Government Paralysis Even At The Simplest Levels In Venezuela

August 26, 2014

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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…

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69 Responses to “Government Paralysis Even At The Simplest Levels In Venezuela”

  1. Mitchell Says:

    I am glad I held on to my 500.00 Bs and 1000.00 Bs with Simon Bolivar’s pic (before mutilation of his image, you know the great looking purple ones), as I am sure we will probably be able to start using them again soon. Nice looking bills too ! So dig em out,

  2. Ivan Says:

    Testing

  3. Ira Says:

    Totally OT, but FUNNY!

    Have any of you guys seen the reports on Spanish language news TV about this fat broad at a beach who looks EXACTLY like Hugo?

    I don’t mean she kind of looks like him. It IS him.

    With a vagina, I guess.

  4. xp Says:

    By Anatoly Kurmanaev and Nathan Crooks Aug 28, 2014 9:08 AM PT 0 Comments Email Print
    Save
    Venezuela’s bolivar fell to a record low against the U.S. dollar on the black market today as the government tightens rationing of the greenback through official channels to pay maturing debt.

    A dollar fetched 89 bolivars on the Colombian border today, compared with the official exchange rate of 6.3 bolivars, according to dolartoday.com, a rate-tracking website. Two black market traders in Caracas, who asked not to be named because the trading isn’t legal, confirmed the record-low rate.

    Inflation reached 60.9 percent in May, the last month for which figures are available, while according to economists surveyed by Bloomberg gross domestic product shrank 2.1 percent in the second quarter. The economic decline is pushing people to seek out dollars to protect the value of their savings, at the same time that the government tightens supply, Henkel Garcia, director of Caracas-based consulting firm Econometrica, said by telephone.

    “The government has reduced disbursements of dollars at the secondary markets in recent weeks,” said Garcia, citing non-public data from the Venezuelan Banking Association. “They are trying to save up as many dollars as possible to meet obligations to bondholders.”

    Venezuela has $4.5 billion of bonds maturing in October, according to data compiled by Bloomberg. The country’s foreign reserves reached an 11-year low of $20.1 billion on Aug. 21.

    http://www.bloomberg.com/news/2014-08-28/venezuela-s-black-market-bolivar-slides-to-record-low.html

  5. Island Canuck Says:

    Diputado @hugbelpsuv: “#BCV no publica las cifras por la guerra económica”

    Ha. ha, ha

  6. N Smith Says:

    The people on this blog who understand the above regarding daily indexing are light years ahead of the members of the International Accounting Standard Board in their understanding of the fact that only DAILY indexing maintains the constant purchasing power of capital.

    The IASB remains clueless about the above despite my efforts over the last 9 years to explain the crucial nature of daily indexing to them. The IASB refuse to update IAS 29 Financial Reporting in Hyperinflationary Economies to require daily indexing instead of using the monthly published CPI which has no effect in the economy as proven in Zimbabwe, Belarus and Venezuela.

    • Caracas Canadian Says:

      What don’t you understand about Venezuela? There is no functioning government. Can’t you get that through your brain cell? All of your self promotion regarding daily indexing is just a fantasy-land because there is no functioning government, only a criminal organization which makes any use of dollars and a dollar based economy illegal.

      I challenge you to come to Venezuela and talk to Nicholas Maburro and convince him to use daily indexing. Unless or until you have the balls to do that please desist from your self promotion.

      • N Smith Says:

        I never said there is something about Venezuela that I do not understand. You are (in your very personal, silly way) imagining that. The two blogs I follow regarding Venezuela (this blog and Caracas Chronicles) explain everything in a very understandable manner. I can read and understand English.

        I know there is no functioning government in Venezuela: I can read. You imagine that I can not get that through my single brain cell (as you insultingly state) all by your silly self (why, I do not know and do not care to know:: you obviously come with some heavy baggage 🙂 ). “The complexity of the task requires a fairly inconceivable 100 billion neurons, interconnected via trillions of synapses.” How many cells in the brain: http://www.livescience.com/32311-how-many-cells-are-in-the-brain.html

        So, us 7 billion other human beings are trillions of times better than you, Caracas Canadian, imagines. I maintain my huge respect for Canada and Canadians despite you failing your nation in such a blatant way on this blog.

        There is no self-promotion in my work. I know daily indexing is the right way to go. Many items indicate that, e.g., the global dominance of the relatively stable US Dollar as world currency; the 2% inflation target by the major economies; the 3 Trillion USD government daily inflation-indexed bond market, etc., etc. I gain nothing from this. I have/gained this knowledge: I cannot walk away from it and not share it where it is most needed: Venezuela, for example.

