Predicting what the Venezuelan economy will do in 2010 is becoming harder and harder. The Government relished the fact that the country’s CPI only grew by 1.7% in January (2.4% in Caracas), still at a pace to become the second or third largest inflation rate of the world in 2010, but the truth is we ain’t seen nothing yet. Simply put, the absence of known rules made January a wash out month, with many producers and manufacturers not selling anything, waiting to see at what rate CADIVI will given them raw materials before remarking up prices. (Hopefully the 5% increase in January in alcoholic beverages and tobacco says nothing about the mental state of Venezuelans)
But the picture emerging for 2010 is not pretty. By now, the financial crisis has taken out 8-9% of the financial system without taking into account stock brokers. New ones are intervened daily (two today) becoming simply non-news. If we round it to 10% of the financial system (it will be more) we are talking about the rip-off or disappearance of some 24 billion Bs., roughly US$ 10 billion at the lowest official rate (bs. 2.6 per $), US$ 5.58 billion at the second official rate (Bs. 4.3 per $) and US$ 3.7 billion at the swap rate (Bs. 6.5 per $, still going up, despite CD’s and supposedly US$ 130 million per day in CADIVI outflows in February.
And the financial crisis alone (which is not over, some banks still have holes) will have an important cost. First of all, the Government has refloated some of these banks, without replacing the losses with money. Most of this has taken place under the Banco Bicentenario umbrella (Fogade barely had money to cover the first two or three interventions), which only had one healthy (not really, just when you compare them) partner: Banfoandes. As people withdraw their money from Bicentenario, the funds are coming from Banfoandes’ money, the hole is still there, but the Government is willing to throw lots of money at it. This will be, of course, more inorganic printing, more inflation. To say nothing of the unemployment created by the whole crisis. People are being fired daily, as the centralized operations are all moved to Banfoandes and only the people at some branches survive (Other branches are being closed due to proximity to other ones of the integrated entity).
But the pain in the Guayana region, where heav industries are, is very high. Sidor, nationalized barely two years ago from Argentina’s Ternium (And a payment by Venezuela to that company mysteriously missed yesterday) has been asked to cut 60% of its liquid steel making capacity to save electricity. Given that the company lost US$ 400 million lat year at full output of 2.9 million Tons, you can imagine what this means financially for a company already bleeding money. And aluminum companies Venalum and Alcasa, already running deep in the red had to cut 36% and 24% of their production capacities for the same reason.
And in the hot iron briquette sector, nationalized only last year (not compensated yet!), Venezuela’s output is known to have dropped 45% in January from the already low levels of last year when one of the nationalized companies Matesi, was shutdown by the Government. The lower output can not be blamed on the electric crisis, these plants run on natural gas, so it is either that the Government is not providing the required iron ore from Ferrominera del Orinoco or the natural gas is being used elsewhere. We are inclined by the latter given the reports that Venezuela’s deficit of natural gas production has increased from 1.5 trillion cubic feet to 2 trillion cubic feet due to the reduction in production of oil in better quality oil fields with their associated natural gas.
And in the nationalized oil pipe company Tavsa, not a single pipe has been produced since nationalization a year ago. Way to go for the revolution!
All of these companies are under the umbrella of CVG, almost bankrupt last year when it planned to float a US$ 2 billion bond to continue operations, until the hard reality that the yield would have to be near 35% for it to be sold, forced the company to withdraw it from the market. Had it come to market it may be doing worse that Blockbuster’s September issue now trading at 92% yield. But its President says he plans to invest US$ 440 million to generate 880 MW of power at Sidor. You have to wonder where he will get the money and by the way, he should really talk to Diosdado Cabello about this, Cabello announced that he would spend 1.4 billion euros to produce 1,000 MW of power. One of them is lying or scamming. Only in the Chavez robolution do Government officials differ by a factor of four in the cost of a MW of generating electric power. Maybe that is why the electric system is in shambles.
