No sooner had the twice destituted Judge and President of the Venezuelan Supreme Court Luisa Estela Morales ruled her absurd sentence allowing for administrative “continuity” between one Presidential term and the next one, that continuity Vice-President Maduro presided over the non-inauguration and immediately left the country for Cuba. Violating that same administrative continuity, which is below the Constitution, Maduro named his own replacement, something he can’t do legally, but even if he could, it would be absolutely illegal under the same principle of continuity invited by the not so august Chief Justice.
And thus Venezuela continues on autopilot. Nobody is in charge, at a time that there are pressing decisions to be made. But politics and Chavez’ health prevail over insecurity, shortages and the economy.
And just as Maduro was leaving, someone maybe, just maybe, told him about the magical inflation number for December which came out at “only” 3.3% for the month, corresponding to an annualized level of “only” 47.6%, but more ominously, the highest monthly inflation in almost three years (33 months to be precise). This sudden jump, compromises the goal stated by the President of the Central Bank of reaching single digits in 2014, more so, when the all important Food and Beverages jumped all of 5.7% in December, an annualized level close to the scary 100% per year, for those items for which most people in Venezuela spend over 80% of their budget.
But even more ominously, the “shortage” index reached 16.7% of all products, the highest level in four years. And these are all “official” numbers, massaged and improved to make them look good.
Which makes you wonder how these guys sleep at night.
Because each day that goes by without a devaluation, represents financing needs of roughly US$ 166 million (Assuming a deficit of Bs. 21.5 billion a month at the current rate of exchange, which all serious economists agree on). The twelve days that have gone by represent already US$ 2 billion.
But compound the level of inflation with a much needed devaluation to around Bs. 7.5 per US dollar and you see the problem. Maduro lacks the charisma to explain that away to the people and Chavez told him not to devalue until his Schrodinger’s Cat status is no longer in question.
But the country remains on autopilot.
Maduro seems to think he needs time so that people get to know him better, but the same time the needs to campaign conspires against him (And so does his personality). The more he postpones a devaluation, the less money he will have to throw around to the electorate. The more financing he will need before or after the election. The bigger the distortions. The bigger the hole he will dig the country into.
And then there is the crime problem. Venezuela has just surpassed 20,000 homicides per year, putting the country in a class of its own. This number was only 4,000 homicides in 1999 when Hugo Chavez came to power. What is worse, is that the victims of these homicides, are not the well-to-do, but the poor, as crime rates are much larger in poor neighbourhoods.
To say nothing about the country’s infrastructure, as another bridge collapses on the highway that connects Caracas to the East of the country (the second in three months)
But instead of fighting crime, the National Guard is sent out by someone to stop and harass students, as in the picture above, where a student from the Catholic University of Caracas is stopped for having a sign that says “No to Dictatorship”
But fascism breeds fascism. I don’t know who gave the order to repress students the last two days, but given that nobody is in charge, we get all these mini-Dictators in the military, ready to please the new owners. They might even get a promotion this way! By now, all these military officers have been trained to forget about human rights, particularly of those considered to be “opposition”
Meanwhile Chavez continues “assimilating” his treatment, which we all now is true of any treatment, you assimilate until you stop doing so. But the “treatment” he receives is just to make him survive, have less pain or whatever, but no longer to cure him.
And until this is resolved, the country will simply remain on autopilot
The Devil's Excrement 
January 14, 2013 at 1:43 pm
[…] dans le coma, personne ne veut faire une dévaluation. Mais, avec chaque jour sans dévaluation, il faut financer plus ou moins 166 millions de dollars et l’argent se fait rare. Selon le propre gouvernement (qui a tendance à embellir ces […]
January 14, 2013 at 11:24 am
can someone please explain to me, how in the world did Venezuelans allow Cubans to become their masters?!?!?!?! How does the military allow this? I’ve always felt that Venezuelans are a patriotic bunch, but to seriously allow cuba to dictate its internal affairs makes me cringe, although Im now more american than venezuelan, since i grew up in the states, but still…. drives me insane as a Venezuelan born.
January 14, 2013 at 12:33 pm
I am afraid Venezuelans are not that patriotic. They just go bananas if they wear a yellow-blue-red shirt/cap/jacket, they reckon they look irresistible then:
¡(coye|huevón), me queda tan bien!
Patriotic people don’t let a government spend billions in useless weapons or foreign aid to dictators while schools and hospitals at home are falling apart.
