Archive for August 25th, 2009

Ali Bla Bla by Teodoro Petkoff

August 25, 2009


The Finance Minister recommends that to address the crisis, Venezuelans, among other things, must “develop a culture of savings”, as this weakness  constitutes one of the structural problems of our economy. Of course, Ali Rodriguez is quite correct in the diagnosis, but it would be nice if he could explain to us how to save in a country where the Government’s economic policy pushes for spending income rather than  savings and the families that manage some savings of their income, save , but in dollars or euros abroad. If Ali explained how to save under these conditions he would have achieved a feat equivalent to squaring the circle.

On the one hand, how to save in a country where the inflation rate is twice the interest rate banks pay savers? The maximum interest rate that banks pay for fixed-term deposits are 13.5% and 8% for savings accounts. The annualized inflation rate (July 2007-July 2008) is 26%. Exactly twice as much. So whomever puts their money in a fixed term deposit in one year it would have lost half its value. It is not that there is no culture of savings, but people are not stupid and will not save to lose money. But where does this inflation come from? Precisely the chavoeconomics.

The extremely high inflation rate in Venezuela is the result of government policy. ; The outrageous spending, recklessly executed based on the flood of petrodollars, the exchange policy, which discourages “endogenous” production  and favors imports, given the cheapness of the controlled dollar , but at the same time creating a parallel market where the exchange rate, higher than the controlled one, is referenced for overall economic activity to perpetual harassment operations of the productive sector, both manufacturing and agriculture, which together with the crushing weight of imports, decreased domestic supply of goods of all class, strongly encouraging;
repressed inflation by price controls, which erupt every now and then forcing the government to approve these brutal adjustments, in addition to the continuing political conflict and encouraged by Chacumbele by the volatility of the rules, pushing inflation to levels that double interest rates on deposits . No savings are possible. People tend to spend all their income as quickly as they can, so that the fast rising prices do not swallow their money, Thus, people can’t save and because they can’t save  there is no money for  “endogenous” investments. Whose fault is it? Additionally, anyone who can protect their income from inflation transforms their Bolivars into  dollars or euros in accounts abroad.

Even at the parallel rate for the dollar, it is more profitable to buy the green bills and take them out of the country rather than leave the Bs here. This, without mentioning  the appetite for the dollars at Bs.  2.15 which are easily satisfied by the various devices used to acquire them “legally”.

Since the introduction of exchange controls, 40 billion dollars have been saved … outside. Whose fault is it? That is why Ali will never be able to square the circle.