Since 2013 we have all been waiting for the Venezuelan Government to make some form of adjustment to the Venezuelan economy, as it was clear that the trajectory was simply unsustainable. Then, in 2014 oil prices dropped making the adjustments even more urgent. But remarkably, little has been done, as the Government simply keeps kicking the can down the road, either waiting for some miraculous event or executing a well conceived plan that if oil prices don’t recover then…something may be done.
And thus we keep waiting. Venezuela’s economy is in intensive therapy. Inflation is pushing 100, shortages are the rule of the day, the economy is shrinking, the foreign exchange system is unsustainable and the Government faces a US$ 25 billion deficit. And despite this, the Government is doing very little.
Let’s look at what it has done:
-It obtained US$ 1.9 billion from swapping its Petrocaribe debt with the Dominican Republic
-It obtained US$ 2.8 billion from Citgo
-It started a new fx system, including a new rate Simadi, which took a month to be drawn up and a week to fail.
The most remarkable aspect of Simadi, is that the Government did not seem to have much of a plan for providing it with foreign currency, essentially guaranteeing its failure from day one. Some people claim that the Government really believed that people will sell into Simadi rather than the black market.
Really? If they are that naive, we are in bigger trouble than we thought.
But in any case, the Government made Simadi extremely complex, with the only good decision to have it trade at a value close to the parallel rate. However, it imposed a cap on its maximum price and while the system began trading close to that rate, once it became clear that there was a cap and there would be little flows via Simadi, the parallel rate, which had been held back by Simadi expectations, simply soared. (Read: More inflation ahead)
Remarkably, rather than relax or change the rules for Simadi, the Government has done absolutely nothing since then. An even bigger puzzle has been that after a month of the new foreign exchange system, there has been no Sicad auction, despite the Government announcing that one third of all foreign currency for imports would flow through that. Go Figure…
With the new system, the Government truly kicked the can down the road, as it failed to take advantage of the changes to modify either the Cencoex rate (Bs. 6.3 per US$) and the non-existent Sicad rate, last seen at around Bs. 12 per US$.
What the Government has not done:
-Despite announcements, advertising, claims and talk, the Government has yet to increase the price of gasoline which, while likely will be timid, could help a little in closing the financing gap (and save foreign currency). Why spend so much money in daily (and constant!) TV and radio ads and then do nothing? What is holding up the increase? Minister of Transportation El Troudi ( Likely the best Minister by far in the Cabinet) keeps going on TV, making statements about the small impact of the gasoline price increase, but then nothing happens. Whose decision is it?
-The Government has done little to control the growth in the money supply M2. Yes, the slope appears to be slowing down, but this always happens before March, when the Government delays budgets and then releases two or three months at once. Even more puzzling was the fact that there were no Treasury Bill auctions in January and February. These auctions are held regularly during the year. Why did they stop them at a time that you actually want to use them to reduce M2?
-Selling/Swapping the Gold: Whether people like it or not, the Government has some US$ 15 billion in gold that could be used at this time. That is what reserves are for and it is dumb to hold them in gold. There has been talk of a swap with the gold that is still in London, but nothing happens. If I were the Government I would ship even more abroad for future use. Again, why kick the can on this?
-There was supposed to be another Petrocaribe debt transaction with Jamaica, but nothing happens. Oh well, par for the course.
-The Government issued a PDVSA 2022 bond with a 6% coupon in stealth mode last October, which it sold to the Central Bank. This issue has yet to be sold in the market. What are they waiting for, a recovery in prices?
-PDVSA, which is rumored to have bought back close to a billion (cash) in its short term bonds, could be preparing some sort of liability management operation, that would seem to be the only justification for buying back bonds. Some people claim, they sre just buying back to pay less in October. Can they be that naive? Or is the same “intelligence” behind the Petrocaribe, Citgo and Gold transactions is preparing some form of exchange for the PDVSA 2015, 2016 and 2017 bonds?