Today, economist Jose Guerra was saying that in the industrial area of Valencia, manufacturing companies miss more the raw materials from these companies than the flow of dollars from CADIVI. They could always use their own funds to operate (at the swap rate, of curse), but without the raw materials, many metal, slab, billet, wire and beam plants are still shutdown five weeks into the new year. Cuban “experts” were brought in to see if they could replace some of the raw materials from Sidor and when they saw the plant at Sidor, they said they had nothing even close to that size in Cuba and could not help. Nice trip though…
And we have yet to see the real effects of the contraction of demand due to the devaluation. Demand had already contracted sharply last year in the fourth quarter, but will certainly contract even more now that inflation will shoot up, no matter how much additional money the Government throws out into the streets. In fact, on the inflationary front, it is this contraction in demand which becomes the most perversely positive effect on inflation.
And even the so-called expropriation of gold center La Francia will leave people without jobs, if you can call the Government expropriating from the Government an expropriation. While some suggest there was a racist component to the decision, one of its merchants told me today he is leaving the country and shutting down operations. To him, it is clearly a racist decision by Chavez, no other interpretation (think Star of David!). Meanwhile the rightful owner of the building, the Universidad de Oriente. also thinks this a political decision, to take away an independent source of funds from a university which Chavez considers to be in the “enemy” camp. As evidence, the University insiders note that the Minister of Higher Education used to directly managed the rent from that specific building and he is part of the Chavez Cabinet and was actually present in Plaza Bolivar on Sunday. Thus, Chavez kills or threatens two groups with a single stone.
And we come back to the original question, a damaged economy that shrank by 2.9% in 2009, is likely to do worse now in 2010. Even the more positive economists, who were forecasting a positive or flat GDP for 2010 are already changing their estimates to saying at least the 2009 number, if not worse.
Not a pretty picture, even if you dream with the best (negative possible scenario). This in a country whose President was saying a year ago that “we are shielded from the world’s crisis”. Has anyone noted to him the US economy grew by 5.7% in the 4th. quarter of 2009?
Yeah, but capitalism is dead, the robolution may be alive, but Venezuelans are feeling very pessimistic!
The Devil's Excrement 
July 15, 2013 at 9:58 pm
Hey, you used to write great, but the last several posts have been kinda boring I miss your great writings. Past few posts are just a little out of track! come on! % ナイキ ランニング http://nike-japan.nzcmi.com%
February 12, 2010 at 1:46 pm
Miguel, thanks for the great post. I have a question for you. Someone today on another forum made me aware of the outrageous housing prices in Brazil, El Salvador, and other South/Central American locations. I was wondering if Venezuela was spared from this obvious and under reported housing bubble affecting much of the continent.
It seems to me that a lot of these same European banks that lent to Dubai and Greece are on the hook for properties in South America. As dumb as U.S. bankers have been, they may look smart when compared to their European counterparts.
And FWIW, if you could give those of us like myself a heads up on whether your opinion changes on a Venezuelan debt default, it would be greatly appreciated. As of now, you still believe Venezuela can pay on its debts, correct?
February 12, 2010 at 8:31 am
Any estimates thrown on the likely down turn of the country´s GDP is just worthy of a Twilight Zone chapter program.
What´s truly ironc about the new electric rationing rules is that for once Chavez and his ministerrs, who dreamt of eliminating markets and capitalist institutions must resort with the old fashioned invisible hand to coax its population to gauge electric power consumption patterns.
The Law of Demand and Supply reigns supreme in a country with communist pretentions
Adam Smith came back with a revenge!
February 12, 2010 at 7:30 am
Arturo: Yes I just erased your insults. I did it because I told you you are rude and because you keep posting and posting and never addressing the topic of the post, which I suspect you have never read, because you dont even read the posts, that the type of troll you are.
As for inferiority complex, I think is Chavismo who has it. I, on the other hand, have a hobby, my blog, which is internationally recognized and have had two careers in my life, both of which brought me international recognition and awards. Since all we know about you is that you are a fanatic troll, it doesn’t look like you have accomplished much in life. It shows.
And you should try to be consistent, a week ago you were trying to argue we had a superiority complex, now it is inferiority. And yes, I insulted you and Chavez, but that is precisely what Hugo has been doing to those of us that disagree with him and his destruction of Venezuela. It is Chavez that wants to divide Venezuela and Cubanize it too and you think he is a patriot. Grande Patria my ass!
