Archive for December 22nd, 2007

Ignorant economic management continues to generate waste and inflation in Venezuela

December 22, 2007

Some of the economic topics I have dwelled upon in the past were the subject
of intense attention in the news this week as the amateurish Government
officials that set policy finally realized what the most basic economic
common sense says.

First, the Government ordered the banking system to cancel all pre paid credit cards starting on January 1st. 2008. The reason? What I have told you about here a few times and attempted to parody in the Oligarco Burguesito
piece: People had made a business of purchasing internet quotas from
those that could not afford it making it a very profitable business.
First you find someone and get a debit card for him/her. Buy a $3,000
quota for Bs. 2,150 per dollar (Bs. 6.45 million), sell the $3,000 in
the parallel market at Bs. 5,500 (Bs. 16,500,000) and pay a couple of
million to the person, for a tidy Bs. 8.05 million, more than 100% over
the initial “investment”. A similar deal is done with the $5,000 travel
money, whereby people are taken to the Caribbean or Panama and are
taken to a casino where they collect their $5,000.

the exchange control office reported that debit cards have used in 2007
the appreciable amount of US$ 1.8 billion in Internet and travel
quotas (Add that to the flow of the parallel market), showing the dimension of the dubious orders. While it is not
easy to estimate how much of this was “planchado” as the practice of
buying the quotas is called in popular terminology, you can bet that it
is a huge percentage f the Government decided to eliminate pre-paid
credit cards all together.

Ironically, it is
the people without much purchasing power that will in the end be hurt
by the decision. The same people that the revolution claims to “love”
so much. In its infinite wisdom and stupidity the Superintendent of
Banks canceled all cards, not just simply its use abroad, which it
could have done.

In some sense this is like
the old joke of the guy who is telling his buddy he caught his wife
with another man on the sofa in his home and when his buddy asks what
he did, the man replies that he got rid of the sofa. That is all the
Government has done throwing away the sofa, not solving the problem but
attempting to solve the problem by prohibiting something which will
simply challenge the ingenuity of the “planchadores” to take advantage
of the huge arbitrage between the official and the parallel rate, which
you may recall I can not quote publicly.

the Superintendent of Taxes said that the Government is considering
reducing the financial transaction tax, which I called when it was
first approved the new magical mystery financial transaction tax and later revisited the subject under the name Ignorance or bad faith?.
You see, the tax was hailed as an anti-inflationary measure, the same
Superintendent of Taxes claimed it would have no impact on inflation
and it would absorb liquidity. All of these arguments were so absurd
that it was hard to tell if these guys were being facetious or not.
Well, my previous query was answered very clearly when the same man says that the tax may now be reduced
in order to reduce prices, clearly contradicting his earlier statements
and proving, much as in the case of the debit cards and the abuses with
the internet and travel quotas, that it is simply extreme ignorance which
continues to prevail and dominate the economic thinking of the
Venezuelan economic authorities.

Which is the
reason why this economy will at some point not too far into the future
explode in their faces and unfortunately in ours…