Archive for the 'Venezuela' Category

Follow Daniel For Today’s Tragic Events

February 13, 2014

I can not follow events closely from afar, but Daniel can and has been doing a great job, click here to see his reports on this very sad day.

Prison Sentences In Venezuela’s New “Just Prices” Bill

January 27, 2014

 price_controls-work-e1389636862818

Daniel has given you a neat angle on the new ¨Bill for Just Prices¨, which implies that if Jeff Bezos ever set foot in Venezuela he would have to go to jail. But Mr. Bezos is very unlikely to set foot on this country. But I want you to give you a slight different angle, the consequences for those that live in Venezuela. What they will face under the new Law. Now, I am not a lawyer, nor do I want to bore you with the details of the new Bill. I just want to point out how absurd, even medieval and fascist the whole Bill is.

Thus, I will concentrate on the prison sentences that local people will supposedly get for violating the Bill and the reasons for it:

–Take for example Article 51, which says more or less: “Those who sell goods or services at prices above those fixed or determined by the SUNDDE (The Superintendency created in the Bill to supervise everyone) will be sanctioned with prison terms of between eight and ten years.

The Bill is actually quite ambiguous, it is one thing for the price to be “determined” than for it to be “fixed”. The SUNDDE can “determine” at any time that your price was excessive. This will create a legion of of SUNDDE employees looking to determine prices so they can ask for a bribe.

Now, just to make sure, the Bill details what it means to say “Those who sell”. It is not only the owners, but also the administrators of companies that would be responsible under this new regime of threats and terror that is about to begin in Venezuela. In fact, I expect many owners to say “Forget it!” and just close shop, the same way I expect many Managers to say “Forget it!” and resign to their positions once they figure out what it entails under the new Bill.

But contrast Art. 51 above with Article 57, for example, which says: “Those who buy basic products in order to make money, to resell them at prices higher than those established by SUNDDE will be sanctioned with between 200 and 10,000 tributary units. Note the difference? If you make or sell something and violate the regulations, you get eight to ten years of jail, but if you are just a reseller (Mostly street vendors, I presume) you will have to pay between Bs. 21,400 and Bs. 1,070,000 (US$ 1,893 and US$ 94,690 at the new newfangled Sicad rate. Thus, you can extortion everyone, the penalty is just different, oligarchs get eight to ten, aspiring capitalists who are part of the “people” get to pay a fine (or a bribe!)

–It gets better. Article 55 says “Those that carry out actions or incur in omission that directly or indirectly affect the production, imports, gathering, transportation, distribution or commercialization of goods will be sanctioned with ten to twelve years of jail.

Subtle, no? Imagine you engage in a protest, block traffic: Ten to twelve years because you affected distribution or transportation. Or suppose you supported that protest, then you indirectly helped those guys. See it? This gives the Government carte blanche for jailing people. And they will!

– Article 58. Those that “condition” the sale of regulated goods or services by SUNDEE will be sanctioned with prison between two and six years.

Of course, it will be up to this new super bureaucracy, the SUNDEE, to determine what this conditioning means. You rent a store to someone and put in that they have to paint the store, not you, well, tough, you go to jail. Think about it, contracts will not be able to have any condition whatsoever or else! No soup for you! And jail too!

–Finally, there is an article that says that those that get involved with contraband (out f the country, of course) will be punished with jail sentences between 10 and 14 years.

Jeez! I wonder where they will be able to find new personnel for the National Guard. Unless, of course, the military s exempt from this. Which could happen, this is, after all, a revolution.

There you have it, It will be so easy to go to jail, so easy to charge you and convict you, that I ask: Would you work for a company or start a company that would be subject to this Bill?

No way Jose, as The Village Voice used to say.

The Bill, of course, has dozens of other nuances and penalties, I just thought I would highlight the worst ones. If you find comparable ones, please note in the comments.

And inflation? Will surely be higher in 2014 than in 2013, new Bill or not.

