Raitioning in Venezuela’s Zulia State: Pure Ideology Of The Worst Kind

June 4, 2013


Cuban Rationing Book

You have to wonder what goes through the mind of someone like Zulia Governor Francisco Arias Cardenas. The once coup plotter with Hugo Chavez, who he later ran against, has seen fourteen years of controls fail and he decides that for his State, the best solution is: More controls.

In fact, is not even more controls, it is simply rationing. The idea to give everyone smart cards so that the Government can limit the availability of the twenty food products which have a regulated price, is as stupid, as the regulated price itself.

But these guys push controls relentlessly, despite the fact that not one control has worked in the last fourteen years:

Price controls? Venezuela has had 900% inflation since Chávez came to power fourteen years ago and shortages have been a problem for the last six years. The Central Bank now withholds information on shortages and rumor has it that the CPI jumped over 5% in May.

Exchange Controls? After imposing exchange controls in early 2003, which became even more rigid in 2010, the devaluation of the official rate of exchange has been from Bs. 0.573 when Chávez took power to Bs. 6.3 , “only” a 91% devaluation, give or take a decimal. But, of course, there is a second rate at almost five times the official rate, the true floating rate would be somewhere in between which would represent a 96-97% devaluation, but who is counting anymore? But note, that between 2003 and 2010, the currency devalued from around Bs. 2 to Bs. 8, a factor of four, but the more strict controls since 2013 have increased the black market rate by almost another factor of but in only three years.

Border Controls?: Products going through the borders are checked, creating long lines, so that the National Guard can check to see whether you are exporting product to Colombia which is ten times or so cheaper there. This limits trade, creates long lines, annoys people and…if you slip a few bills into the National Guards pockets, you can certainly get your stuff through anyway. Thus, it becomes another source of corruption, number 3,483 created by the complex system of controls and subsidies in place.

And all of these exquisite controls and interventions have led to less production. Venezuela was an exporter of coffee in 1998, today it imports coffee. In 1999, Venezuela imported very little meat, today it imports 59% of ts consumption. The Government has dramatically expanded its banking sector, but 90-plus percent of agricultural loans come from the private banking sector and the rest from Government owned banks. And so on…

So, this fool who was elected Governor of Zulia decides to create a rationing system to impose more controls on top of the controls.

There are so many things wrong with it, that I am not sure where to start:

-First of all, this costs money. Lots of it. The Governor will now spend money on software, computers, chips, cards, personnel, to impose another control on items which have price controls, because there are shortages. It will make supermarkets spend money in all this, which means the costs for the supermarkets will go up, costs that will be passed to the consumers on the prices of non-regulated items.

-But…you have to create rules. And arbitrage will come in. As soon as the rules are in effect, every single individual entitled to buy, for example, two kilos of sugar per week, will go and buy two kilos of sugar at the supermarket every week. And once there are too many kilos of sugar at his or her home, they will go and sell the sugar at the free market or to street vendors at many times the regulated price. And the same food will show up somewhere at a higher price.And since its scarce, someone will pay for it.

-This is not a very popular measure, so that Mr. Arias better watch his back, as he is doing something that will eventually become very unpopular. If you are going to impose unpopular measures, you might as well impose rational ones.

So, imagine the path that package of sugar has on its way to the true final consumer: First, there are exchange controls, so it will be purchased only after a dozen steps for the approval of the currency to buy sugar. This requires employees for the Government who supervise all the steps, as well as employees for the guy who is importing, who hires people just to satisfy the bureaucracy of CADIVI. Many of these steps, of course, have graft associated with it. Then, the “buyer” will try to get the cheapest quality sugar they can get to maximize profit, since the importer knows that he will have to pay even more on the way to the port. Graft at customs, graft at the dock, cheap products, and finally it gets to the price controlled supermarket, where Governor Arias now will control how much you can buy.

Idiotic is too nice a word to describe all this.

There is no logic for it, no justification for it and you simply create even more economic distortions.

Which one day will have to be unwound.

And these guys don’t look at models anywhere, except one place: Cuba. And despite the gigantic failure of that State, their minds are blocked from looking at Brazil, Chile, Peru, Asian countries, where things are working much better than in Cuba and/or Venezuela.

To me the whole thing is a mystery. At one point Arias Cardenas seemed to be a more pragmatic voice within Chavismo, he now has joined Chavismo in full force, no brains, no thinking, just pure ideology of the worst kind.

