The Orwellian world of Venezuela

Simon Romero (@viaSimonRomero) tweeted this picture of a book at a Caracas bookstore:

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“War is peace” and “Voices of Liberty” come from Chavez, Jesus, Simon Bolivar, Mao, Ho Chi Minh, Che Guevara, Gandhi, Fidel Castro.  Huh, that’s quite a grouping.  How did Jesus and Gandhi end up with this crew?

I got your SOTU right here: Venezuelan Edition

While President Obama was piddling around with a mere 59 minute 57 second SOTU, Knuckles Maduro was keeping’ it real with a 3 hour address!

The killer was when Knucky acknowledged that oil prices were unlikely to rebound soon but assured his constituents that “God will provide”.

God however turns out to be pretty stingy as Maduro announced a 15% rise in wages and pensions. That would be sweet, except that Inflation in Venezuela is at least 65% and likely over 100%.

Besides showing triple the stamina, Knuckles absolutely crushed Obama on the sartorial front. See for your ownselves:

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Who runs Venezuela?

The Devil’s Excrement has had a series of excellent posts recently on the economic and political disaster that is Venezuela.  Here is one called “Is there a government in Venezuela?” It highlights the incredible inconsistency of policymaking and shows that the top people in the government are not even close to being on the same page.  And Maduro isn’t even on the same page as himself, in the sense that he’s cannot decide which direction to go.  The post (and blog) is well worth reading in full, but the last outraged paragraphs of the piece are especially good:

Who runs Venezuela? I am starting to think nobody. This is a collection of individuals with no apparent command or direction, led by an indecisive man. I don’t think Maduro went to Cuba to receive orders. I believe he went to Cuba to ask Fidel which of the many proposals he should follow. And Fidel likely told him to just hold tight, try to sell Citgo, see how long they can last. And if they can’t sell Citgo, you can make very tough decisions, like hold payment on debt, borrow somewhere and try to ride it out. But Nicolas, Fidel likely told him: You are not Hugo.

And so the country drifts into som sort of economic black hole. Today it is fingerprint scanners, tomorrow it will be some different imaginary battle. But it will always be about attacking the consequences, not the causes. Those, they will not touch. Maybe a small adjustment in the price of gas. Maybe move the Bs. 6.3 per US$ rate to the Sicad 1 rate. But that’s it. In the absence of Government, there will be no decisions. No real policy changes until 2016. At the earliest.

Markets in Everything, Venezuelan edition

Financial globalization has reached the world’s oldest profession in Venezuela.  Since prostitution is legal there, but trading dollars is not, sex workers have been able to supplement their income by selling dollars on the black market.  And by supplement, I mean more than double!  Here is an article by Bloomberg on the phenomena.

Because the bolivar is pegged at an untenable exchange rate, a thriving black market exists for dollars.  The article notes that “greenbacks in the black market are worth 11 times more than the official rate as dollars become more scarce in an economy that imports 70 percent of the goods it consumes.”

Economy Vice President Rafael Ramirez stated in March that “We are going to defeat the parallel dollar.”  My response is two-fold:  (1) no you’re not with current policies in place and a president who calls the black market “perverse” and “designed by the bourgeoisie to destroy his Socialist government”  and (2) what the heck is an Economy Vice President? Given the state of Venezuela’s economy, this guy (and the Economy President) should be fired stat.

So how are prostitutes in port cities helping to abet this “perverse” market created by the bourgeoisie?  Well, they charge sailors for services in dollars.  And services has expanded beyond what you might expect to include things like helping “foreigners arrange rooms, telephone cards and taxis, charging them in dollars and then paying the landlords and drivers in bolivars.”

One lady broke it down succinctly, “We can make more in two hours here than working in a shop in a month.”

As a final, odd postscript, Bloomberg tried to reach various government spokespeople for comment but none of them are allowed to be named because of “internal policy” (and none of them wanted to talk anyway).  Does it not seem oxymoronic to have a spokesperson for the Finance Ministry and for Maduro himself be anonymous?  How do they do their speaking?  through secret code left at special drops throughout the city.  To be fair, if I were a Venezuelan government spokesperson, I wouldn’t want to be identified either.

 

What $0.06 buys you in Venezuela

Well, how about a gallon of gasoline, for starters?

Not impressed? Then how about a pound of meat?

Or for the vegetarians in the crowd, 3 pounds of rice?

Sounds great, right? Scarcity is over, baby!

What could possibly go wrong?

I eagerly await President Maduro exporting this economic miracle model to the rest of the world.

 

Paging Dr. Maduro

Soon to be ex-president Nicky “Knuckles” Maduro has vowed to get rid of street protests “as one eradicates an infection”. 

Taking him at his word, I expected to see water cannons filled with Neo-Sporin, Helicopter drops of anti-biotics, police using megaphones to advise protesters to drink plenty of fluids.

Or maybe they use rubber bullets and teargas in Venezuelan hospitals?

Do not let the door hit you in the butt on your way out, President Knuckles.

 

 

Will the last firm in Venezuela please turn off the lights?