        It is not a fantasy land: Brazil used daily indexing from 1964 to 1994, Chile used and uses daily indexing to daily index 25%+ of its entire money supply daily for a number of years already; Colombia, Venezuela´s much more stable neighbour, inflation-indexes all mortgages on a daily basis, etc., etc.

        Not you, Caracas Canadian, but Miguel Octavio is the one who will decide who is banned from commenting on this blog. He is not like you and Kepler.


        • There is just no need to advertise daily indexing on a post by post basis, maybe once every 6 months is fine, I pretty much just ignore his post cause I know it’s the same person spewing the same thing. The first time was fine, I researched it when you said it, it was interesting and enlightening the first time, but by the tenth time you are just being an ass and giving me less confidence in it. Like Chavista spewing CIA is out to destroy them, do something about it, instead of saying it a million times, it doesn’t get anyone anywhere, by telling someone poor all day to make more money, when they just aren’t doing anything about it.

  7. N Smith Says:

    Fernando Leanme,

    You stated:

    “You are missing the optimum solution, which is to index daily but simultaneously issue a new currency, the “Chavez”. Tradition dictates this new currency should be worth 33 1/2 Bolivars.”

    Yes, I agree. You are suggesting a 1994 Brazilian-style Real Plan for Venezuela. I would support that. They used the Unidade Real de Valor Daily Index and they then monetized that index and made it into the current Real abandoning the Cruzeiro. But, their central bank then kept money supply low and in check.

    Keep in mind that Daily Indexing only removes the EFFECT of inflation and hyperinflation. It does nothing to actual inflation or hyperinflation. That depends on the central bank.

    If the BCV then were to keep on printing excessive volumes of the “Chavez” and were to excessively increase the money supply at a hyperinflationary rate, you would continue having hyperinflation. However, Daily Indexing would keep on removing its effect. Daily Indexing is thus the crucial answer to deal with a fiat currency.

    You stated: “The Chavez will work fine for about a year, at which time it can be replaced by the CUC.”

    Yes, the level of inflation/hyperinflation would depend on the BCV. Daily Indexing would, however, always eliminate the effect of whatever inflation or hyperinflation exists in the economy.

    What is the CUC?

  8. Kepler Says:

    This N Smith is really annoying, a really boring troll. The guy should look for other blogs to promote his business.


    • I propose a change of subject to improve your animus: I read PDVSA is going to buy North African light crudes to use as a diluent for the Faja del Orinoco crude. This means their nafta diluent stream hit a bottleneck (either physical or market related).

      The solution seems quite practical if they have the tankage and pipeline set up to do the blending. It also implies the ratio of Faja crude to light crude production is increasing, which in turn means the Venezuelan crude stream is fetching a lower price.

      Although I´m not running this through a model it seems to me PDVSA must be very worried about the Keystone XL pipeline delivering more Canadian diluted blend to the Houston market. That Canadian crude is bound to back out the Venezuelan diluted Faja blend, which will in turn be forced to find new markets.

      Am I seeing this right?

  9. Roger Says:

    When I first started doing business in Venezuela several months before they fed CAP to the lions, the Bolivar was at 56 to the dollar. If you bought a can of Polar for 37 Bs and change they would give you a bunch of centavomento (centavo) coins. By the time I gave up doing business in Venezuela as a day job in 1994 we were getting paid in the same size bills that we now had to carry in a malatin (briefcase)! The inflation was brutal even then. The people we worked for would say in later days, “you gringos charge too much”! If it were not for Chavezimo I would be there for the almost the same price in USD that I charged in the 90’s. In short, since the early 80’s the Bolivar has gone from bad to worse to un-sustainable! It is now at China’s version of the Oil for Food Program! Not to mention the Corruption for the Few Program. In the old days there were few corruptos? Now, everyone is in some way corrupt or as they say “pequit morte”. For some its greed, for many others its survival. Regardless, its a sad situation.

  10. rafaelg13 Says:

    Excuse me guys, can someone explain me what does Miguel mean when he says “bills by value”?

