A Confusing Future Ahead For Maduro And Venezuela

November 25, 2013

zaraZara store in Valencia after forced discounts at “just” prices

It is somewhat ironic, if not perverse, that in a country with chronic shortages of milk, toilet paper and other basic staples, someone comes out to reassure the population that the inventories of appliances and clothing, which have disappeared from store shelves after the Government forced shopkeepers to lower prices by as much as 70%, will be replaced by January.

Ironic, because few believe it. Perverse, because somehow the socialist revolution has been turned upside down into some sort of capitalistic consumer festival. Basic food staples are missing form store shelves, but the new revolutionary man is prodded into making new lines day after day, to get his new plasma TV or Blue Ray player, or cell phone, but at a “just” price. Hurry! Before inventories run out, get your socialist dream, but made by Samsung and discounted by Nicolas.

And after forcing myself to listen to a couple of Maduro speeches, I must say, he has improved his delivery, but the content is a rambling and incoherent potpourri of empty words, where the Venezuelan President sometimes catches himself going in the wrong direction and completely backtracks when he realizes the absurd or inconsistent path he is taking.

And in between, the Venezuelan President makes promises that are simply impossible to fulfill or makes statements that are outright lies. Such as saying that now that the Government has taken control of all storage for commerce, there are supplies for a full year of all goods (Where is the toilet paper, the corn flour or the milk?). Or promising that “investment” will come to Venezuela this year and growth will be strong and inflation is about to fall sharply.

Because Maduro really believes that lowering prices in a fraction of about 12% of all goods can somehow lead to a 5% drop in monthly inflation. Not only does Maduro show how little he understands the problem, but in the end the Government is a victim of its own tricks to insure that the CPI will not go up strongly, because it created created a diverse number of groups in the CPI to minimize the traditional ones that go up relentlessly. But more importantly, nobody has (or can?) explain to Nicolas that by doing what he has done, he has suddenly increased the velocity of money, at least temporarily, such that inflation may even pick up after his latest actions.

But more importantly, even if Maduro will score some points on December 8th. , particularly by motivating Chavista voters to go out and vote, he has caused a variety of new problems and distortions for the already stressed and strained Venezuelan economy.

To begin with the commerce sector is one of the two with the biggest growth in GDP and in employment generation during the last 14 years (The other being the Government itself). With his actions, Maduro will destroy jobs, shut down stores and create shortages. While Maduro is looking for short term gains in lowering inflation, he does not realize that the commerce sector that he has been attacking, barely represents 12.8% of the weight of the national inflationary index and of these, he has affected the goods of less than 20% of the index.

But more importantly, does Maduro  understand (can he?) that there are three factors that affect inflation: The monetary base, which the Central Bank will take care of assuring that it increases. The velocity of money, which Maduro has made sure increases faster now with people going out and buying just about anything they can get their hands on. And finally there is the the availability of goods, which is certainly going to decrease dramatically over the coming months.

And while Maduro was likely looking for short term gains with his war against commerce, the policies that he will put in place, like more controls, Government importing even more goods for the economy and persecution of merchants will create problems long term.

What is clear is that among other effects, we will see the following:

-The stores that were forced to lower prices over the last three weeks will reduce inventory, reduce investments and even close over the next few months. Many of the goods were being imported at the black market rate and are not part of the Cadivi lists, thus, given the accusations of money laundering against some stores for selling goods purchased with these illegal dollars, whole sectors of the commerce sector will certainly disappear.

-A gray market for goods will evolve in time. You will go to a store and they will not have a particular item on display or in their inventory, but the store keeper knows somebody, who knows somebody, who has a cousin who has one and can deliver it to your home at a certain price.

-Government buddies will be able to sell goods imported by the Government, creating yet another source of graft and commissions and a vast network of new beneficiaries of arbitrage. Nobody will prosecute Government owned distributors for selling goods at outrageous prices.

