Archive for September 1st, 2013

Accountability Is A Dirty Word For Chavismo

September 1, 2013


Accountability is simply a dirty word for Chavismo. There he was, Nelson Merentes, the current Minister of Finance talking on TV on what a mess the economy is, as if he had not been omnipresent in Chavez’ Cabinet and as if all of the things he was saying are not working, were not the creation of Chavez, aided by none other than Nelson Merentes, Jorge Giordani and others. Sadly, he also showed that he has no clue as to how to solve the problems anyway.

First, the clueless Mathematician says that the black market dollar “perturbs and gives anxiety” to Venezuelans. Thus, the wise man suggests that the Illicit Foreign Exchange Bill needs to be changed because it has not fulfilled its objectives. He also suggests that the Securities Markets Bill also needs to be modified.

Let’s see. The first Bill has been in existence for eight years and was passed when the National Assembly was 100% Chavista. It was modified once to make controls tighter, not softer, making it illegal to even mention what the exchange rate is and to make all foreign exchange transactions, except those made thru the Government, absoluetly illegal.

Even worse, up to 2010, there was a functioning parallel market in Venezuela, which the Government squashed because it did not like the ever increasing rate of exchange, killing Venezuela’s Capital markets in the process, jailing people and modifying a well-thought out (and widely consulted!) Capital Markets Law to satisfy the regime’s wishes at the time.

The result? That same parallel rate is now five times larger, barely three years later!

And Merentes apparently thinks that changing these laws will apparently solve the problems, the same way he thought SITME was the best foreign exchange market in the world (Will last 100 years! Nelson dixit) and silly SICAD would solve the scarcity problems)

Which shows that after eleven years practicing finance, which Merentes had never been interested in, he has yet to learn much about it. Moreover, things are what they are because of the absurd monetary and foreign exchange policies, which he helped implement at the Central Bank and are still in place today.

Because changing the laws, will not lower the black market rate. Creating a parallel market will not lower the black market rate. (I personally think it will increase it, not decrease it!) Because the problem is excess demand for foreign currency, generated in part by the artificial creation of money, while maintaining the official exchange rate constant.

It’s very simple: You start with pent up demand for foreign currency which has been building up over the years. Then, you increase restrictions on who can get the foreign currency. You follow it up, by having the Government increase its imports, which is not only inefficient, but full of “guisos”, overprices and empty containers and follow it up with keeping the official rate of exchange artificially low, while all this time the number of dollars you have to sell are constant, if not lower.

It is an equation that will never work, to put it in terms the Minister should understand.

Because the US$ 47 billion that Merentes magically mentions as what Venezuela imports, is not really that much. When the Government is directly importing US$ 34 billion, while “assigning” US$ 26 billion to the private sector using convoluted criteria at such a favorable rate, simply does not work. Even Jorge Giordani has admitted that as much as 40% of all that may be fake.

And then, the final and golden touch to his statements is when Merentes says: “We want to produce what Venezuelans consume”. Really? You could have fooled me Nelson, because you have spent fourteen years doing exactly the opposite, threatening, expropriating and making it very difficult for the private sector to grow. And just a hint, keeping a low official rate of exchange, with 20-30% inflation is exactly a recipe to kill local production, so start there.

Same with exports, where many of those same exports don’t exist today, because the plants and factories were expropriated and lie idle under Chavista management.

But Merentes speaks as if this is a new Government and he was never part of the previous one. As his predecessor in his current position, there is simply no accountability. It is as if these failed policies were implemented by extraterrestrials. In fact, It is as if he became Minister of Finance last week, not almost five months ago.

Accountability is a fifteen letter word, but for Chavismo it appears to be a four letter one.