Archive for September 8th, 2013

Waiting For Venezuela To Bottom

September 8, 2013


Many people seem to think that Venezuela is or may be close to some sort of economic bottom. That the current economic situation is unsustainable. That things are about to crack up somehow due to the economy. Collapse, explode or implotion.

Well, think again..

Countries are like the shares of a bad company. they keep going down and down, and too many people think it can’t go lower and they buy more, but it continues to go down.

I think Venezuela is the same. Things continue to deteriorate, shortages, blackouts, inflation, crisis after crisis and conflicts, crime and constant devaluation.

Guess what? That is the story of the last fourteen years, but the bottom may be far into the future.

First of all, think Zimbabwe. If country’s economic crisis hit a bottom and political change would follow, then Mugabe would have been a goner long ago. Instead, there is Robert Gabriel Mugabe, plodding along, year after year. In the middle, the country has seen a variety of things, from hyperinflation, to sanctions, to austerity, with plenty of elections all the time. And Mugabe is still “it”, leading and ruling the country, like Chavismo owns ours. Except Chavez died.

But Mugabe does not have the pipeline of dollars that Chavismo has, nor the leeway to adjust and change in order to plod along along longer. In fact, I suspect that Mugabe has more smarts to adapt and change politically and that is about it.

Think about it, Chavismo has the barrel of oil at US$ 107, give or take some cents, almost as high as it has ever been. It also has a gazillion barrels of oil (and gas, and gold, and iron) underground that it can lease, lend, promise and/or mortgage, in order to achieve its means.

Yes, thing are not well, but an adjustment here, an adjustment there, and quicker that you can say devaluation or default, for that matter, things could improve rather quickly.

And they have. Really. Things are worse now in terms of dollar availability, for example, but at 21% scarcity levels, we are far from the 49% levels of 2007, or the electricity rationing of the 2010 crisis. Think about it.

And oil is as high as it has been in the last five years for example. That means that even if the parallel funds have less in them, they probably have at least US$ 16 billion to muddle through until things get very tight. And if PDVSA needs money, the Central Bank can increase lending to it, by 50%, rather than 28% like in the last year. Crazy? Yes. Inflationary? Yes. But when you have no scruples, the show must go on! As long as you can keep it going.

You are worried that there is a shortage of dollars? Well, let me remind you this is a revolution. And the reality is, that there is a shortage of foreign currency for the private sector which imported US$ 38.7 billion in 2007, but only received US$ 26 billion last year. That is a 32.8% drop. But guess what? The Government in the meantime, has gone from importing “only” US$ 19.7 billion in 2007 to importing US$ 34.3 billion in 2012, that is “only” a  74% increase.

So, you “feel” the lack of foreign currency, because you get essentially 33% less, but the Government has almost doubled what it imports and the Central Bank said those imports went up 25% in the first half of 2103. Yes, their imports are inefficient, overpriced, full of graft and the like, but they have the money, you don’t. Feels bad, but is reality…

This is, after all, a revolution…Remember?

And lest you think that they don’t know they are in trouble, let me tell you three stories:

-Financing for Petrocaribe has almost ground to a halt this year. Yes, according to Central Bank numbers, last year financing to oil exports to Petrocaribe grew by US$ 7 billion. This year? A small increase of about US$ 300 million, according to the Venezuelan Central Bank. That means more money from oil for the Government, more foreign currency for other things.

-Many importers have received in June and July more new foreign currency from Cadivi than what they had received in the last twelve months.  Where is the money coming from? I don’t know. It may be coming from lower Government imports, or it may be coming from funds that used to go to shell companies that never imported anything under the “old” Cadivi management.

-The Government had to import gasoline with the Amuay fire, by now, most repairs have been completed. That means more dollars for PDVSA, as imports of gasoline go down.

And there are more economic tools that could be used. Devaluation, for example. Increase the price of gas from free to free by 200% or 300% higher. Sell dollars at a much higher rate for Sicad. Or if push comes to shove, no dollars, really critical, do you really think these guys are incapable of default? Think again.

But that is far in the future, we are not even close to that.

For now, if you are waiting for Venezuela’s bottom, look again. It’s not close. Going back to my stock analogy, buy Facebook shares ($FB). That one did hit the bottom. And it is going up…

Because about the only thing that Venezuela has hit bottom yet, is on the leadership. Maduro is really near bottom, he is no Chavez, but oil and oil prices and some reasonable decisions could keep him there for a long time, let’s say, all of his six years.

Countries do not reach economic bottoms, only political ones. And that is what the opposition has to work on. The opposition will likely get more votes in December than Chavismo. But Chavismo is likely to get more Mayors than the opposition.

And that, my friend, would not be a sign of a bottom. Chavismo would sell it, through the State controlled media, as a huge victory. And it would be.

So, if you are waiting for Venezuela’s bottom, this is likely not it.

It is after all called the Devil’s Excrement. A true curse. More than you could have ever imagined.