28 Responses to “Raitioning in Venezuela’s Zulia State: Pure Ideology Of The Worst Kind”

  1. I seldom write comments, but i did some searching and
    wound up here Raitioning in Venezuelas Zulia State:
    Pure Ideology Of The Worst Kind | The Devil’s Excrement. And I do have a couple of questions for you if you tend not to mind. Could it be simply me or does it look like a few of these responses appear like coming from brain dead people? 😛 And, if you are writing on additional social sites, I would like to follow everything fresh you have to post. Could you make a list of every one of your public sites like your linkedin profile, Facebook page or twitter feed?

  2. Roger Says:

    I like this tidbit http://news.yahoo.com/app-helping-venezuelans-scarce-items-204643379.html XXI creative thinking?
    What I have to wonder is it that the government has no dollars or are they trying to starve out the present importers and set up a new system?
    An economic Coup so to speak with new players in the wings?
    I think that the ration card thing was to be a Tascon List like list involving voter records of the last election and that could lead to a lot more than pot banging!

  3. […] on U.S. list of state sponsors of terrorism (LAT) Brazil’s Fall From Grace (The Economist) Raitioning in Venezuela’s Zulia State (Devil’s […]

  4. LD Says:

    Is there an audio forensics expert in the house?
    If the new audio is real, that shows what many also thinks, corruption is draining the dollars, even before they are in CADIVI. PDVSA paying sobreprecios explain how 100US$/barrel are not enough.

  5. xp Says:

    el verdadero problema es la falta de divisas, necesarias para suplir con importación la carencia de productos de la cesta básica. José Guerra

    The oppo hack believes the escasez y la falta de divisas es producto de la mala gestión económica…

    In fact, CONTROL de Cambio is COMPATIBLE with the shortage of freely
    traded foreign currencies.

    If you put the federal government in charge of the Sahara Desert, in 5 years there’d be a shortage of sand. [ A Milton Friedman quote]

    Off Topic. I know

  6. Alex (the other) Says:

    Remember it was Arias Cardenas child son who was going to manage the fuel chip in Zulia. I suppose this is just more business for the family.

  7. Charlie Says:

    Talking about Arias Cardenas and Zulia: the other day I was in a voter drive for community elections in Doralzuela, El Imperio. I knocked on a half-million dollar home when a woman from Maracaibo answered the door. Just bought the house “Maracaibo is wonderful under Governor Arias” she said. A true believer indeed.

  8. Mick Says:

    Considering the fact that a 16 year old working at McDonalds part time can earn enough, after taxes, in one day, to buy an entire shopping cart full of whole milk. A couple of years ago, Hugo said the US economy was going to implode and Venezuela would thrive. How much wage would that milk cost you now?

  9. Bruni Says:

    Well, if this is not rationing….

    Great post Miguel, very clear and straightforward.

    To think that Arias Cárdenas was once the opposition candidate!!!!.


    (To tune of “There’s a Small Hotel,” by Richard Rodgers and Lorenz Hart)

    People stand in queue
    For sheets, one or two
    in a country short of toilet paper

    You can’t find those rolls
    Due to price controls
    A silly socialistic caper

    First they found no coffee
    Then no butter, then no pure milk
    As for el presidente
    He wipes, with silk

    No one will shake your hand
    When you leave the can
    In a country short of toilet paper

    Lyric © 2013 by Robert S. Steinberg, Esquire
    All rights reserved

  11. xp Says:

    No es racionamiento,
    queremos evitar que nuestras esposas
    peleen por unos rollos de papel tualé

    Arias Cárdenas

    • xp Says:

      Declining GDP was but one symptom of the malaise that had overcome Gxxxxx’s economy in the 1980s. Other indications were the nation’s crumbling infrastructure, especially the electrical POWER supply; the high level of external DEBT and payments ARREARS; and the EMIGRATION of professionals and skilled workers. Conditions were harsh for the roughly 764,000 people living in the country. In 1990 an estimated 40 percent of workers earned the minimum wage, equivalent to only US$0.5 per day. Three factors–the flourishing illegal economy, the cash remittances that Gxxxxese citizens received from relatives living abroad, and the country’s near SELF SUFFICIENCY in food production–were all that kept the economic decline from becoming a disaster.

      But in the early 1990s, there were signs that twenty years of stagnation and decline could be ending. The government of GXXXXX was at last coming to grips with the deep economic crisis. The economy’s performance had not yet recovered, but the government was dismantling statist policies and opening up the country to foreign investment.