Again, start your blog to insult and discredit me, you can call it the anti-Devil, see if anybody reads your empty arguments.
February 12, 2010 at 5:56 am
I hate that we’re going to have to wait until Ash Wednesday to see how this finally plays out, at least from AFs perspective. Rumours are rife right now.
February 11, 2010 at 9:10 pm
This afternoon text messages were bouncing everywhere announcing the sale of Mezerhane’s (think I got it wrong) stocks in Globo to a JVR sidekick and that El Ciudadano is history, besides the implications for its editorial line. Hope GWEH is correct.
February 11, 2010 at 7:27 pm
I agree, ban him
February 11, 2010 at 6:07 pm
Just ban the carajito.
February 11, 2010 at 5:17 pm
Octavio – I see that you have a BIIIGGG problem with peaceful coexistence.
You would command more respect if you were more tolerant and admitted your errors. That would show real character. However your worst façet is hiding the truth from your readers by either censoring or by omission.
February 11, 2010 at 5:04 pm
Arturo? Another avatar of you know who? A clue: “those oppo morons ad hominem me all the time”
February 11, 2010 at 5:03 pm
The email is not fake and I challenge you to write me. Since you have never written to me then you cannot judge whether it is fake or not. Why do you have to lie?
Secondly you accuse me of being off topic and then you allow GWEH comments to stand when they were also off topic. I was merely replying to his observations. The fact is that you did not like the content about the opposition being at war with itself. The truth hurts.
February 11, 2010 at 4:56 pm
I note you deleted my comment Octavio. You just cannot resist censorship when you allegedly support freedom of expression.
February 11, 2010 at 3:42 pm
Moctavio, as the unit gets bigger the unit price in $/kW installed goes down. I did a quick check on the website
http://www.gas-turbines.com/trader/kwprice.htm
In fact there is a pretty decent inverse semi-log type relation between unit size and $/kW installed.
This could explained the one to four factor. However since these people have been talking shit for the last 11 years don’t expect them to talk common sense now. The way to look at it is the following: Cabello’s price is 4 times that of the other dude, it just mean he is a bigger thief.
February 11, 2010 at 3:38 pm
Cheaper to start. Look for diesel to become scarce.
February 11, 2010 at 3:23 pm
“But its President says he plans to invest US$ 440 million to generate 880 MW of power at Sidor. You have to wonder where he will get the money and by the way, he should really talk to Diosdado Cabello about this, Cabello announced that he would spend 1.4 billion euros to produce 1,000 MW of power. One of them is lying or scamming. Only in the Chavez robolution do Government officials differ by a factor of four in the cost of a MW of generating electric power.”
Price is partly a function of the unit size. For example, a one MW gas turbine will go for $700-800 per kW installed while a 200 MW unit will go for $180-200 per kW installed. This is a one to four factor.
February 11, 2010 at 2:16 pm
If you read Tolo’s comment carefully and if he does represent mainstream Chavistas, I think there is something very important to be hopeful about. Note that he does not defend Chavez’s administration for its accomplishments. He just, without actually bringing himself to doing it, calls Chavez the least worse (“With an oposition like this we are better off with Chavez for ever!”).
Give these guys some time and they will be ready to bolt the revolution. I think the first steps are being taken.
February 11, 2010 at 2:07 pm
Miguel,
For what it’s worth, cutting back Sidor’s capacity by 60% could actually result in that entity loosing LESS money, if e.g. corruption / ideology driven low revenues don’t cover corruption driven inflated variable costs. Not that it hasn’t happened before….
Taking it to the extreme, the best, i.e. cheapest (strictly financial) scenario under these circumstances (and ceteris paribus) could actually be for Sidor to produce absolutely nothing.
Of course one would have to know Sidor’s cost structure and if e.g. they don’t pay for electricity in the first place (as has been reported) then the above scenario is less likely, but it could still then be an overall better outcome, because now Sidor’s consumption of “free” electricity goes somewhere else and (hopefully) actually generates revenue.
