Archive for August 26th, 2014

Government Paralysis Even At The Simplest Levels In Venezuela

August 26, 2014


That ideology screws up the implementation of the Venezuelan Government’s plans is obvious. What is incredible is how the belief that the anyone can do anything (Chávez was President, Maduro follows…) has led to the total destruction of the Government. There is no longer institutionality. As people have been put in charge of institutions they had no clue about, the decision making process has ground to a halt. We are not talking about rocket science here, we are talking about simple things like printing currency, for example. A function the Venezuelan Central Bank used to cover rather efficiently. As inflation increases and monetary liquidity goes up, you have to print bills in higher denominations. It’s sort of obvious and as long as there were some technical people left at the Venezuelan Central Bank, it was routinely done.

Then the revolution and with it some military officers, arrived…

And a friendly reader who has some some form of contact or works at the Central Bank, sent me some slides of a report that has been circulating at the Central Bank for apparently quite a while.

The report enunciates the problem rather simply: From 2008 to 2011 bills in circulation in Venezuela increased in value by 210%. The report, which apparently was done in 2012, predicted similar growth in 2011 to 2014 of 192%, coming up short, but that is in the end a minor detail.

In 2011, according to the report, there were 1.6 billion Bills in Venezuela, that is 55 bills per citizen. Of these, 40% were in Bs. 50 and Bs. 100 bills. But, these two denominations represented 82% of the Bills in Venezuela by value. Thus, the report predicted, without really expecting it, that these bills would become 95% of the bills by value by 2016 if nothing was done. (Nothing has…)

This was the prediction:

encircNow, Venezuela has the Casa de la Moneda in Maracay, run by the Central Bank. The problem is that it has a finite capacity on terms of how many bills it can print a year (800 million). As the Government has failed to create higher denomination bills, then the result is that more and more bills have to be imported (Another imported item in Venezuela), rather than be made in Venezuela. In fact, the source tells me that today the Maracay factory is running four shifts a day, but they are still not able to keep up and about 40% of all bills are now imported. And growing…

In fact, the report says that if a higher denomination bill is introduced in 2013 (which was not done), the number of new bills will increase to 1.1 billion by 2015, before it decreases.

But nothing was done, so the numbers are much higher.

In fact, the conclusions of the report are:

-A Bs. 200 bill (or even Bs. 500) is needed before 2014., as by 2014 the Bs. 100 bill would be 70% of all bills by value. (This was not done, of course)

-The Bs. 2 bill should be replaced by coins (This was not done)

-The 12.5 cent the “locha”, reintroduced by Chávez’ whim, should be withdrawn (No idea if this was done, it is worthless as a coin)

-The 1 cent coin should be eliminated. Ditto.

In fact, the report suggests that with the creation of the Bs. 200 bill, this would be the percentage of bills up to 2016:

ProjectedOf course, the Bs. 200 bill does not exist yet, M2 increased faster than projected in this report and the current authorities of the Venezuelan Central Bank have done little about something that should be pretty simple to decide and implement. Don’t even think about sophisticated things like how to invest and manage international reserves or sterilize liquidity to reduce inflation.

According to the anonymous reader, nothing has been decided, nothing has been considered, no one decides, it has all fallen in the Government aralysis even at the simplest levels in Venezuela.

Such are the ways of the incompetent and improvised Bolivarian revolution…