-The Government’s own import and distribution machine, which is already strained and incapable of importing and distributing everything, will be strained even further, distracted by the need to provide the new socialist hyper consumer society with appliances, plasma TV’s, cell phones and fancy clothes.

-New controls will delay imports and create new bottlenecks. Importers may get foreign currency approved, but if the new all powerful control office does not approve a price increase, the importer may not bring the goods to Venezuela until this happens. Other the importer will get the increases, but not the foreign currency.

-All of the items above lead to less tax collection and lower economic activity.

-Commercial real state construction will slow down. The Government also wants to control commercial storefront rents. Mall owners have been charging a percentage of sales ever since the Government forbid automatic inflation increases and/or dollar indexing of rents. The Government now wants to eliminate this practice too, removing all incentives to build new commercial real state properties.

All in all, another step backwards for the revolution and the Venezuelan economy. Like Maduro’s thoughts and speeches, the future is confusing, with each action creating a wide variety of new limitations and distortions. Sadly, Maduro will likely gain some votes on Dec. 8th with his actions, but the victory will be a pyrrhic one, the opposition will still get more votes than Chavismo and likely triple the number of municipalities it controls today. But another sector of the Venezuelan economy will be placed under control and close to intensive care, just because…

29 Responses to “A Confusing Future Ahead For Maduro And Venezuela”

  1. Giovanni Perez Says:

    Venezuela’s “revolution” is no socialism, no communism, no nothing. Just sheer populism, brutal incompetence, widespread nepotism, rampant unaccountability, neglect and dereliction of the industrial base, all while the new “governing” class robs the people not just their money but their very future, a recipe for a failed state. If this wasn’t bad enough, Venezuela’s regrettable “revolution” is a blueprint some other “progresist” countries are in the process of copying. Among this saddness, I could not help posting this link to a remarkable feat that couldn’t be achived by venezuelans for lack of raw material http://www.youtube.com/watch?v=_oIN1GQZ1mA Let´s pray together that we are spared the worst.

  2. […] blogger Miguel Octavio sees A Confusing Future Ahead For Maduro And Venezuela. Let’s look at a Zara store in Venezuela, before price […]

  3. […] blogger Miguel Octavio sees A Confusing Future Ahead For Maduro And Venezuela. Let’s look at a Zara store in Venezuela, before price […]

  4. m_astera Says:

    As I’ve said before, it’s Trotskyism. What better way to eliminate the middle class and entrepreneurs than to force them to sell their inventory at a loss or go to prison?

  5. amieres Says:

    real state =>> real estate

  6. amieres Says:

    If the government tries to keep up with demand for TVs at “just prices” those TVs are going to end up in Cúcuta.

      • Glenn Says:

        And one more tidbit from El Universal. I think El Universal is feeling emboldened?
        “Ecuadorian authorities have reported over-invoicing in exports to Venezuela. According to Ecuadorian daily newspaper El Comercio, four companies, owned by Venezuelans, are involved in the case. The operations, conducted through the Unified System for Regional Compensation (Sucre), amounted to USD 17.7 billion in accounts of Ecuadorian financial institutions Coopera and Banco Territorial, now in the process of winding up. Nevertheless, the real value of the exports in 2012-2013 is USD 364,166.”

        Nice profit hey? No wonder Venezuela is scraping for dollars.

  7. Manuel Says:

    Yup…Ive said it before and it bears saying again because it seems to me that even well intentioned conversations such as this one about how things are getting completely screwed up and what needs to be done to fix the issues etc etc dont seem to grasp the current situation which I think is very important, that being this…

    The situation in Venezuela still has a LONG way to go to become truly terrible.

    Yes, it is absolutely terrible now and the country that most of us grew up in is basically gone as we know it, but hear me out. The situation is such right now that stores become completely bare of any sort of product. There are still restaurants and cafes and people still travel. There is still gasoline and luxury/nice cars all over as well as nice houses and apartments. People still have cell phones and even ranchos have direct TV.

