Archive for February 10th, 2013

Some, Mostly Depressing Thoughts, After The Venezuelan Devaluation

February 10, 2013

So far, reactions to the announced devaluation have been somewhat depressing from both the Government side and sadly so, from the opposition side.

From the Government side, the outright defense of the devaluation as something “good” rather than needed and the implication that this is somehow the fault of the opposition has been truly laughable. Some statements have actually been pathetic, like pseudo Foreign Minister Jaua who said that “It’s a way of protecting the dollars of the Venezuelan “pueblo” from the speculative attack of the Venezuelan bourgeois”. Hey Elias! If this is so, why not devalue to Bs. 20? He also said this would increase Venezuelan exports, as if the current currency had all of a sudden made the country competitive, or even worse, as if Venezuela’s non-oil exports were of any significance to the economy at Bs. 4.3, 6.3 or for that matter Bs. 8.

But the Minister of Information was even worse, suggesting the country’s economic parameters “improved” thanks to the devaluation and among others, saying the Debt to GDP ratio went down significantly, because the Bolivar denominated debt went down with respect to the dollar GDP. Unfortunately, he failed to realize that GDP is measured in Bs, not in US$ as per his tweet. He adjusted the numerator in Debt/GDP, but held GDP constant in US$:

VillegasHow convenient! That US$ 328 billion number comes from dividing the GDP in Bs.  by Bs. 4.3. While the GDP will not go down by the full amount of the devaluation (neither will the debt in Bs. stay constant all year!) the argument is really terrible.  Mr. Villegas has rather quickly lost his image as a “serious” person.

But I have also been disappointed by the reaction of many opposition politicians and even economists, criticizing the devaluation itself and not its causes. The impact of the devaluation should have been presented as a consequence of the policies followed by Giordani and his combo. Yes, the devaluation is terrible for the people, but they made it sound as if it could be avoided. In fact, very few politicians noted that it is probably not enough and we will likely see another one before the end of the year. The best comments, in my opinion, were those from the opposition that noted Chavismo accused Capriles of planning a devaluation if he was elected, only to have Chavismo do exactly that.

But that we are becoming a country of beggars was demonstrated by those that oppose Chavismo who were crying because they will now have to travel at Bs. 6.3 per US$, order from Amazon at a more expensive prices and not have access to SITME at Bs. 5.3. Don’t people realize how absurd all of these things are? Only those that are actually well off have the money to travel and thus have access to this foreign currency, to say nothing of those that could manage to get a single dollar from SITME. These were (and are!) ridiculous subsidies that simply sustain the distortions of the Venezuelan economy.

And I will point out to those that think the Government will create a new foreign exchange market sometime in the future, that I think this is highly unlikely. This was all a victory for Giordani and his ideology. The same way he shut down the swap system in 2010, he is now shutting down the SITME, which provided a highly ineffective and inefficient escape valve for importers and manufacturers.

But Giordani believes that by creating this new entity with the bombastic name of “Superior Entity for the Optimization of the Foreign Exchange System” he will somehow direct the foreign currency to the right areas. This will be nothing more than another bottleneck in the Goldeberesque foreign exchange system that has been constructed by adding complication to complication, over the last ten years. Just think this new Über-Cadivi will be composed of the Minister of Planning AND Finance, The President of PDVSA AND Minister of Energy and Oil and the President of the Venezuelan Central Bank. As if they did not have anything to do.

Anyone that thinks such a system can work, has never managed anything productive.

In fact, what is likely to happen is that there will be more delays now, leading to even more shortages. Somehow these  guys think, or want us to think, that their 20/20 system, 20% inflation, 20% shortages, represents a successful  and “shielded” economy. And, of course, reducing inflation, according to Giordani is very “complex”, in a planet where the large majority of countries have managed to reduce inflation to single digits for the last ten years.

Because now, the Government will have to start thinking about salary increases to compensate for the devaluation. Later, they will ha to figure out how to pay for them and the inflationary spiral will feed on its own, because in the end, all that was done was devalue. Nothing else.

But as long as the opposition politicians don’t try to educate the population and have such differences among them, maybe Chavismo will be able to sell once again these nutty concepts to the people. The only thing working on the opposition’s favor may be that Chavez’ absence may suggest to the people that these new leaders of Chavismo have no clue as to what they are doing, in contrast to their deity, who could do now wrong. Despite Chavez’ six devaluations and 1000%-plus inflation in the last fourteen years.