What is clear is that the Government considers default only a last minute option, something that will be tested if the Judge in the Gold Reserve case rules against Venezuela and declares it in default. We suspect, Venezuela will simply pay at that time. The same way it is likely to pay next October, even if half of the market thinks they will not. But 2016 is a whole different ball game.
But in the mean time, to close the fiscal and balance of payments gap, it can’t continue to kick the can down the road. Oil may rise, but it may not, bonds may recover, or they may not, China may lend more or not, but Venezuelan has to act. The sooner the better.
The puzzle is what are they waiting for?
The Devil's Excrement 
April 5, 2015 at 4:59 pm
“-Selling/Swapping the Gold: Whether people like it or not, the Government has some US$ 15 billion in gold that could be used at this time. That is what reserves are for and it is dumb to hold them in gold. There has been talk of a swap with the gold that is still in London, but nothing happens. If I were the Government I would ship even more abroad for future use. Again, why kick the can on this?”
Uh, because the most likely answer is that the castros have the Venezuelan gold, as “warranty for the services provided”?
“…keeps going on TV, making statements about the small impact of the gasoline price increase, but then nothing happens. Whose decision is it?”
Because they know the inflation will skyrocket again by increasing the gasoline and will hit worse to those who use public transport. Also, the choice isn’t in te regime’s hands, is in the smuggling mafia’s hands.
“-The Government has done little to control the growth in the money supply M2. Yes, the slope appears to be slowing down, but this always happens before March, when the Government delays budgets and then releases two or three months at once…”
Inorganic money print, and keeping the same money in bank accounts to eat the interests, nothing new under the sun here.
“The puzzle is what are they waiting for?”
They’re dreaming with a new raise in the oil prices to at least 80-100$/barrel, also, they’re waiting for the elections to pass, as anything they do’ll reduce the miserable voting base they currently have.
April 3, 2015 at 2:21 am
a good summary of the current situation… the truth is that nobody can explain what’s happening and this is one of the reasons why Venezuela is so interesting right now… no other country has such a level of government negligence, corruption or simply sheer madness…
April 2, 2015 at 9:41 am
“China may lend more or not, but Venezuelan has to act. The sooner the better.”
Disagree. Unfortunately, the worse the socio-economic situation gets, the better the chances for people to get really pissed off, and overthrow the Regime.
The higher the inflation, the less pollo, harina pan y papel toale, the better.
If Masburrismo’s incompetent Corrupto Thieves had a clue on how to handle Economic/Financial matters, then we would really be doomed to settle as Cuba 2.
“The puzzle is what are they waiting for?”
They are too busy Stealing, raspando la olla, devising Huge diversion ruses like this new diabolical “List”, plus they are just too incompetent, under-educated. Too much corruption and special interests in place to run effective economic/financial programs as you suggest. They couldn’t care less, as long as they remain in power though oppression, to steal even more.
I mean, Get Real…
April 2, 2015 at 7:21 am
“Venezuela’s economy is in intensive therapy.”
At the risk of extending the metaphor too far, I would say that the “economy” is lying on a gurney in the hallway, while the doctors are treating the “U.S. aggression”, “media war”, and the “traitorous opposition”.
April 1, 2015 at 9:29 pm
Final collapse??? 2014, …..2015,…..2016……………………………marching toward full term 2019..
April 1, 2015 at 1:50 pm
How long can they keep this insanity? For sure they are not selling enough dollars and private inventories keep drying out:
http://runrun.es/la-economia/economia/195830/cuestion-de-semanas-por-angel-garcia-banchs.html
I don’t know how valid Garcia Banchs estimates are. But it is clear than sooner than later, if the government keeps ignoring the crisis, we are looking at a scenario of hyperinflation.
April 1, 2015 at 2:00 pm
Dont worry, they have sox million signatures and the Constitution will ban fracking.
April 2, 2015 at 10:40 am
A true test as a diplomat for Obama will be his reaction to the signatures. To laugh in Maduro’s face would be most natural, but might not go over too well with the others present.