January 14, 2013 at 10:36 pm
Kepler, are you saying that Americans aren’t patriotic? haha
January 15, 2013 at 5:07 am
Well, there is one more thing Spanish and US Americans share.
Just reading
http://www.amazon.com/The-Shadow-World-Inside-Global/dp/125001395X/ref=sr_1_1?ie=UTF8&qid=1358244276&sr=8-1&keywords=The+shadow+world
even if only on the side, there are a couple of comments about Venezuela and weapons there.
January 14, 2013 at 2:00 pm
Also, the venezuelan military is, for the most part, a joke. First, these are people that have never been to war (Venezuela have not been in a war with another country since the independence war in 1812). Most of them are there because it was a somewhat easy way to get some status, and others because it was the only option to get a life.
They get tons of benefits (salaries, etc) which have increased greatly during Chavez’s time, and pretty much can do as they please with dirty business. They are not willing to lose that so they won’t stand up against him.
January 14, 2013 at 3:38 pm
There is the classic:
en qué se parecen un arbolito de Navidad y un militar venezolano?
Ambos son verdes y tienen bolitas de adorno.
January 17, 2013 at 11:46 am
How are a Christmas tree and the Venezuelan military the same?
Both are green and have ornamental balls.
January 14, 2013 at 9:22 am
“Because each day that goes by without a devaluation, represents financing needs of roughly US$ 166 million…”
A day. Every day. Taken from the poor of Venezuela.
What if an evil oil corporation were to exploit the Venezuelan people in such a manner? The howls from the Chavistas would be blood curdling. Yet, 166 million dollar profit, every day, deposited in the coffers of an off shore account? Same thing. Same loss. You can go on and on ….
January 14, 2013 at 10:04 am
If we didn’t go on and on, we wouldn’t be reading this blog.
January 14, 2013 at 3:33 am
Miguel, suppose the opposition would take the stance of fighting for an independent Venezuela, that doesn’t want to be a Cuban colony, and adjust their campaigns accordingly. Could you gauge the effect on the Chavista vote?
I think it could be reasonably effective on prying their base away. It would certainly motivate many undecided voters …
January 14, 2013 at 10:34 am
The problem, which has been explained to me by numberous Venezuelans, is that Chavez has a personal attachment to his supporters. Chavez can do no wrong in their minds and Chavez has the best intentions for Venezuela when working with the Castro dictatorship.
Chavistas knew Chavez was being treated in Cuba and getting orders from Cuba before the Oct 7 election. The results show that Chavez Cuba connection has minimal effect on his support.
January 14, 2013 at 10:48 am
Agreed. If Jesus Christ ran against Chavez, JC would net only about 45% of the popular vote.
January 15, 2013 at 7:39 am
But with Chavez gone – and he is gone from political landscape – this changes. He successfully blamed everyone but himself for all the problems, so his henchmen have far less emotional connection.
January 14, 2013 at 1:12 am
Most prices are fixed relative to the $. Typically what happens is demand cools down for a while. However, the black dollar may actually go down if the devaluation is large. Mortgages are hard to get now. Best strategy for what?
January 14, 2013 at 11:17 am
Talking about mortgages, a couple of days ago I was talking about these with my husband. When I left Venezuela 15 years ago, the rates were quite high, 20% or so, so I looked it up.
I was a little shocked at how the mortgage rates are set nowadays. They are fixed by the BCV, and they go from 4.6ish% to 11.5ish%, depending on….the income!!??? I thought that was bizarre and a way to punish people with higher incomes, and at the end, the only one benefiting from this is the bank lending you the money? Is there some sort of tax/contribution of those paying higher rates to the government?
I guess I am way to accustomed to a market based on competition. The Bank of Canada sets a base depending on the economy, but the banks are free to offer their own rates and one is free to go with the bank and rate of their choice. Interest rates have absolutely nothing to do with people’s income!
January 14, 2013 at 11:18 am
too*
January 15, 2013 at 8:05 am
Well, to some extent they do, Carolina, but indirectly. Look at the evolution of interest rates in North America and Europe in the last few years.
January 14, 2013 at 12:05 am
Octavio,
After the devaluation, what happens to house prices? Do they move up right away? Have they already moved up? Is it harder to get a bank loan to buy a house now? What is the best strategy?
January 13, 2013 at 3:11 pm
Miguel, please help me with my ignorance:
What is the relation/ difference between devaluation and foreign exchange control? For example, wouldn’t it be better if the eliminate the control altogether and let the market level itself? Is that equivalent to a devaluation or not?
