—Wow! I am for once going to agree with a Government announcement. The Vice-President just announced that the Value Added Tax (VAT) will be removed for a large number of essential foodstuffs, including most meats. How can I possibly disagree with the removal of a tax? Having said that, I would have done it differently. By doing it this way, the Government burns all the bridges at once. Inflation may drop with the measure temporarily, but the underlying forces and distortions that cause it are still out there. The proper thing to do would have been to lower the rate of the VAT for all items. The VAT is not only a tax, but also a control mechanism, since you can follow the chain of payment from the source to the merchant. Thus, you know revenues of the whole chain and you use that knowledge to enforce the payment of all taxes. By dropping all taxes on these items, that’s it, no room for maneuver in the future. But again, good move.
—A more puzzling one is the increase of the money allocation given to travelers or to use on the Internet. The $4,000 dollars a year per person for travel is increased to $5,000 and the Internet allocation is increased from $2,500 to $3,000. I am not sure what the rationale is for this. If they think this will relieve the pressure in the parallel market, it will make no difference. This is simply a larger subsidy to the well off, who are the only ones that can afford over 16 million Bolivars a year in these expenses. Thus, I can not agree with it. Of course, I believe in removing all controls, but dream on!
Moreover, the current difference between the official rate and the parallel rate is so huge (close to 100%) that a whole industry has sprung up around helping people use their allocation or convert it in cash. Just look for example at this website, which not only sells you the stuff but brings it to Venezuela.
—And speaking of puzzles, after the Government paying top dollar for Electricidad de Caracas, logic suggests that it will have to do the same for CANTV, but the stock barely moved on Friday staying around US$ 16 per ADR. From any angle you look at it, in this case the Government will have to go higher. Why? Because Telmex had offered to pay US$ 21 per ADR for the company, thus establishing a reference price. Moreover, the company has accumulated more cash since Telmex first offered that amount in April of last year. In Electricidad there was no such similar reference price and the Government paid more than the stock has been in the local stock market in the last year. CANTV was near $21 quite a few times in the last twelve months. Makes sense, no? The Government could even be sued in the US if it did not at least match that offer.
—Finally, there seem to be too many contradictory announcements by the Government in the last few days. Yesterday we were told that there will be a new luxury tax on cell phones, soft drinks, internet use and other items and today the Minister of Finance says there will be no new taxes for the middle class. One Minister says one day there are shortages, the next day a different one says there are. It happens daily, sometimes both in the same day.
—And how about the mystery of no Alo Presidente today….
The Devil's Excrement 
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