After announcing the results of the first “modified” Sicad auction, where the Government sold some US$ 180 million dollars at an exchange rate probably close to three two times the official rate and around half one third of the unmentionable black rate, Minister of Finance Nelosn Merentes announced two more upcoming auctions and said:
The country is going well.
Yeap. As the Government formalized another devaluation, introducing a “second” official exchange rate (or third for that matter, the rate is secret), the Minister said things are going well, as inflation has soared and shortages are still out there. Even more boldly, the man who has so often predicted single digit inflation and economic growth and who has no clue as to what an econometric model is, said confidently that inflation will go down in the second half of the year and growth will be stronger. He even challenged those that do know economics, to wait until the year is over to see who is right.
Unfortunately, Dr (in Math). Merentes does not even appear to understand that growth in the next two quarters will not be compared to the last quarter, but that economists have this quirk, that it is measured with respect to the same quarter a year ago. Given that the economy has likely shrank for the first six months of the year, it will have to make up the loss and then show a gain for the third and fourth quarters to show growth, something that looks difficult right now. Additionally, given that the growth last year was driven by Government spending and that spending is down by double digits so far in 2013, it seems unlikely that growth will be positive for all of 2013.
But the real trouble is inflation. As recently as October Merentes was “questioning” predictions of 28% in 2013 and inflation is up 25% in the first six months of 2013 alone. In fact, a month after saying that, he said it was “feasible” to achieve 14-16% inflation in 2013. Jeez, Nelson, you will be off by 100% at least in that econometric prediction.At least as a Mathematician, you should be able to understand how bad that is.
But the real problem is that the Government has built in continued inflation into the system with its policies. By holding back price increases, there is a guarantee that there will be shortages and later more inflation as goods get scarce. In fact, inflation for controlled goods was 21% in the first six months of the year, another sign the whole system does not work. Reportedly, Vice-President Arreaza has presented Maduro with a list of 10 items whose prices need to be increased, which will do little to slow down inflation.
Neither will the fact that what used to be imported at the SITME rate of Bs. 5.3, will now be purchased at Bs. 16 or so. Yes, some of that stuff was being bought at the black rate, but the truth is that much of that stuff, like auto parts, was simply not being imported, as importers were not willing to buy parts at the black rate with the scant dollars they could find in that market.
Meanwhile, the black rate is likely to slow down for a while, until people realize that they will get little from Sicad. Individuals only got half of what they asked for in today’s Sicad auction and despite estimates that there were requests for US$ 800 million, the Government mysteriously sold US$ 20 million less than expected in the auction.
But Merentes was not alone this week in making statements that make you wonder if these people are brain dead or what. Maduro said, even before the auction, that the new Sicad auction “had generated great positive expectations”. Somehow it seems par for the course that this Government accomplishes so little that it boasts about expectations that simply can’t and will not be satisfied.
And Central Bank Director Armando Leon, he of the Bolivar Fuerte creation, dared say that inflation in the second half will be significantly lower and that this new auction does not imply a devaluation. Sure Armando, and the Bolivar Fuerte is your most important creation.
And then, of course, is the price-Nazi, Eduardo Saman, who not only said that the institution he runs is “a repressive institution of the State”, which reveals a very definite state of mind and attitude towards the citizens of Venezuela, which seems to have permeated the Government. Most institutions of the Government are run as repressive institutions, with little regard and concern for the people.
But Saman’s crowning glory was to suggest that if a company is losing money because of price controls, it should just go borrow money from a bank, which will help “capitalize” the company. Mr. Saman clearly has no understanding of how a productive system or the economy works, he seems to believe loans are free, banks are charitable institutions and has no understanding about how a loan really works or what it is.
And so it goes… Venezuelan is going well in the mind of the guy in charge of the Minsitry of Finance. Maybe he should go and ask the opinion of his friend at Merril Lynch who is talking about a deep reecession. Speaking of ML: Whatever happened to Merentes’ visit to New York in the first half of July?
I guess since things are going so well, he no longer needs it…
The Devil's Excrement 
July 20, 2013 at 1:12 am
This post reminded me of this: http://www.translatingcuba.com/images/rosa/1365087839_vamos-bien.jpg
July 19, 2013 at 7:25 pm
Miguel, after I have read your posting, I just wonder how venezuelans have allowed this regime to remain in power for so long? Do you thing there is hope this catastrophe will end? I am starting to think that this process could even evolve into a Cuba-Venezuela federation. And I’m not joking.