January 13, 2013 at 9:59 pm
Exchange controls is when the Government decides to fix the price of a currency and when it changes. Devaluation is when the currency loses value, which can occur in markets or in an exchange control regime.
January 14, 2013 at 4:14 am
To complement:
if exchange controls are lifted, currency fluctuates.
In the case of China, which does not have a currency control as in Venezuela but where the government does keep the yuan
undervalued, it would revalue, making exports more difficult.
In the case of Venezuela, as we know, that would mean the Bolívar would immediately lose value – a lot. This would create a shock for virtually everybody but the illuminati, some of them with knowledge about the timing.
There could be a massive flow of money out but I don’t think more than what we are seeing in this CADIVI paradise…and inflation would go through the roof and then, after a couple of months, things would stabilize. Inflation would drop then a lot if this is managed properly and the government would have a lot of extra dosh.
And then Venezuelan companies also would have chances of surviving
But this would be horrible for the Chávez government,
As former Adeco, former Causa-Errista Aristóbulo Istúriz said, if the government were to lift the currency control altogether, it would fall.
What they have now is a piñata for those with capital, connection and no scruples, the kind of revolutionaries you need at high level.
One of the problems is how to keep supply for certain key sectors flowing – medicine and stuff like that.
I
January 14, 2013 at 11:06 am
Thanks guys. Now I get the picture a little better.
One curiosity: what do you think would happen if the government freezes (or subsidizes) prices of “cesta basica” and medicines for example, and then eliminate the exchange control altogether? Would that help with the social shock? Maybe eliminate the controls after the market stabilizes?
January 13, 2013 at 12:38 pm
Autopilot?… Seem more like Mexico under of the old PRI, they used to call the last year of the presidential period: “El año de Hidalgo… Ch*nge su madre el que deje algo!”… Then a devaluation would happen in the next presidential period and they would blame whomever they could (Private enterprise, Organizations that loaned them money, etc)
January 13, 2013 at 1:00 pm
Gordo: Pensions are fixed with the minimum salary, what has happened is that inflation tends to be higher than the increase in the minimum salary.
January 13, 2013 at 11:55 pm
Octavio, my wife just started receiving her pension for $2.000 bvf per month. Not much. So, what happens to it?
January 14, 2013 at 1:10 am
Initially, nothing, it will remain the same until the Government increases the minimum salary. Typically this is done in gwo parts one in May another in September.
January 13, 2013 at 12:20 pm
Luis P,
Those who wear ” I am Chavez” t – shirts must remember that they are in Intensive Care right now, in a very grave state, and passing over the Paramo 🙂
January 13, 2013 at 4:30 pm
Tal cual Cerdita! muy pavoso…
January 13, 2013 at 8:12 am
Oppenheimer has an interesting article on what’s going on these days at the Miami Herald. It ties in well with this post.
http://www.miamiherald.com/2013/01/12/3178593/cubas-role-in-venezuela-may-grow.html
January 13, 2013 at 10:22 am
thank you for that, Glenn. I’m not as cautiously optimistic over the medium term, as Oppenheimer seems to be.
January 13, 2013 at 10:52 am
I think Oppenheimer is missing something in his calculations. He is assuming that the men making the decisions are completely free agents. After having infiltrated the Venezuelan State Intelligence and Security apparatus for so long, the Cubans have enough dirt on and leverage over the politicians, that they could not order dinner without consulting Cuba. The politicians “in charge” of Venezuela have the option of going along, or going to jail.
January 13, 2013 at 11:46 am
It would be ironic if the Castros were to leave the scene in the not so distant future, and being small and geographically closer, the US were to have a decisive impact on Cuba for the better; this in turn would discredit Chavismo and help Venezuela find its own way.
Or maybe Venezuela will surprise by moving faster than currently expected.
It seems to me that there may have been excessive optimism before the presidential elections and that we have moved to excessive pessimism now.
January 13, 2013 at 11:51 am
“Sooner or later, Venezuelan leaders will start asking themselves whether … they can afford the current oil-for-counseling deal.”
Which leaders? PSUV leaders? The FAN? With the latest developments (Chavez ratified for his 3rd term “in absentia”) it has been proven there isn’t anyone in the Government willing to speak up. So, I think Oppenheimer is off mark. Is the current situation sustainable in the long run? I don’t think so, but not for the reasons Oppenheimer’s mentioning.
