Zara store in Valencia after forced discounts at “just” prices
It is somewhat ironic, if not perverse, that in a country with chronic shortages of milk, toilet paper and other basic staples, someone comes out to reassure the population that the inventories of appliances and clothing, which have disappeared from store shelves after the Government forced shopkeepers to lower prices by as much as 70%, will be replaced by January.
Ironic, because few believe it. Perverse, because somehow the socialist revolution has been turned upside down into some sort of capitalistic consumer festival. Basic food staples are missing form store shelves, but the new revolutionary man is prodded into making new lines day after day, to get his new plasma TV or Blue Ray player, or cell phone, but at a “just” price. Hurry! Before inventories run out, get your socialist dream, but made by Samsung and discounted by Nicolas.
And after forcing myself to listen to a couple of Maduro speeches, I must say, he has improved his delivery, but the content is a rambling and incoherent potpourri of empty words, where the Venezuelan President sometimes catches himself going in the wrong direction and completely backtracks when he realizes the absurd or inconsistent path he is taking.
And in between, the Venezuelan President makes promises that are simply impossible to fulfill or makes statements that are outright lies. Such as saying that now that the Government has taken control of all storage for commerce, there are supplies for a full year of all goods (Where is the toilet paper, the corn flour or the milk?). Or promising that “investment” will come to Venezuela this year and growth will be strong and inflation is about to fall sharply.
Because Maduro really believes that lowering prices in a fraction of about 12% of all goods can somehow lead to a 5% drop in monthly inflation. Not only does Maduro show how little he understands the problem, but in the end the Government is a victim of its own tricks to insure that the CPI will not go up strongly, because it created created a diverse number of groups in the CPI to minimize the traditional ones that go up relentlessly. But more importantly, nobody has (or can?) explain to Nicolas that by doing what he has done, he has suddenly increased the velocity of money, at least temporarily, such that inflation may even pick up after his latest actions.
But more importantly, even if Maduro will score some points on December 8th. , particularly by motivating Chavista voters to go out and vote, he has caused a variety of new problems and distortions for the already stressed and strained Venezuelan economy.
To begin with the commerce sector is one of the two with the biggest growth in GDP and in employment generation during the last 14 years (The other being the Government itself). With his actions, Maduro will destroy jobs, shut down stores and create shortages. While Maduro is looking for short term gains in lowering inflation, he does not realize that the commerce sector that he has been attacking, barely represents 12.8% of the weight of the national inflationary index and of these, he has affected the goods of less than 20% of the index.
But more importantly, does Maduro understand (can he?) that there are three factors that affect inflation: The monetary base, which the Central Bank will take care of assuring that it increases. The velocity of money, which Maduro has made sure increases faster now with people going out and buying just about anything they can get their hands on. And finally there is the the availability of goods, which is certainly going to decrease dramatically over the coming months.
And while Maduro was likely looking for short term gains with his war against commerce, the policies that he will put in place, like more controls, Government importing even more goods for the economy and persecution of merchants will create problems long term.
What is clear is that among other effects, we will see the following:
-The stores that were forced to lower prices over the last three weeks will reduce inventory, reduce investments and even close over the next few months. Many of the goods were being imported at the black market rate and are not part of the Cadivi lists, thus, given the accusations of money laundering against some stores for selling goods purchased with these illegal dollars, whole sectors of the commerce sector will certainly disappear.
-A gray market for goods will evolve in time. You will go to a store and they will not have a particular item on display or in their inventory, but the store keeper knows somebody, who knows somebody, who has a cousin who has one and can deliver it to your home at a certain price.
-Government buddies will be able to sell goods imported by the Government, creating yet another source of graft and commissions and a vast network of new beneficiaries of arbitrage. Nobody will prosecute Government owned distributors for selling goods at outrageous prices.
-The Government’s own import and distribution machine, which is already strained and incapable of importing and distributing everything, will be strained even further, distracted by the need to provide the new socialist hyper consumer society with appliances, plasma TV’s, cell phones and fancy clothes.
-New controls will delay imports and create new bottlenecks. Importers may get foreign currency approved, but if the new all powerful control office does not approve a price increase, the importer may not bring the goods to Venezuela until this happens. Other the importer will get the increases, but not the foreign currency.
-All of the items above lead to less tax collection and lower economic activity.
-Commercial real state construction will slow down. The Government also wants to control commercial storefront rents. Mall owners have been charging a percentage of sales ever since the Government forbid automatic inflation increases and/or dollar indexing of rents. The Government now wants to eliminate this practice too, removing all incentives to build new commercial real state properties.
All in all, another step backwards for the revolution and the Venezuelan economy. Like Maduro’s thoughts and speeches, the future is confusing, with each action creating a wide variety of new limitations and distortions. Sadly, Maduro will likely gain some votes on Dec. 8th with his actions, but the victory will be a pyrrhic one, the opposition will still get more votes than Chavismo and likely triple the number of municipalities it controls today. But another sector of the Venezuelan economy will be placed under control and close to intensive care, just because…