BTW, don’t you thing that the statistics that you mentioned are manipulated and that the reality has been actually worse? I do believe it, and I also would expect the manipulation of statics to intensify.
July 19, 2013 at 8:23 pm
The capital would be La Habana! What a powerhouse such a union would be, the inefficiency of Cuba with the corruption of Venezuela. The world had better watch out. *ahem* On serious consideration, there are obviously politicians in both Venezuela and Cuba that would like to see such a union happen, but could it ever fly, even among Chavista politicians?
I am surprised Venezuela hasn’t done more to lie about the economic stats. Argentina actually seems to be ahead of Venezuela on that point. That might be an opportunity for burgeoning south-south co-operation.
July 18, 2013 at 8:55 pm
Venezuela is going well (sic)! Well I suppose that’s true for some Venezuelans but, for most, they ain’t getting any USD to take their kids to Disneyland much less the Harina Pan and other things they need to feed their kids.
Speaking of Disneyland…. I would love to see any Venezuelan going thru Homeland Security at MIA that is not on the Tascon List get the genuine official Cavity Search!
July 18, 2013 at 4:00 pm
Maduro’s antics:
July 18, 2013 at 11:40 am
Question for anyone on this board:
If the government of Venezuela cannot find an extra 20 million to round-out their first SICAD auction in 4 or 5 months, where in-the-hell do they find the money to make the coupon payments on their outstanding debt? This makes no sense whatsoever. Billions in coupon payments, yet they’re ‘short’ 20 million? Pure insanity. Any comments?
July 18, 2013 at 11:49 am
Sorry, I corrected this earlier, but you must be seeing a cached copy. When I wrote the post, it was not clear that the 180 million was only for companies and that additional US$34 million was given to individuals, so they actually sold more.
July 18, 2013 at 11:54 am
Thanks! But,…but, does Venezuela still have the ‘dollars’ to make billions in coupon payments? Very strange.
July 18, 2013 at 10:31 am
Um, the ML forecast you linked is a year old and many of its predictions missed the mark by wide margins
July 18, 2013 at 10:35 am
The URL says 2012, but it is really 2013, it’s in the text and above the headline. I read the report, but is not online except for ML clients and is sent to clients too.
July 18, 2013 at 9:09 am
I just saw the headline in El Universal:
BCV vende dólares a empresas y personas a 10,9 y 11,7 bolívares
http://www.eluniversal.com/economia/130718/bcv-vende-dolares-a-empresas-y-personas-a-109-y-117-bolivares
Para distribuir los dólares el BCV aplicó una “regla multicriterio” que básicamente consistió en no otorgar ningún monto a las empresas que estuvieron dispuestas a pagar más de 16 bolívares por cada dólar y en el caso de las personas naturales a quienes quisieron cancelar más de 15 bolívares.
OK, so this is an auction.
Businesses desperate for $$ obviously put in bids for amounts higher than 11, if it was me & it was a true auction I’d be thinking in terms of 18 or 20 to be sure to get my $$ only to find out that I would get none.
So. it’s not an “auction”. It’s an arbitrary system of handing out a minimal amount of exchange to a few selected companies. Now that everyone knows what the rate can be it will be flooded with requests which they won’t be able to meet.
Another complete disaster.
July 18, 2013 at 10:04 am
No surprise. And this beat just goes on and on and on!!
July 18, 2013 at 10:10 am
Haha it says: “La señal es clara. El Gobierno obtiene ganancias…”. Income from subsidized dollars? good one.
July 18, 2013 at 10:24 am
Here’s another humorous note again from El Universal:
Visitantes extranjeros podrán canjear sus dólares en el Sicad
“Caracas.- El ministro de Turismo, Andrés Izarra, informó que la próxima semana sostendrá reuniones con el Ministerio de Finanzas y el Banco Central de Venezuela para concretar un mecanismo que permita a los turistas extranjeros que visitan el país canjear sus divisas a través del Sistema Complementario de Administración de Divisas (Sicad).