Venezuelan Government Devalues Currency

January 25, 2014

Billetes

After promisiing that it would not devalue, the Venezuelan Government not only implemented a devaluation equivalent to a 22.2% devaluation, but also established a fairly restrictive foreign currency budget, doubling Sicad auctions to US$ 220 million per week and reducing the travel and remittance quotas that individuals had access to. While promising to honor debt obligation in the form of bonds issued by Pdvsa and the Republic, the Government simply said it had no foreign currency to pay the US$ 8.4 billion debt between CADIVI and the private sector from imports made in 2013, which if true will have a drastic impact on local companies.

The announcements were made by the Vice President for Economic Affairs Rafael Ramirez, who said that there will be a budget for foreign currency of US$ 42.7 billion in 2014 (Imports in 2012 were US$ 75 billion and 2013 should be above US$ 65 billion). Of these, US$ 11.4 billion would be for weekly Sicad auctions of foreign currency at Bs. 11.3 per US$ in the amount of US$ 220 million plus US$ 5 billion for travel (Yes, the numbers do not add up!) US$ 30 billion would be left at the Bs. 6.3 per US$ rate for “essentials”, which include food, health, industry, education and pensions. Thus, the weighted average, if the Government sticks to the budget will be Bs. 7.6 per US$, for a 22.2% devaluation, even if Ramirez insisted that this was not a devaluation.

This is a very restrictive foreign currency budget and allocation, which at first sight suggests the Government is keeping some foreign currency for its own purposes and suggests the private sector will have even more difficulties in 2014 and shortages should intensify. The devaluation was much less than expected as most analysts were expecting the reverse weighting, with 70% at the higher Bs. 11.3 per US$ rate. Instead 72.3% will be at the old rate of Bs. 6.3 per US$. Wall St. voted down the adjustment pushing debt prices down sharply on concerns about the country’s ability to pay in the future, despite the promises.

Thus, the Government does very little to remove economic distortions, leaving a huge arbitrage between the official rate and the black market rate, which promotes contraband and finding ways, legal or not, to obtain CADIVI or Sicad foreign currency.

The Government did reduce travel, internet and remittance quotas which were all moved to the rate of the last Sicad auction. For remittances, the Government will require a tax filing, which most workers in the informal sector do not do, but I am sure they will come up to speed fast, filing so they can continue having access to the three US$ 166 monthly remittances for close relatives.

While one Government official said that debt with airlines would be paid (It stands at over US$ 3 billion now), Ramirez’ statement about private sector debt prompted the few airlines that were selling tickets to stop doing so. This confrontation could en up badly if the Government tells them to pack up or shut up, which is their usual style.

Ramirez also mentioned the word “permuta” (swap) which many took to mean a swap market a la 2003-2010 would be revived. I would say forget it, the Government can not allow a free market to function without a strong devaluation, nor does it have the dollars to supply such a market. At best, the Government could open a highly regulated and controlled market at Bs. 17 or so if things got tight. (They will)

All in all, another blow to the private sector, to the Venezuelan economy and to the so called Bolívar fuerte or strong Bolívar which has been battered since its creation barely five years ago in January 2008, when the exchange rate was Bs. 2.7 per US$.

We suspect that the Sicad rate would slide during the year and that slowly during the year more and more items will be moved to the higher Sicad rate. The Government will call it whatever it likes, but it will simply be more stealth devaluations of the currency as the year moves on. And so will move the unmentionable rate to higher levels together with inflation as the destruction of the Venezuelan economy by the revolution marches on.

Venezuelan Government Implements Stealth Devaluation of 44.2% For The Private Sector

January 8, 2014

photo(4)

44% chopped off the Bolivar, at least for the private sector. Note cut is to scale :-)

Just a short note on the fact that the Venezuelan Government just implemented a stealth devaluation by inviting to a Sicad auction (where the price is almost twice the official rate of exchange) for the following items:

-Automotive Sector

-Food Industry: Corn flour, wheat flour, corn oil, rice, pastas and cereals.

-Paper, carton and wood

-Health Sector and raw materials for the pharmaceutical sector and vitamins, including ophthalmology.

Clearly, the Government does not want to announce a devaluation which shows there is some fear. The problem is that if companies imports at Bs. 11.3, the Sicad rate raw materials for regulated and controlled items, these prices have to be raised. The same with pharmaceuticals, etc.

