am fully conversational in Spanish, I am pretty sure I will never attain your level of fluency and command of the the vocabulary and nuance. Still, I like to tell people, “que soy la prueba que, si los loros viejos puendan aprender hablar.”

  20. xp Says:

    nebbish?
    As in -
    “A large part of me is pure nebbish – plain, dull, uninteresting.
    There’s a more flamboyant part, too. Obviously.”
    [a Barbra Streisand quote]

    It’s an adjective formed from one of the most characteristic of Yiddish words. It was originally “nebech”. In Yiddish it was originally an interjection, roughly meaning “You poor thing!”. Americans had trouble saying this word when it first appeared in the English language at the end of the nineteenth century, and they changed it to nebbish, with nebbishy as the much less common adjective.
    Sarah: “He just sits there, and every time I make a suggestion, he goes with it, but mostly because he doesn’t understand what I’m saying and has no dang opinion for himself!”
    Marie: “Gosh, he’s so nebbish.”

    Sorry guys, I couldn’t help it :-(

    • Ira Says:

      Yiddish is such an interesting language, because it has words to describe people/things/events in ways that other languages can’t:

      Shlamazel: The hapless shnook waiter who spills the soup; never does anything right.

      Shlameel: The customer who gets the soup spilled on him; everything bad happens to him.

      Doppess: The guy at the next table bemoaning this tragedy, the sadness, but doesn’t lift a finger to help; an inconsequential witness to life’s events who takes the pain upon himself. (More or less–Doppess is a hard one to explain.)

  21. Kepler Says:

    Miguel,

    The Russian business newspaper Kommersant talks very clearly about China giving Venezuela an “hipoteca”, which is a word we will never see used by Boligarchs.

    The article also says it goes firstly to the programme for housing and then transport, satellites (of course, more the Nigerian way of considering “technology transfer”) and several “war needs”. It says it’s up to 50 billion dollars what we have got.

    But funnily, this article from the Voice of Russia, from the same day, talks about less:
    http://voiceofrussia.com/news/2013_12_29/China-allocates-5-bln-credit-to-Venezuela-Maduro-4055/
    (adding up to “just” 41b)

    Any idea how much it is? Probably only the Chinese know.

  22. Alexander Says:

    My feeling is that the meaning of the phrase economic collapse was not understood.
    It is not rare to use that phrase in Economics, but one should have in mind that even in the frame is economics, the collapse runs among the twin deficits, namely, the fiscal one and the balance of payments. Its interaction, very complex since usually derails fiscal and monetary policy, and could lead the economy to a position, where for instance, Argentina was in the year 2000.
    Could Venezuela defaults? It is not a theoretical scenery any longer, it is something that could happens. Just a tip, the oil rent, before tax and royalties is falling a rate of 8-9% yearly, and the oil investments fall continuously in the last 14 years. Do not believe, please that the “excrement” is sold at 100 $ a barrel, that it is not true, the oil price at the time of fiscal contributions and production costs is at 46$ for barrel. Anything could happens!

  23. moctavio Says:

    All I am saying is that people think it will happen in 2014 and I dont think we are there yet.

  24. m_astera Says:

    From above:

    jau Says:

    “My understanding is that Cuba is getting less and less money from Vzla.
    That is the main reason for opening up their economy, even a little bit.”

    How much is officially going from the Venezuelan treasury to Cuba, and how much is privately going into the pockets and overseas bank accounts of Cubans from Venezuela? I suspect the numbers are very different

  25. moctavio Says:

    At the recent seminar in Miami about Venezuela, one of the speakers noted that aid to El Salvador from Venezuela had exceeded 1.5 billion in 2013 and that money flowing via the Sucre, had reached US$ 2 billion. I really dont think aid ahs slowed down at all.

  26. Ira Says:

    What’s the deal with Brazil helping fund a new deep water port in Uruguay, via Mercosur, to the consternation of Argentina?

    Would Maduro do anything to go against his dead boss’s ex-girlfriend?

  27. xp Says:

    …But for whatever reason, since nobody talks about
    the massively successful Venezuelan stock market,
    which in the modern era is second only
    to the even more “successful” Zimbabwe stock market,
    it bears noting that earlier today, quietly,
    the Caracas stock market announced it would proceed
    with a 1000 for 1 stock, er, index split.

    We assume this happened because according
    to the “specialized technical report
    prepared by experts in the area of market organization”,
    an index trading at 2,737 appears more attractive to
    a toilet-paper deprived population than its identical
    version which however has risen to 2,737,000.

    Of course, we give the post-split index a few months
    before it hits its previous absolute record level.
    At which point it will be rinse repeat.
    However, at least the local “experts” will constantly
    keep removing zeroes from the benchmark number
    thereby giving the impression that all is well.

    zerohedge.com

    And a Happy New Year Index to us all!

    • xp Says:

      For the masochist in us,
      The how to theory-and-practice a piece of nebbishness -

      VIGENTE NUEVA fórmula de cálculo de índices de BVC >>

      - Una nueva fórmula de cálculo del Índice Bursátil Caracas y los índices Financiero e Industrial entra en vigencia desde hoy

      La Bolsa de Valores de Caracas, con base a un informe técnico especializado elaborado por expertos del área de mercado de la organización, anunció a corredores, inversionistas y público en general una modificación de los indicadores del mercado bursátil, la cual entra en vigencia desde hoy 2 enero de 2014, de la siguiente forma:

      Fórmula Anterior:

      Índice = (Capitalización Empresas/Capitalización Base) x 1.000

      La modificación fue realizada sobre el factor multiplicador “1.000”, con el objeto de reducir proporcionalmente los valores reflejados en los indicadores de seis (6) cifras enteras a un mínimo de tres (3) cifras enteras con dos (2) decimales.

      Nueva Fórmula:

      La fórmula que será utilizada a partir del 2 de enero de 2014 se hace con el factor multiplicador “1”, y es la siguiente:

      Índice = (Capitalización Empresas / Capitalización Base) x 1

      La fórmula incluye los siguientes parámetros:

      a. Capitalización diaria de cada una de las acciones que conforman la canasta del índice.

      b. Capitalización base, calculada y corregida en base a la capitalización de la canasta del índice de 1997, conocido como año base.

      c. Un número constante utilizado para determinar las unidades o puntos del indicador (Valor hoy 1, antes 1.000)

      El Índice Bursátil Caracas (IBC) es el promedio aritmético de la capitalización de cada uno de los títulos que los conforman, siendo estos los de mayor capitalización y liquidez negociados en el mercado accionario de la Bolsa de Valores de Caracas, mientras que los índices Financiero e Industrial tienen canastas diferentes.

      Los cambios entran en vigencia a partir del 2 de enero de 2014. Sin embargo, fueron anunciados al público en general diariamente desde el 20 de diciembre de 2013, hasta su entrada en vigencia en la primera jornada del nuevo año.


  28. […] mystery to Government officials. The Bolivar has been devalued officially, again, as through inflation at about fifty percent annually were not enough to screw the economy and Venezuelans dependent […]


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