January 13, 2013 at 9:12 pm
““This is the first case in history where a country subsidizes another, and is dominated by the latter.”
Funny, I can think of a glaring example that has been going on since around 1948.
January 13, 2013 at 1:21 am
Miguel, how will the devaluation effect pensioners? Do they get an automatic increase?
January 13, 2013 at 2:06 am
If allowances are made for everyone with fixed incomes, it defeats possibly the main point of devaluation in a country like Venezuela, which is the transfer of wealth from people to the government. If, post devaluation, the government simply has to step up purchases of foreign goods, increase pensions and public payroll salaries it will be in exactly the same fiscal position it was pre-devaluation.
A few well connected groups might get compensated for their losses, but most people will simply get screwed.
January 13, 2013 at 5:01 am
The story of the devaluations is always the same. The pensioners and the poors don’t have any defense against a devaluation.
The well being have properties, and some can save in dollars.
Sorry man.
January 13, 2013 at 7:32 am
No bread, butter, rice, corn flour, or sugar for almost two weeks in this pueblo, and yet people walk around with “I am Chavez” tee shirts.
If it weren’t all so pathetic, it’d be funny.
January 13, 2013 at 7:47 am
You apparently don´t wacth TV or read the “news”. Thats the fault of the devilish hoarders. All the sugar, flour and corn flour is in the hand of bad people and the government is giving them back thanks to INDEPABIS and GN seizing the merchandise to later distribute it to the people.
They will continue to wear their red shirts convinced that is somebody else´s fault.
January 13, 2013 at 8:11 am
You can only seize so much until there’s nothing left to seize.
January 13, 2013 at 12:46 pm
They don´t need to seize everything. Just some here and some there to keep the idea that is not the government´s fault. That is all they need
January 13, 2013 at 12:06 am
“his Schrodinger’s Cat status”
LOL. Nice one.
January 13, 2013 at 12:22 am
Only thing that Ph.D. is good for these days…
January 13, 2013 at 2:52 am
I guess we will just have to wait until reality collapses…
January 13, 2013 at 4:30 am
One day you must tell the story of how you went from Physics to Phynance.
January 13, 2013 at 12:59 pm
It was due in part because I did not want to leave Venezuela, it was Physics abroad or switch areas, I was lucky enough to find a nice job in Phynance. When I close the blog or the job is done, I will tell the story.
January 13, 2013 at 8:54 pm
Miguel, please don’t wait, after all, “tomorrow is promised to no one.” Hope you live another 100 years (or more), but our final destination is clear, even for a “god” like Hugo.
January 12, 2013 at 10:55 pm
Also, has any nation/government condemned the ‘continuity’ of Chavismo?
January 12, 2013 at 10:53 pm
In comparing dictatorships to democracies, the point is sometimes made that it is very difficult to get things done in democracies, whereas in dictatorships decisions are quickly made.Think of the many times that NY Times columnist Tom Friedman’s has made this point about the People’s Republic of China.
But when the top gun is gone, no one can make a decision. That is one consequence of decisions being made at the top. No one else has any practice in making decisions.
When police and milicos harass citizens for signs that are critical of the regime. I wonder if an appropriate response would be to say, ” There have been 20,000 people murdered in Venezuela in the last year, and you are concerned about a SIGN? Why aren’t you trying to track down murderers?”
Though this might get you arrested.
January 13, 2013 at 4:27 am
It is all in the sign’s wording. Try “Help our underpaid police stop murders. Make the dictators give them a raise”
January 13, 2013 at 8:52 pm
Beautiful Ronaldo…
January 12, 2013 at 10:46 pm
$2 billion in 12 days… wow!
Do you see a default coming?
Great post!
January 12, 2013 at 10:56 pm
Well, a devaluation would always take care of the problem, it just gets bigger. If they let it go too much, the decision is political. The problem is that a default traps them even more. They need access to some dollar financing.
January 13, 2013 at 12:50 am
They can’t default, not if they want their position to be secure. How would they finance the new elections (assuming they will indeed happen)?
No, devaluation will probably be delayed until after an election, in the mean time Venezuela will burn through all its remaining foreign currency and Chinese loans which will take years to pay off.
January 13, 2013 at 12:57 pm
The parallel funds will be drawn down first, they may issue locally, but Giordani has said he does not want to issue internationally.
January 13, 2013 at 8:50 pm
Right, because that would require a minimum of transparency, correct?