Policy Paralysis in Venezuela

January 20, 2014

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The more I think about Maduro’s “announcements” and speech last week, the more I think the whole thing was incredibly inconsequential and very little was truly announced that day. No matter what interpretation anyone wants to give it, what Maduro did was roughly repeat what was said last May, a couple of weeks after he was sworn in as President of Venezuela.

For example, Maduro announced that Cadivi would be eliminated and a new institution, the Centro Nacional de Comercio Exterior (Cencoex) would take over for it. But do you really think this will be a major change? Cencoex will have new stationary, there will be signs on the door and a new website, but the rest will all remain the same. After all, Maduro wants tighter control over who gets the foreign currency, which implies that controls will remain in place and the seventeen steps required today by Cadivi, will become twenty some under Cencoex. If not more.

In fact, the Vice President confirmed this when he said that “The paperwork will remain the same until we make new announcements”, which simply says, we have no clue what to do anymore than we did in May 2013, we just know this is not working this way.

And yes, a new Minister of Finance was appointed, this time a General and an active one at that. As if a General would somehow figure out what others have not been able to. And this General is no Economist, maintaining a long tradition of having someone who is not trained in Economics or Finance for the position. Which obviously shows.

And I repeat, he is military, as if did not have enough military presence in the Cabinet as it was.

And Nelson Merentes, a Mathematician who has created a reputation as being a “pragmatist” goes back to the Venezuelan Central Bank, where his pragmatism led to the artificial  creation of money to the tune of 60% -plus per year, which has lead to the glorious levels of inflation we have.

And some people actually think it is good that he is going back to the Central Bank. It must be a collective death wish of some sort.

Meanwhile, we were told that Sicad would become more important as a mechanism to obtain foreign currency. That the auctions would be dynamized and more companies and people would have access to this mechanism.

Except that is precisely what was said last May/june by Merentes and Ramirez, the latter the other “pragmatist” in the Cabinet. And we have to wonder what makes Ramirez a “pragmatist”, since he has done very little for the economy, pragmatic or otherwise, since he became  Vice-President for Economic Affairs, and very little that can be considered pragmatic. Oh yeah! he made a couple of pragmatic decisions in PDVSA before, but you have to remember that PDVSA is the goose that lays the golden eggs to sustain the revolution, but the revolution is all about ideology, not pragmatism. So, keep the eggs coming so that we can cummunalize Venezuela, if such a word exists, which I doubt.

And once again we were threatened with a modification of the Foreign Exchange Illicit Bill, something as recurring as comets in the past, but now returns so frequently that they have become artificial satellites and pure BS at that. And every time this changes are mentioned, the optimists think some form of market exchange is coming soon, while Chavismo knows that no such animal will exist again as long as they are in power. But people are gullible enough to think that Giordani is on his way out and the revolution will become softer. Sure, as soon as you can say Elvis Amoroso backwards one hundred times in a row and drunk.

In fact, there were so few announcements in the State of the Union speech that the easy part, moving students dollars, travel and the like to he Sicad rate was not even announced. That is how improvised the whole thing was.

And while everyone and the New York Times seems to think that the gasoline price increase is coming, Maduro did not even mention the subject last week and by the time the whole subject is discussed and processed by the Government, what we will have is an increase which is unlikely to match 2014’s inflation in Venezuela, implying that Maduro will simply be running in place by the end of the year.

Because what is happening is simply policy paralysis, influenced in part by fear. Any distortion that is removed will have a political cost in the country, while the way the distortion is removed erodes Maduro’s standing within a Government divided by ideologies, all of them extreme left wing.

Which requires in the end, bringing in more military, active and retired, murderers and coupsters, in a macabre dance of incompetence, to compensate the absence of the one almighty leader.

But in the end, it is all about ideology. Don’t be fooled. The Government will assume any role that they think can be better performed by them. Foreign currency will be channeled through the Government. Imports via State companies and friendly Bolibourgeois, so that the shortages have no way to go but up. And more military will be placed in charge.

Perhaps nothing summarizes this more than the title of Ecoanalitica’s report in reference to Maduro’s speech: “How to make a 360 degree turn”.

And indeed it was, use all the cliches, back to the future, deja vu all over again and the like. Maduro went back to May, losing what is likely to be his only opportunity in the next few years to make an economic adjustment that would have a lasting effect. By the time the distortions become even more dramatic in mid-2014, Maduro and his team will be thinking about the Parliamentary elections in 2015, inducing policy lethargy and the appeal to extremely unorthodox policies and methods to allow the Government to survive until then.