April 1, 2015 at 1:10 pm
VZ in 2065? http://www.bloomberg.com/news/features/2015-04-01/cuba-s-new-money
April 1, 2015 at 8:17 am
Thought all the gold was returned to Venezuela several years ago fearing sanctions. Who knows where it is now or if there is any left?
April 1, 2015 at 8:26 am
Not all of the gold was returned, about US$ 3 billion is sitting in JPM in London.
April 1, 2015 at 11:51 am
I wonder when the US$3 billion will disappear.
April 1, 2015 at 7:50 am
Finally, there appears to be a Kafkaesque feel to the swirling insanity surrounding the economic advisers (if there really are some..) on their silly plan to continuously kicking the cans down the road. “Maybe if we can delay the payment/restitution decisions at ICSID long enough one day they’ll simply forget about us and wipe the debt from our books?” Or…”If we keep making those absurd interest payments on the bonds, while shortchanging the import lists for medical supplies and food, maybe one day those nice Wall Street bankers will grant us another HUGE loan to keep this Rube Goldberg economy afloat?” If this is indeed the game plan, these people are simply drooling imbeciles. Frightening.
March 31, 2015 at 9:36 pm
The puzzle is what are they waiting for?
They figure they can wait it out, because before long Happy Days Are Here Again.
March 31, 2015 at 4:44 pm
OT:
My VZ niece and her boyfriend want to visit us again (they were here fairly recently), and for whatever reason, they’re only allowed to get 700 U.S. bucks each if they go to Florida.
But if they travel elsewhere, they’re talking Georgia just for the paperwork part of it, they can exchange for a lot more dollars,
Can anyone explain this to me?
March 31, 2015 at 5:17 pm
You get US$2500 if you go to Cuba & only $700 if you go to Florida.
Figure it out.
March 31, 2015 at 4:10 pm
Miguel, I’ll tell you about the Simadi, this is a stupid system, made for the government to reach into the divisias that are sent to Venezuelas from the outside by Venezuelans to help their families.
Statements by the President of the Association of Exchange, he said that have traded 2.6 million Dollars, I ask with whom ?, I have 15 days trying to buy 300 Dollars in cash, to send to my son, and I have traveled all Change the existing houses in Caracas, and all the answer is the same, No ?.
In conclusion the Simadi, is just to put him hand to the unique Dollars which are escaban the government.
March 31, 2015 at 2:48 pm
MO, I guess they may be selling a little gold and waitng for oil prices to go back up. I also wonder if some of the $20 billion Giordani said was robbed didn’t land in a set of hidden funds they can use to try to stay afloat?
Also, I notice the standard of living is higher than Cuba’s. Raul is ready to drive Venezuela into a much lower standard of living. As long as the people confirm his opinion, that they lack the gumption to do anything, Raul will keep squeezing. Life will just have to get tougher, Venezuelans are still complaining about lack of diapers and cappuccino. Raul will get worried when you start fighting for dead horses and take to the sea in rafts.
March 31, 2015 at 1:19 pm
???
Didn’t they rule default on the gold case yesterday?
Faustus posted a link.
March 31, 2015 at 1:24 pm
According to Bloomberg, Venezuela’s counsel has asked Judge to set aside ruling and Judge will rule in the next few days.
March 31, 2015 at 5:42 pm
What is interesting here is that Gold Reserve has appeared to have slipped through the dragnet of the powerful DC-based, Chavista-hired attorney’s. Most of the other major ICSID court cases wind-up with a judgement against Venezuela/PDVSA, but then a timely request for an “annulment” is filed in the court which kicks any legal demand for settlement way down the road. There is a well-planned legalese game plan being played out here, and the powerful attorney’s at ExxonMobil and Conoco/Philipps can do nothing to stop it. But, Gold Reserve appears to have ‘them’ by the short hairs. I think. What they’re gonna do next is anyone’s guess.