Of course, we don’t know if it is that the Government plans to devalue later, will keep importing for itself at Bs. 6.3 per US$, what will happen with Sicad, if all imports will be done at Bs. 11.3 per US$ etc. But for now, this is simply a devaluation of  44.2% for the private sector, which will make inflation soar again.

But the distortions remain in place.

What Will Happen In Venezuela In 2014?

December 29, 2013

Collapse2

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!

Merry Christmas Everybody!

December 24, 2013

IMG_4147

As you know, I am not the most optimistic about Venezuela at this time, which sometimes makes it hard to sit down and write. Thus, as I was thinking about what image to post for the holidays, I had mixed feelings about posting something without a reality check on what is happening in Venezuela. Then, my brother sent me this image and I thought it was perfect, a somewhat cynical view at the type of Christmas Venezuelans are being forced to have. But despite all, Christmas has to be celebrated.

It is a time of the year to be thankful, to be with family and enjoy the holidays. I wish you all a very Merry Christmas wherever you may be. That Santa Claus or the Wise Men bring you what you want (hopefully not what is in the picture) and you spend some happy times with your family, forgetting about all the problems.

Thank you for coming back and putting up with my writings and my rants. I am humbled to have such a loyal readership and hope you keep enjoying it.

Merry Christmas everybody!

From the Devil Himself.

Virtual Profits In Venezuela

December 22, 2013

FunnyMoney

This week, Ford Motors said that it expects to lose US$ 350 million in Venezuela with the upcoming devaluation, which they believe will take the Bolivar from Bs. 6.3 per US$ to around Bs. 12. Basically Ford has investments in Venezuela valued at around US$ 802 million plus the Government owes them a few hundred million in Cadivi imports, which could eventually be paid at the higher rate of the new official devaluation, which people think will be around Bs. 12. Thus, Ford expects that in 2014 it will not make money in Latin America, only because of Venezuela.

Which shows how difficult it has become to do business in Venezuela, when you book  “virtual” profits one year, only to see them disappear the next, together with the loss in value of your assets. Last year, Ford took a US$ 186 million hit when the Government devalued to Bs. 6.3. For years, multinationals have been saying they are in Venezuela for the long run, but most of them never imagined it would “long” would take all this time. And there is no end in sight for earning this virtual, “funny” money.

Essentially, companies have not been given foreign currency to repatriate dividends since 2007, when the Bolivar was officially at Bs. 2.7 per US$, but at least until May 2010, companies could buy foreign currency at their own risk via the parallel swap market. Today that market, which is illegal,  is almost a factor of 10 higher than it was in May 2010.

Thus, companies are trapped, their earnings get diluted by the devaluation, their assets lose value and the Government fails to pay them for imports of parts and goods sold at the lower rate before the evaluation. It’s funny money, almost like Monopoly money.

Except that things may actually be or get even worse than Ford expects, depending on “how” the Government devalues. Essentially, Ford has little visibility going forward, because not even the Government knows what it will do with the devaluation, least of all the companies in the country.

In fact, according to the latest rumors and information, the Government may be planning to set up an even more complicated system, in which there will be two Cadivi rates (Bs. 6.3 and bs. 12) plus the Sicad rate (Bs. 17-18). What this means, is that whether companies take the hit at Bs. 12 or the higher Sicad rate, will depend on the detailed wording of the decrees. If, for example, there is no mention of dividends at the higher Cadivi rate, then companies will have to do their accounting at the Sicad rate, because now that rate will be public, like Sitme used to be. (Up to now the Government had kept the Sicad rate secret, so that accounting was all done at Bs. 6.3, but when Sitme existed, if you had no access to Cadivi dollars, you had to do your accounting at the Bs. 5.3 Sicad rate)

This means that they could lose even more than they think

Thus, Ford, or any other company has no clue today as to the size of the hit they will have to take with the devaluation which is likely to take place in the next couple of weeks at the latest.