But while the radical wing led by Minister Giordani remains in place, nothing will change. Chavismo/Madurismo will be trapped in its distortions and its inability to execute what is needed to have things improve. Till then, more of the same.

26 Responses to “Policy Paralysis in Venezuela”

  1. xp Says:

    … will simply be running in place by the end of the year.
    Nice … :-)
    I’ve never seen a sloth (pereza) run …
    maybe there’ll be a first time.

    Still –
    Give me help, give me strength
    Give a soul a night of fearless sleep
    Give me love, give me peace
    Don’t you know these days you pay for everything
    Got high hopes
    I got high hopes
    Got high hopes
    I got high hopes

    Springsteen ‘The Boss’

  2. HalfEmpty Says:

    I can see that the government is angling to control all imports. What I don’t understand is how they believe they can import at the government price of 6.3 to the $ and maintain any foreign reserves whatsoever. I don’t get it.


  3. Here is some really good advice for free:

    HOW TO MAINTAIN A COMPANY´S CAPITAL CONSTANT IN REAL VALUE IN A HIGH OR HYPERINFLATIONARY COUNTRY – PART 1

    http://realvalueaccounting.blogspot.pt/2014/01/how-to-maintain-companys-capital.html


    • I posted the above on Caracas Chronicles and it was deleted by the editors. Interesting, isn´t it?

      • Kepler Says:

        No, it’s not interesting. It’s annoying that you keep repeating your only topic, which you spread all over the Internet. You are a troll.

        • Smith Nicolaas Says:

          Since I posted the above link I have have 42 entries from Devil´s Excrement to the article quoted. This has never happened before in the three years or more that I have been commenting here.

          So, it is interesting to readers of this blog.

  4. Island Canuck Says:

    ” Because what is happening is simply policy paralysis, influenced in part by fear.”

    That’s the key to everything.

    The inertia of the government is so obvious that any big changes will not be happening any time soon.

    Perfect example is the CADIVI electronic cupo of $400.
    If it had been activated on schedule it would not have been a problem.
    Now on Jan. 21 with it still frozen in the banks if it is activated now there will be an immediate rush to buy $400 Amazon gift cards so that it will be locked in.

    Just as shortages of the many products today create long lines of desperate people this delay will have the same effect.

    You can almost smell the fear of these inadequate policy makers as the money runs out.

    • Daniel Says:

      This is quite true. The only way for them to get out of this is to announce they delayed it because they are INCREASING it to at least 800. Yeah, right….

  5. xp Says:

    Our eggs buy us imported goods, wine and luxuries.
    Crack a few, and our imports wane.
    Give the eggs away,
    and our goods wine & luxuries of plenty,
    turn into smoke, mirrors and vinegar…

    “Put all your eggs in one basket and then watch that basket.”

    ― Mark Twain, Pudd’nhead Wilson and Other Tales

  6. Dave Hill Says:

    Is there a risk of the major automakers pulling out now? It seems the government wants everyone to make zero profit and it will be next to impossible to operate at a profit since operating outlays are so high and the exchange system is so chaotic. Will Ford and Toyota follow the airlines out the door?

    • TV Says:

      It’s easier to reestablish an air connection than a manufacturing plant. Automakers want to maintain just enough production so it can be reestablished if and when sanity returns to Venezuela.

      Once they begin to leave, Venezuelan economy will complete its slow motion collapse.

  7. At Last Says:

    Yeah what’s up with Ford and American? WTF are they waiting for? don’t tell me they don’t want to upset the regime!

  8. moctavio Says:

    I dont know if anyone is ready to pull out, but certainly automakers want to scale back significantly.

  9. Noel Says:

    Maybe, paradoxically, some greater bureaucratic efficiency (not freer markets) may be pushed by Cuba. After all, if Venezuela collapses, no more free oil!

    • TV Says:

      Venezuelan state may survive the economic collapse. That’s the true tragedy of the situation.

      • Ronaldo Says:

        “Venezuelan state may survive the economic collapse.” I agree but it will be a major step in discrediting the Socialist Nirvana that Chavismo has promised. This is the first step needed to replace Chavismo.

  10. xp Says:

    THE SKY IS FALLIN’ .. THE SKY IS FALLIN’ :-)
    No One Wants Bolivars

    There is no demand for Bolivars. No one wants them. Venezuelans want US dollars, Euros, or gold. The Bolivar will soon be worthless. It nearly is already. This is hyperinflation in action.