    Now this to me indicates that as a country there is still money around and goods to be had. Yes the scarcity and lack of quality is increasing exponentially, but if people from the barrio can go to the stores and buy 4 plasma TVs in cash (I REALLY dont understand how that happens but thats another topic) then Vzla. is a ways away from being like Cuba or Russia back in the day.

    Until a time comes when there really is NOTHING for ANYONE left (excluding of course the top 0.1% like was also the case in the USSR) then people will continue to get by and wait for the government mandated sales.

    Are things going in that direction? Absolutley. Especially after the last few weeks of fire sales which will leave a lot of stores bare and/or shut down.

    But the country still hasnt reached rock bottom. And until it does the “people” will continue to enjoy going on bargain shopping sprees and then having a couple beers with their buddies.

  8. John R. Says:

    Russia, China, Cuba and Cambodia all had a phase early in their revolutions which was called the “dictatorship of the proletariat”. During this period, they imprisoned or killed all those who were a threat to the revolution.
    Venezuela is currently going through this phase, only instead of throwing everyone in jail, killing them, or starving them out, they are forcing proponents of free enterprise to flee the country. When all who can leave (who are the greatest threat to the revolution) have left, those who remain will by default, be supporters of the system. They will be the ones dependent on the handouts and the “becas”, they will support the system because that is where their next meal come from.

    • Dr. Faustus Says:

      That’s a very profound statement, and entirely accurate. When commenting on Venezuela we tend to forget that many of those who would have formed the core of any political opposition have already left the country, or are in the process of leaving. A forced Venezuelan diaspora. It is indeed textbook Marxism. Silence all potential political opposition by ‘any’ means necessary or, as in the case of countries like Venezuela, make them flee the country. How many of Venezuela’s “best and brightest” have already left since 2002, a million? Gone. Fled the country. Their voices no longer relevant. Now the spotlight is on the shopkeepers, the merchants who provide the glue for keeping society together. In the very near future they too will be packing their bags and exiting. One day in the not-too-distant future the hopeless and desperate looks one finds walking the streets of Havana today will be seen on the streets of Caracas and Maracaibo. Vacant stares. Living from day-to-day. Unsure of what to do next. It is so very sad…..

  9. Morpheous Says:

    Is it true that even Colombians an probably people from other countries are traveling to Venezuela to participate from this festival and buy all what they can for their homes abroad?

    I was told that many have been seen in the malls and at the airport carrying stuff pretty much like Venezuelans buying all what they can in Miami. Just imagine that a tourist in Venezuela can sell dollars at 9 to 10 times the official rate and on top of that buy stuff at 70% discount.

    If Maduro and his fans said that they were facing an “economic war,” what they are going to say when all the negative effects that Miguel has pointed out are hitting what’s left of the economy? Can oil income save Maduro this time?

  10. geronl Says:

    How do people see bare shelves and think everything is going swell? A regular rundown of prices of staples and their availability would be interesting, but pictures like the one at the top are powerful.

  11. Dave Hill Says:

    Venezuela is sliding into full blown communism now. It is sad that people let race and class hatred blind them so utterly that they embrace an ideology that has already wreaked horrific havoc elsewhere. They rush joyously to steal a TV that can’t be repaired when it breaks because the store is now closed, but have no milk or toilet paper and blame the CIA instead of the idiots they have elected. 90 per cent of murders go unpunished but they build expensive missile sites in poor neighborhoods because the gringos are going to attack the poor and steal their oil (which they already get by buying it). They have to import what they used to produce but see no danger in this. Beware the poor when they take political power! Hate and stupidity = destruction.

  12. As a former chronic MJ user I take offense! This guy is an idiot on his own. Demagoguery and the hunger for power are stand alone syndromes. If anything, a doobie every once in a while, should help my poor country folk from the stress that crime, scarcity and the lunacy of this regime create.

  13. xp Says:

    maduro decrees his future dreams,
    and the nation dutifully listens.
    The nightmare just keeps recurring,
    day after frickin’ day.