  12. Kepler Says:

    I don’t know why I don’t see this ever…I know: Venezuelans don’t keep records of anything…still, it would be nice if we had some reports stating how much of a certain “universal”, more or less a-temporal product the average worker/teacher could buy for her salary in 1980, 1990 and 2013.

    I see this in German texts trying to explain the evolution of the economy:

    in 1949, a German worker needed to work X hours to buy a kilogram of meat
    Y hours to buy a bike
    Z hours to buy a house
    M hours to buy a kilo of butter

    Well, in Venezuela now they can’t even buy butter.

  13. HalfEmpty Says:

    every single individual entitled to buy, for example, two kilos of sugar per week,

    Is there that much sugar available?

  14. Dr. Faustus Says:

    Just as Venezuela chose an ‘insider’ from the party in December of 2012 to succeed a legendary figure of the time, China faced a similar problem in the late 70’s with the death of Mao Zedong. China also chose an insider. He had been with Mao since the early days, the fight with Chang Kai-shek, the Long March, the Great Leap Forward, and the Cultural Revolution. He had seen every aspect of Mao’s version of communism, controls and regulations permeating every aspect of society. He was part of it for 40+ years, was then suddenly was thrust into power and,…..and, in the end, he rejected it all. In 1980 China was a mess. It’s economy was in shambles. The majority of its people in deep poverty. Deng Xiaoping, however, was nobody’s fool. He looked across the border and saw the glittering lights and soaring buildings of Hong Kong. He saw Taiwan become an economic powerhouse, one of the four original ‘Tigers.’ He saw what Mao had done was a failure, a gigantic failure. So, what did he do, Deng Xiaoping? He introduced capitalism to a communist society. (gasp!) ….relatively free markets, property rights and the free flow of capital. The results were astounding. Would anyone dare to compare Shanghai today with,…with Caracas? Or Wuhan? Guangzhou? In 1980 Caracas was way, way ahead of Beijing in,….everything. Today it’s the complete opposite. Chavez ‘had’ his Bolivarian Revolution and the results are simply shocking. Staggering. Unbelievable. The currency is an a free fall, there are shortages everywhere and some ‘pinhead’ in Zulia decided to introduce ‘rationing’ this week. Right. Gotcha. Couldn’t somebody, anybody, in Miraflores read a book on the history of Deng Xiaoping and his profound thoughts on economics, as opposed to reading anything pertaining to the gibberish concocted by that loon of Venezuelan economics, Giordano? Look at China! Look what they did! My God, it isn’t that hard to learn. China did it without oil! It’s so,…so very sad to contemplate….What might have been with 1 trillion dollars to spend. All wasted. All gone.

    • jau Says:

      “What might have been with 1 trillion dollars to spend. All wasted. All gone.”

      That’s the problem, Venezuela spent instead of invest

  15. Power above anything, anything to stay in power is the slogan. See, Cuba has stayed at 1950.
    Venezuela is going back to 1970. Argentina is at 1980. They do not appear to be a happy people. Sorry for Venezuela. As Capriles says, resist firmly, peacefully and very patiently.

  16. Mick Says:

    Ignorance leads to Socialism

    Socialism leads to Scarcity

    Scarcity leads to Crime

    Crime leads to Ignorance

    As the Chinese become more free market, they become more successful. The same happened to the South Koreans.

  17. Morpheous Says:

    Great posting! However, you got some calculations wrong:

    You wrote: “the devaluation of the official rate of exchange has been from Bs. 0.573 when Chávez took power to Bs. 6.3 , “only” a 91% devaluation, give or take a decimal. But, of course, there is a second rate at almost five times the official rate, the true floating rate would be somewhere in between which would represent a 96-97% devaluation,”

    If possible I suggest correcting the percentages. Instead of 91%, it should be 999% = 100*(6.3/0.573-1). Then, let’s take for example a floating rate of (6.3+30)/2 which is about 18. Then, the percentage devaluation would be 100*(18/0.573-1) = 3041%.

  18. Rafael Vicente Says:

    Diablo, se rumorea que a las empresas, que emiten y administran, los programas de alimentación, se les esta obligando a entregar tarjetas, inteligentes con chips, es sustitución del ticket de papel, piensa mal y acertaras, no hay que ser muy inteligente para saber, que es la vía mas rápida para implementar la libreta de racionamiento a la Cubana, pero con la tecnología, al programar, las compras de alimentos a la cantidad preconcebida mensualmente, en ella, ejemplo solo 6 Kg harina pre-cocida, y así con todos los alimentos regulados, pero eso no importa, ya que tenemos Patria.

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