Explicó a AVN que los visitantes podrán canjear las divisas por bolívares en puntos habilitados en aeropuertos, hoteles, otros sitios de interés turístico y en la banca pública.
La tasa será la misma que sea fijada a través de las subastas del Sicad. Izarra espera que el sistema esté operativo para esta misma temporada vacacional.
Se prevé que por medio de esta política, el país pueda recibir alrededor de 2.500 millones de dólares al año.”
The last line just kills me. Izarra, who is “suppose” to be the Minister of Tourism, obviously knows nothing about tourism as it now stands in 2013 if he thinks that there is $2.5 billion of tourism money lying around.
Just 2 years ago 80% of our business was foreign tourism. This year we haven’t seen a foreign tourist in more than 6 months. Just more “pura paja” .
And does he think that the few foreign tourists left, given the opportunity of changing in the black market at 30 or con SICAD for 11, aren’t going to make an informed decision?
July 18, 2013 at 9:08 am
That illustrious Saman guy sadly seems to be the norm for how a lot of Venezuelans think. If the bolivar depreciates 20-30% each year, why must people and government pretend they don’t need to devalue? I guess they all need to live in wonderland to be happy with themselves.
July 18, 2013 at 12:25 am
Beginning in AUGUST 2013,
Venezuela began to buy foreign currency with Bs.F. at ANY price,
but that only increased the speed of breakdown in the value of the Bs.F
The lower the Bs.F sank in international markets,
the GREATER the amount of Bs.F were required to buy the foreign currency.
Merentes keeps on dancing.
even after the music has STOPPED.
Even after all hope is LOST. Why?
July 18, 2013 at 12:37 am
We starve-look at one another
Short of breath
Walking proudly with our sickad dolares
Facing a dying nation.
A moving paper fantasy
Listening to the new told lies
With supreme visions of lonely tunes
Let the sunshine
Let the sunshine in
The sunshine in
Let the sunshine
Let the sunshine in
The sunshine in
Let the sunshine
Let the sunshine in
The sun shine in…
July 18, 2013 at 11:22 pm
Money in Cuba – All payments in the establishments operating in foreign exchange in Cuba must be made with convertible pesos.
Convertible pesos will remain at par with the US dollar at an exchange rate of one for one.
You may exchange Euros, Canadian dollars, Pounds Sterling or Swiss Francs for Convertible Pesos (CUC).
The exchange rates for those currencies are set in accord with the exchange rates on the international market.
YES, VIRGINIA, THERE IS SOME RHYME, METHOD
AND RHYTM to the
Merentes multi-tier currency exchange black box.
BE NICE to your relations abroad, and hope that the
CONVERTIBLE BSF will come home to you.
Then you will laugh at the shortages,
because foreign currency shops sell just about everything
and at the right currency price.
Ooh I love to dance a little sidestep…
And, ooh I love to sweep around the wide step…
Cut a little swathe and lead the people on.
July 17, 2013 at 9:18 pm
They are not brain dead, they just think (know?) most people are brain dead. They are are talking to the barrio, hence the BS.
To even think that there is any chance of economic growth is insane. Construction has basically stopped, industry is working sporadically (tried to buy roofing material, the company that makes it doesn’t have material, same with fibers for concrete reinforcement), the new labor law has lowered working hours and people miss work without consequences (so lower productivity).
Purchasing power has dropped sharply.
Que me cuenten una de vaqueros.
July 18, 2013 at 10:01 am
They live in a dream world. Let’s face it, those who actually believe things are going well, and are on the up and up, are the ones lining their own pockets! The country is a disaster!
July 18, 2013 at 10:31 am
Quite a few poor people think the country is doing well. A lot of people know that the country is not doing well but they do not blame the goverment. That is a big problem. It’s a mess.
July 18, 2013 at 4:03 pm
^^^^ I sense the above is on to an important truth.
July 18, 2013 at 6:55 pm
I’m guessing Mission Vivendia worksites are mostly ghost towns at this point?
July 17, 2013 at 9:11 pm
Maybe it is better that Capriles is being kept from claiming his win on 14A for the moment while this whole system collapses under its’ own weight, and when he does get into Miraflores he can clean out the entire system and the Enchufados with it.
July 18, 2013 at 10:00 am
That’s certainly a thought to consider!!