    For me, I prefer pink floyd

    So, so you think you can tell Heaven from Hell, blue skies from pain.
    Can you tell a green field from a cold steel rail?
    A smile from a veil?
    Do you think you can tell?

    Did they get you to trade your heroes for ghosts?
    Hot ashes for trees?
    Hot air for a cool breeze?
    Cold comfort for change?
    Did you exchange a walk on part in the war for a lead role in a cage?

    How I wish, how I wish you were here.
    We’re just two lost souls swimming in a fish bowl, year after year,
    Running over the same old ground.
    What have we found?
    The same old fears.
    Wish you were here.

  14. Island Canuck Says:

    “…where the Venezuelan President sometimes catches himself going in the wrong direction and completely backtracks when he realizes the absurd or incoherent path he is taking.”

    I’ve suggested before that he shows the symptoms of a chronic marijuana user. I have family members outside Venezuela that are exactly like this.
    I have no proof but would be willing to place a bet. 🙂

    • moctavio Says:

      I love it every time he starts talking about how things are done in capitalism and suggesting he is doing the same, until he realizes that he wants socialism and backtracks.

    • syd Says:

      heavy marijuana user .. that’s the most coherent explanation I’ve come across. It would explain much, including the pajarito visions, while Cilia emits a bovine smile.

  15. Glenn Says:

    Miguel here’s an interesting piece from Bloomberg on the gold swap or loan or whatever it is.


    • m_astera Says:

      One of the few things Hugo did that I agreed with, bringing half of Venezuela’s gold reserves back. Now Maduro is hocking it to Goldman Sachs for a measly 1.8 billion $, and it goes back to London. Very stupid move.

  16. Dr. Faustus Says:

    A little off topic here, but….
    After reading the above one cannot help but have pity on the fate of the Venezuelans. Here you have a country with some of the largest oil reserves in the world, a member of OPEC and an incredible windfall of oil revenues over the last 10 to 2 years, yet have nothing to show for it, …nothing. Read above again. This? …this is all that is left? … empty racks, food lines around three city blocks, a currency with a black market rate 10 times the official, and a crime rate that nearly tops all of the world charts. My God. Norway, also an oil superpower with 1/6 of Venezuela’s population (5 mil), has over 850 Billion dollars stashed away in a rainy day fund. Venezuela is broke, …nearly bankrupt. Again, read above. What happens if Venezuela’s oil fortune is replaced with new types of energy? What if oil drops to 10 bucks a barrel again? Can’t happen, you say? Then you’d better not read stories like this:


  17. fjcaceres Says:

    Hi Miguel:

    Your words “All in all, another step backwards for the revolution and the Venezuelan economy… ” to me ,the true part here is …and the Venezuelan economy. …

    I don’t think this is a step backwards for the Revolution, it’s a step forward to an State that wants to control people as much as possibe. Under Communism, the government wanst to prevail and think of what’s best for the people, So these actions as those that have occured the last 14 years of destruction of a private sector equals the construction of a communist way of life.

    For you, me and many of your readers all that is being done is a desaster because we use other metrics, For the Government all this is a good thing because it gets them closer to a communist socialist economic system


    • moctavio Says:

      No, Maduro is not the revolution, he has lot of enemies within Chavismo, the worse the economy performs, the less clear his future is. Diosdado’s influence in the military will disappear soon, as his class retires. He has ambitions. Maduro may be giving him his chance. The more they have infighting, the less likely the revolution will continue.

  18. Boludo Tejano Says:

    A gray market for goods will evolve in time. You will go to a store and they will not have a particular item on display or in their inventory, but the store keeper knows somebody who knows somebody who has one and can deliver it to your home at a certain price.

    Which reminds me of what I had read decades ago about commerce in the Soviet Union. Though in the Soviet Union, the desired item was often in inventory, but underneath the counter, for “selected” customers.

    Will this economic collapse result in more or less money sent to Cuba?

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