Archive for January 20th, 2014

Policy Paralysis in Venezuela

January 20, 2014

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The more I think about Maduro’s “announcements” and speech last week, the more I think the whole thing was incredibly inconsequential and very little was truly announced that day. No matter what interpretation anyone wants to give it, what Maduro did was roughly repeat what was said last May, a couple of weeks after he was sworn in as President of Venezuela.

For example, Maduro announced that Cadivi would be eliminated and a new institution, the Centro Nacional de Comercio Exterior (Cencoex) would take over for it. But do you really think this will be a major change? Cencoex will have new stationary, there will be signs on the door and a new website, but the rest will all remain the same. After all, Maduro wants tighter control over who gets the foreign currency, which implies that controls will remain in place and the seventeen steps required today by Cadivi, will become twenty some under Cencoex. If not more.

In fact, the Vice President confirmed this when he said that “The paperwork will remain the same until we make new announcements”, which simply says, we have no clue what to do anymore than we did in May 2013, we just know this is not working this way.

And yes, a new Minister of Finance was appointed, this time a General and an active one at that. As if a General would somehow figure out what others have not been able to. And this General is no Economist, maintaining a long tradition of having someone who is not trained in Economics or Finance for the position. Which obviously shows.

And I repeat, he is military, as if did not have enough military presence in the Cabinet as it was.

And Nelson Merentes, a Mathematician who has created a reputation as being a “pragmatist” goes back to the Venezuelan Central Bank, where his pragmatism led to the artificial¬† creation of money to the tune of 60% -plus per year, which has lead to the glorious levels of inflation we have.

And some people actually think it is good that he is going back to the Central Bank. It must be a collective death wish of some sort.

Meanwhile, we were told that Sicad would become more important as a mechanism to obtain foreign currency. That the auctions would be dynamized and more companies and people would have access to this mechanism.

Except that is precisely what was said last May/june by Merentes and Ramirez, the latter the other “pragmatist” in the Cabinet. And we have to wonder what makes Ramirez a “pragmatist”, since he has done very little for the economy, pragmatic or otherwise, since he became¬† Vice-President for Economic Affairs, and very little that can be considered pragmatic. Oh yeah! he made a couple of pragmatic decisions in PDVSA before, but you have to remember that PDVSA is the goose that lays the golden eggs to sustain the revolution, but the revolution is all about ideology, not pragmatism. So, keep the eggs coming so that we can cummunalize Venezuela, if such a word exists, which I doubt.

And once again we were threatened with a modification of the Foreign Exchange Illicit Bill, something as recurring as comets in the past, but now returns so frequently that they have become artificial satellites and pure BS at that. And every time this changes are mentioned, the optimists think some form of market exchange is coming soon, while Chavismo knows that no such animal will exist again as long as they are in power. But people are gullible enough to think that Giordani is on his way out and the revolution will become softer. Sure, as soon as you can say Elvis Amoroso backwards one hundred times in a row and drunk.

In fact, there were so few announcements in the State of the Union speech that the easy part, moving students dollars, travel and the like to he Sicad rate was not even announced. That is how improvised the whole thing was.

And while everyone and the New York Times seems to think that the gasoline price increase is coming, Maduro did not even mention the subject last week and by the time the whole subject is discussed and processed by the Government, what we will have is an increase which is unlikely to match 2014’s inflation in Venezuela, implying that Maduro will simply be running in place by the end of the year.

Because what is happening is simply policy paralysis, influenced in part by fear. Any distortion that is removed will have a political cost in the country, while the way the distortion is removed erodes Maduro’s standing within a Government divided by ideologies, all of them extreme left wing.

Which requires in the end, bringing in more military, active and retired, murderers and coupsters, in a macabre dance of incompetence, to compensate the absence of the one almighty leader.

But in the end, it is all about ideology. Don’t be fooled. The Government will assume any role that they think can be better performed by them. Foreign currency will be channeled through the Government. Imports via State companies and friendly Bolibourgeois, so that the shortages have no way to go but up. And more military will be placed in charge.

Perhaps nothing summarizes this more than the title of Ecoanalitica’s report in reference to Maduro’s speech: “How to make a 360 degree turn”.

And indeed it was, use all the cliches, back to the future, deja vu all over again and the like. Maduro went back to May, losing what is likely to be his only opportunity in the next few years to make an economic adjustment that would have a lasting effect. By the time the distortions become even more dramatic in mid-2014, Maduro and his team will be thinking about the Parliamentary elections in 2015, inducing policy lethargy and the appeal to extremely unorthodox policies and methods to allow the Government to survive until then.

But while the radical wing led by Minister Giordani remains in place, nothing will change. Chavismo/Madurismo will be trapped in its distortions and its inability to execute what is needed to have things improve. Till then, more of the same.