    Please consider Venezuela Bonds Plunge After Bolivar Weakened for Travel.

    Venezuelan bonds plunged to the lowest in more than two years after the government announced the latest partial devaluation of the bolivar, this time for airlines and foreign direct investment.

    Venezuelans traveling abroad, airlines and foreigners sending remittances home must use a secondary exchange rate determined at weekly auctions, Economy Vice President Rafael Ramirez said yesterday. The rate set at the latest auction was 11.36 bolivars per dollar, compared with the official rate of 6.3. Airlines operating in Venezuela fell and one carrier suspended flights.

    The partial devaluation comes as the government attempts to halt a hemorrhaging of dollars that has pushed international reserves to a 10-year low. The announcement came on the same day that the country’s largest private food producer, Empresas Polar SA, said it can’t import more raw materials because authorities are delaying the release of dollars.

    The country’s international reserves fell to $20.5 billion this month from more than $28 billion a year ago.

    Maduro’s government sold $8.6 billion last year to finance travel, airlines and remittances, 19 percent more than in 2012, according to Ramirez.

    Still, measured at the official rate, airlines have an equivalent of $3.3 billion in bolivars trapped in Venezuela that they can’t expatriate because of exchange controls, according to the International Air Transport Association. Ecuador’s state-owned Tame Linea Aerea suspended indefinitely all of its seven weekly flights from Caracas today because of payment delays, the company said in a statement today.

    Food producer Polar said yesterday that authorities are delaying the release of $643 million dollars. In total, the government owns private companies $10 billion in foreign currency, according to Venezuelan business chamber Fedecameras.

    “The companies will be lucky if the government pays them at all, at any exchange rate,” said Aura Palermo, currency controls specialist at Caracas-based AP Consulting Group. “Businesses can’t plan in any way now, as they don’t know when they can participate in the auctions and at what rate.”
    End of the Line

    The end of the line for the Bolivar is at hand. The leftist government nationalized oil reserves, and the result was an immediate collapse in production. The only way Venezuela can import anything is from dwindling US dollar reserves. When those run out, it’s lights out for the Bolivar.

    or GO TO THE SOURCE –

    http://globaleconomicanalysis.blogspot.ca/2014/01/venezuela-strengthens-currency-controls.html

    • Noel Says:

      The problem with the devaluation for airlines is that the biggest sums are due to airlines from neighboring countries, with whom there is the biggest volume of exchange: between them, COPA and Avianca were owed over $700 million at the end of the third quarter 2013. This is likely to cause the most commotion/disturbance.

  11. arco Says:

    So, still 2 years to go until reserves run dry.
    Thats a very long time in Venezuela.

  12. Rob Says:

    Oi, what’s going on here ! Doesn’t the world realise that it is the right of every Venezuelan citizen to have what does not exist at the expense of anyone.

  13. Glenn Says:

    The LA Times has an interesting article on Venezuela today. Addresses airlines to oil. Here’s my favorite quote on why Venezuela is short of USD:

    “Of Venezuela’s estimated 2.3 million barrels of average daily oil output, about 330,000 barrels per day are thought to go to China to pay cash advances. Another 260,000 barrels per day are sent to Cuba and other neighbors at cut-rate prices, while 760,000 barrels per day are refined to meet local demand for fuel sold at a fraction of what it costs to process it.:

    http://www.latimes.com/world/worldnow/la-fg-wn-venezuela-airlines-ticket-sales-20140124,0,2603008.story#ixzz2rPyfWu5U

  14. Donna Carrillo Looez Says:

    The added misery for Venezuelans are the continued consumer product shortages created by tight government price controls as well as currency controls. It was not increased consumer demand, although not having toilet paper is at least inconvenient if not miserable …and 50 million toilet paper rolls and 760,000 tons of food recently announced by the Maduro government will not remedy the shortage of goods situation in the country. If the structural problems of mismanagement and the continued lack of exchange currency prevails, Maduro and his government will be left to their vapid circular reasoning. Maduro would be wise to bring Leopoldo Lopez as chief economist and sage policy maker who might reform a smoke and mirrors government that is short on wisdom and excessively long on sabotage rhetoric. Lopez would no doubt advise Maduro to diversify the economy, especially supporting national food production by Venezuela’s farmers so that the country no longer imports over 70% of its food.


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