This is of course nothing new and happens all the time in command driven economies, where e.g. the concept of “opportunity cost”, such as is the case here, is either not understood, or ignored. Of course in free market capitalistic economies, these things take care of themselves.
February 11, 2010 at 1:09 pm
Tolomeo, assuming the well-known chavista attitude of spoiling it for all by “pissing over everything” … I’ll hazard some free advice: if you do it into the winds of change you’ll probably get wet.
February 11, 2010 at 12:00 pm
Yea, Tolo…who is Arne? Who is Jesse? Who owns EBEVA? Ever been to Hugo’s official hacienda? Bought by his formerly copeyano daddy?
Do you know who belonged to AD among the top 4 in chavismo? Yeah, Aristóbulo.
Hugo’s daughters go to Paris, Santiago, elsewhere while chavista leaders steal from the poor.
Tolo, what have you done with your life? Did you learn to sing Ali Primera’s songs? Wao…way to go. Now go away or tell us in what chavista blogs we can write the way you write here;
chavistas are just the same as former adecos, but 10 times more corrupt and 20 times more mediocre.
They just wear red clothes…sort of to compensate for their pseudo-revolution.
February 11, 2010 at 9:35 am
Somebody should talk about what Chavez’s blind decisions are doing to the country in terms of inciting violence and crime. I’m visiting Venezuela this week, and the crime levels are FRIGHTENING. I wrote a little bit about what I have heard from friends, cousins and news since I got here on Sunday:
http://inanutshelll.wordpress.com/2010/02/10/crime-is-out-of-control/
February 11, 2010 at 9:11 am
Oh yeah……the predictions of the hateful sold out aka analysts whose job is to deceive the public.
Chavez will rule Venezuela for another 20 years at least! do you know why? he has no oposition!
Those who represent the oposition today are nothing but a bunch of obsolete politicians that represent the old mafias of ad-copei that broght Venezuela to missery and the looting of US transnationals and the young ones are another bunch of brainless brats raised in luxuxry with the moneys their parents stole from the government.
With an oposition like this we are better off with Chavez for ever! they might as well stay in Miami with the gusanera Cubana where they fit in very well.
February 11, 2010 at 8:32 am
Miguel, any thoughts/insights into the non-payment to Ternium? Lack of cash, administrative failings, lack of willingness…? Do you think it gets paid eventually? Thank you.
February 11, 2010 at 6:30 am
Roberto, I don’t think deal was made with JVR/regime. Ravell has political ambitions and exit is springboard into national political arena.
Seems JVR tried but failed… he even forewarned it (Marciano). Globo shareholders holding firm.
February 11, 2010 at 6:00 am
GWEH:
You think JVR has a statue he wants to sell to Zuloaga? And Ravell’s exit is the price?
February 11, 2010 at 5:56 am
Thanks for the excellent summary/forecast. A year ago people were asking what Hurricane Feces would look like, feel like… this is it. Enjoy!
February 11, 2010 at 4:39 am
remember, it’s all personal in venezuela
February 11, 2010 at 4:38 am
btw, it’s JVR who has the hard on for Globovision. He’s ratcheting up the heat leading to Ravell’s exit but that’s as far as JVR gets. The owners are staying firm and who knows, one of them may decide to turn the heat on JVR.
February 11, 2010 at 4:36 am
RE: Globovision and Ravell
Sale de la direccion, no hay venta y el canal no cambia de linea.
February 10, 2010 at 11:38 pm
And Chavez lied through his teeth saying they had received bids for three fields and one was not sold.
February 10, 2010 at 11:35 pm
And today we ended up giving away the Carabobo fields because we wasted the money needed for investment and production. El Universal quotes Ramirez and says we will get $ 5, 720 in bonds and cash for this fields and says they will eventually produce 2.1 mm barrels, which is roughtly about 140 million a day at current prices. Not a bad deal for Bush Sr.
February 10, 2010 at 11:28 pm
The shit hit the fan
but a truck full of shit is still coming towards the fast moving blades
Everybody run for cover!!!!!!!