Which shows how hard it is to do business in Venezuela under the current environment. Companies have no way of hedging their profits, which lose value in a country with 50%-plus devaluation. They can’t plan, they have little clue about 2014 and there are only seven days left in 2013.

If, as rumored, the Bs. 6.3 per US$ Cadivi rate is left only for food and medicines, at least companies in these two sectors will not take a hit (por ahora!) like what happened last year. Those are the only guys feeling better.

There are dozens of multinational companies in this situation and every year it gets worse, as the numbers of Bolívars they have grows, but there is no way out.

And they keep waiting for the long run to end…

The Venezuelan Opposition Blunders Criticizing The Gasoline Price Increase

December 18, 2013

gas49.76 Liters (13 gallons) for Bs. 3.5 , that is US$ 0.55 at the official rate for a full tank, or US$ 0.055 at the parallel exchange rate. (4.2 cents per gallon at the official rate or 0.42 cents per gallon at the parallel rate)

I think the opposition is making a huge blunder criticizing the gasoline price increase and it shows its inability to evaluate how it reacts first before going forward. In the particular case of the gasoline price increase, which has now been opposed by at least, Henrique Capriles, Julio Borges, Leopoldo Lopez (The only winner in the recent election) and Maria Corina Machado, I think they should have waited for the full proposal before jumping the gun, rather than reacting viscerally to the announcement.

First of all, the announcement is incomplete, we don’t know what the new price will be and who it will apply to. The Vice-President suggested that it will not apply to public transportation and freight trucks, but we don’t know yet. Moreover, while the President of PDVSA has suggested that the new price for a liter of gasoline will be Bs. 2.8, there has been no formal announcement, what he had was a slide that showed at what price PDVSA breaks even in selling gasoline.

Second, if the opposition should believe in something is in that the current price is simply absurd (see picture above) and should be careful in opposing it today, when it may have to be in favor of it in a few years. It makes no sense to sell gasoline at a loss, it makes no sense to oppose the price increase if you believe in having a rational economic system and that the subsidizing of everything has to stop, particularly such a regressive subsidy.

Third, tying it to the Cuban or Petrocaribe subsidy makes it a very complex issue that most people will not understand and it is not true that the gasoline  given to these countries is “free” either, as most of them have suggested. Petrocaribe countries pay 50% within 60 days of delivery and the remainder with a loan that makes no sense, but that is a different matter. And while Cuba does not pay with money, it pays the gasoline with services. These services are paid at absurd prices, yes, but again, if you start lying and saying half-truths you are behaving the same way we criticize the Government for behaving.

Fourth, the Petrocaribe subsidy has actually been reduced in 2013, as clearly explained in this article in El Nacional, so the Government is actually doing something about that too. So, check your facts before you speak should be an important rule.

And finally, the opposition should be careful with anything proposed by a Government that has been so clever at manipulating public opinion and getting its way. While everyone thinks back to El Caracazo when talking about gasoline price increases and its consequences, people seem to forget that a very unpopular President, Rafael Caldera, actually increased the price of gas by about 800% in 1996, with little political consequence, as it sold the idea well and people understood it was needed. I don’t believe for a moment that the Government is being naive in proposing this price increase. They must have polls that show that people would support it and are ready to make the subject even more popular. Even to the point of having a referendum on the subject and beating the opposition (again!)

So, I think the statements made were wrong. The opposition should have waited for the details and oppose the details, but not the very logical and sensible gasoline price increase. Not doing so is simply cheap politics of the worst kind. The same way, it should say it backs it, but it also backs better terms for Venezuelan in the Petrocaribe and Cuba deals.

What the opposition is showing is that it has no solid proposal of any kind, it just reacts and opposes what the Government says. Maybe that is part of the reason why a large segment of the population does not trust it.

El “Cambiazo”: Reality Check For Those Who Think Bolivars Are Worth Less

December 17, 2013

cambiazo

For those who think that our currency is worth less, here is how distortions can make Bolívars be worth actually more. Yes, in the ultimate arbitrage (or inverse arbotrage?) opportunity, you can sell Bs. 1 million for Bs. 1.1 at the border, you hand in bills and the foreign exchange houses in Cucuta give you an instant transfer of your Bs. 1.1 into your Venezuelan bank account. This transaction called the “Cambiazo”, has been the rage at the border in the last few weeks.