Caracas Chronicles recently had a fantastic post called “The Myth of the Bs.6.30 Dollar.”  It was written by an anonymous reader about the reality of getting foreign exchange legally in Venezuela.  I often talk about currency overvaluation, black markets, and capital controls in my development classes, but this is the first time that a participant has made it so clear that even the “lucky few” that have access to foreign exchange aren’t really so lucky after all.  I’m keeping this post for all of my future classes.  The system of acquiring legal foreign exchange in Venezuela is called CADIVI and here are some of the best excerpts from this person’s tale of woe:

Here’s how the long, tortuous process begins:

“Just to register in RUSAD and gain the olympian privilege of submitting a request to CADIVI, you need to tick a long series of boxes. Needless to say, you need to register your company, which is not as straightforward as you might think. Then you need to gather slew of stamps and certificates: a labor “solvencia” showing you’re in compliance with a thicket of labor rules, the INCES certificate, RIF, your IVA solvencia, your ISLR solvencia, your Fondo de Ahorro Obligatorio para la Vivienda (?!) solvencia, your municipal tax solvencia, etc. etc. etc. By the time you get the last solvencia on your list, the first one has probably already expired: go back and get it again. 

There is a 24 page document explaining the minute details you need just to be able to register to ask for dollars (not to actually receive them.  Some of these details include how you can (or cannot) bind papers together.

If you are importing anything non-essential (which apparently includes “chemicals, fertilizers, live animals and some minerals”), then you need to show that Venezuelan companies either don’t produce the product you want or at least not of sufficient quantity.  Welcome to import substitution industrialization folks.  You only thought (hoped) it was dead.

So, how do you prove that either of these facts are true?  According to the author, you need to either be exceedingly lucky or hire a fixer, (a.k.a., a gestor). This will cost you anywhere from 0.30 to 10 Bs per US$ requested, depending on the product. The process takes from 2 to 3 months, and you bear the risk of being rejected at any time for any reason.”

He or she points out that “in some cases, you may also need a SENCAMER certificate – don’t even ask – that’ll add another couple of months and 0.30 to 5 Bs per US$ to your tab.” lovely.

So what’s next in this government circle of hell:

“The next step is securing the Authorization to Acquire Foreign Currency. That one takes about a month. After this you are allowed to import under a set of very strict and always-changing CADIVI deadlines and requirements. Not complying with any of these can lead to your import being disapproved by MILCO and/or CADIVI, in which case you and your overseas provider won’t get paid.”

So how can you possible work on this and still run your company?  The short answer is you can’t.  The author recommends hiring 10 people if you are a small to medium sized business and 100 if you are a large one.  These people will spend 100% of their time on ticking the boxes and “supervising every step of the process, as a misplaced coma can – and will – cost you hundreds of thousands of dollars.”

After you’ve been approved, the sad fact is that you won’t get your actual dollars for another year. As the author rightly points out, no supplier is going to wait that long to be paid.  So now what?  The author recommends either hiring a “very expensive fixer (5 to 20 Bs per US$) to speed it up” or go to the black market to secure the dollars. If you go the second route, you have to ensure that the foreign supplier give you the dollars that CADIVI eventually pays out a year later.  Obviously neither of these options is very attractive.

The entire process takes between “15 and 24 stressful months, at a cost that could be anywhere between Bs.7 (if you’re very patient and unfathomably lucky) and Bs.30 per greenback.”  Good news though: Maduro in his infinite wisdom has decided that the process really needs two more layers of bureaucracy.

Given everything I read about the business climate in Venezuela, my question is how anyone can stay in business at all.  I’m surprised the economy functions at all.  The government seems hell-bent on driving all private companies out of business.

Is the gasoline subsidy behind Venezuela’s high inflation?

Some facts:

Gasoline now sells in Venezuela for a few measly US cents per gallon, let’s call it $0.05.

To meet demand, Venezuela imports around 25% of the gasoline sold there at international market prices.

Daniel Pratt summarizes the situation succinctly: “Tienes un billete de 100 y lo estás vendiendo por 5. Eres un güevón”

Meanwhile, the price of Venezuelan oil has fallen to a 16 month low of around $94 a barrel.

With costs soaring and revenues flagging, the national petroleum company, PDVSA is borrowing heavily from the Central Bank.

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So as Francisco Toro sees it, the Central Bank is printing money to finance the national gasoline subsidy (which is the highest such subsidy in the world today), and that’s inflationary.

Francisco amends Daniel Pratt as follows: “Tienes un billete de 100 y lo estás vendiendo a 5. No sólo eres un güevón, sino que tarde o temprano todo se irá a la mierda.”

Amen?

 

 

Nicolas Maduro: problem solver

After an awkward beginning President Maduro has really found his footing in Venezuela and produced a cogent, succinct, and effective diagnosis of all the troubles facing his beleaguered nation: Opposition Politicians!!

Yes, as it turns out it’s Henrique Capriles (who may or may not have actually won the election that put Maduro in office) who’s causing the many crises the nation faces!

Check out the airtight case Maduro offers:

“They’re stealing your electricity. They’re stealing your food. They’re stealing your peace. No more violence.” 

Apparently Mr. Capriles was found in his condo with 500,000 porterhouse steaks and running 250,000 window air conditioners full blast (plus he had 300,000,000 rolls of toilet paper stacked up in his garage!).

Here are the posters the government is putting up around Caracas:

 

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Cudos, Mr. President!