The reason for this? Simple, Colombians going to Venezuela to buy goods need currency, bills, they don’t want to use their Colombian credit cards, which register operations at the official rate of exchange. As the black rate has soared, the incentive to go and buy goods in Venezuela has increased to the point that there is actually a shortage of bills at the border, creating this new arbitrage which remarkably makes the Bolívar actually stronger. Since the difference between the official rate of exchange and the black rate is a factor of ten, then goods are still cheap, even if the merchant is making a 200% profit and you pay 10% more for the Bolivars.

Another market solution by inventive Venezuelans and Colombians to a problem created by the excessive controls in Venezuela. Sort of like reverse arbitrage. Is this a first instrument of its kind in the world?

The Details Of Sunday’s Venezuelan Municipal Election Results Are Ugly For The Opposition

December 12, 2013

totals

While people are still trying to show that the municipal elections were somehow a victory for the opposition, the more the results are analyzed, the worse it actually looks for the opposition. I had tried to analyze the results of the election to look at local parties which ran independent candidates and separate the votes according to the leanings of those parties. But since the CNE  site is blocked outside Venezuela, it is very difficult to do. Someone was helping me locally, but then today Eugenio Martinez did an even better (more precise) job in El Universal, as he even had two additional categories, candidates supported by both sides (bizarro country) and really independent candidates with no ties to either side.

The results are shown in the table above. The first two lines are the Lucena-style results, in which you only take into account the votes for PSUV and the votes for the MUD, which makes it look like PSUV got 54.4% of the vote and the MUD 45.6%. (Both in red).

The opposition had a different interpretation, which was to add ALL votes not for the MUD or PSUV to the opposition, which made it look fairly close, with a slight advantage to the opposition.

But the reality is that, as Martinez shows, of those additional votes, about 533,000 correspond to candidates who are part of Polo Patriotico, but were in municipalities where the votes were divided. Similarly, about 270,000 were for parties which are part of the opposition, but ran separate candidates from the MUD. Finally, about 300,000 votes can not be accredited to anyone, because the candidates were either supported by both sides or neither.

What the totals say is that the results up to yesterday, are quite close to the Lucena-style results with PSUV and its allies obtaining 53.7% of the total vote and the MUD and its allies 43.4% for a total difference of 1.1 million votes between the two sides.

This means that the results are even worse that they looked initially, as the opposition lost by about 8% of the vote, compared to the minimal difference (if any) of the April Presidential election. Thus, about the only positive thing you can say is that the opposition managed to win the more “emblematic” races, including most large cities, but losing Maracay, Distrito Libertador and Sotillo (Puerto la Cruz), as well as the “in your face” opposition victory in Barinas.

Chavismo on the other hand won the popular vote handily, won nineteen of twenty three states and only lost 26 cities when compared to the 2008 election. Maduro can also say that he is now more legitimate than he ever was and Capriles lost the plebiscite.

By now, even one Mayor elected within the MUD has already switched sides in Aragua, while the opposition lost one Deputy in the National Assembly because both the principal and his alternate were elected as Mayors in Zulia State.

Meanwhile, both sides are claiming victory with Maduro even saying his candidate won in Lagunillas (??). But what is true is that the Daka offensive, the so called “Cadakazo” worked, it changed public opinion overnight. And the opposition had no time or did not have time to react. Thus the loss. And it is a big loss.

And in the best Chavista (and Venezuelan!) fashion, to celebrate his victory, Maduro decides to give Venezuelan a “gift” by cancelling school all of next week with return to classes on Jan. 6th. Makes sense, the last thing Chavismo needs is an educated voter. Maybe they would start to understand what the populist game is all about.

Three I “forgots”: 1) I think we may have a referendum on the gasoline price increase, that would really divide the opposition, Capriles already came out against it.  2) Government discovers 40% of companies given CADIVI are fake, but it is someone else’s fault. 3) Apparently inflation in Novemeber was imaginary= i, because the number is already three days late.

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