  11. The doctors is in Says:

    There is one case of a pathological corporation here in the U.S. that involved a Venezuelan called Claudio Osorio. The company was called CHS Electronics and at its peak in 1998, they where doing US$10 billion/year in sales. CHSE was South Florida’s largest public company at the time. To make the story short, what Claudio and his Venezuelan co-horts did through M&A was a classic Chavista takeover. To his credit, Claudio walked away unscathed from CHSE bankruptcy in 2000. Claudio burned through his CHSE earnings (expensive lifestyle) and got back into the game with a company called Innovida. The second time around Claudio embezzled Jeb Bush, Hillary Clinton, Bill Clinton, Wesley Clark, just to name a few. There where several billionaires suckered too. Claudio went all the way to the White House. When you fly that close to the sun, you will get burned. Today Claudio is doing hard time and nobody except his son stood by his side. Few understood what really happened and what was really going on in Claudio’s mind. Claudio at his peak was the most successful Venezuelan embezzler to operate in the United States.

  12. The doctors is in Says:

    Wanna add that these folks are alive and well in the U.S. and actually thriving but some companes are the exception and are aware of this and have programs in place whether it be the CEO/owner who does not hire arrogant people to the more formalized programs I mentioned above. You will never find answers as to why. Same with Hitler, the Third Reich and Holocaust. There is no why.

  13. The doctors is in Says:

    Miguel, in the United States this type of disfunction is recognized and classified in companies (and families). Here we would call this a pathological corporation or a narcissistic corporation (i.e. dysfunctional family). Extrapolate this to Venezuela and you have a pathological (narcissistic) regime. What you write is classic symptom: failure to acknowledge the true problem. They don’t solve problems, they try to make them go away. The problems and people behind them only get worse with time. Look at Cuba. This behavior is learned and taught and it does run in families so there’s suspicion of it also being hereditary or genetic. I think the percentage of the population prone to this is 10% or greater. In the U.S., many companies are aware of this and try to avoid hiring these people. Other companies test their employees (usually senior positions) with shrinks and make-believe scenarios to try to weed these folks out. It’s not new and I’m aware of these practices going back to the 60’s when the bad apples where referrred to as ‘control freaks’ and ‘egomaniacs.’ I think that in Venezuela this situation has run amok.

  14. Dr. Faustus Says:

    “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 most economic textbooks the term “inflation” is usually followed by an example of “running the printing presses all out.” In Venezuela’s case using the term “running four shifts a day” just about says it all. Pretty soon brand new Chinese wheelbarrows will have to be imported for the Pueblo in order to lug all of those 100 Bolivar notes around. 1920 Germany, …here we come!

    • Island Canuck Says:

      Or we end up being a cashless society with all transactions done by debit or credit card.
      We’ve almost reached that point now with the difficulty in getting the amounts of cash needed to complete normal daily transactions.

      Lineups at bank tellers are long & slow while ATMs limit the amount of cash you can withdraw per day.

    • Island Canuck Says:

      The thing is you need large amounts of cash to accomplish some things in Venezuela.

      Buy a car – certified cheque for the “legal” amount + cash for the balance.
      This applies to many things these days.

      Local repair guys & construction all demand cash.

      Etc. , etc.

    • Dr. Faustus Says:

      Yes, but let’s not forget to point out that there are indeed advantages to carrying around huge amounts of paper money. The local police will now have the upper hand in all matters dealing with petty theft. “Officer! Officer! That man trundling down the street with the wheelbarrow full of bank notes just robbed me, …see him! …ya can’t miss him, …he’s leaving a ‘paper trail’ behind him.” Just a thought….

  15. Island Canuck Says:

    You really experience this while dealing with ATMs here.
    The physical capacity of the machines is now greatly limited by their inability to handle the quantity of bills required during busy times.

    It’s quite common to see 50% of the machines inoperative on weekends & holidays because they are full of deposits of cash or empty of cash for withdrawals.

    One family member trying to withdraw some months pension at Banco de Venezuela which totaled Bs.15.000 (around US$300) was given all Bs.20 bills (750 bills). The cashier advised that all larger denomination bills were being saved for the ATMs

  16. Fernando Calderon Says:

    Sent from my iPhone

    >

  17. m_astera Says:

    “Government Paralysis Even At The Simplest Levels In Venezuela”

    You say that like it’s a bad thing.

    Imagine how this country would be if this government were efficient?

  18. N Smith Says:

    Daily indexed Bolivars = CONSTANT PURCHASING POWER

  19. captainccs Says:

    Bolivariano = Worthless, useless, missing, out of stock, no hay.

  20. N Smith Says:

    Prof Steve Hanke would agree with me. I may ask his opinion.

  21. alexguerreroe Says:

    The first initial question is this: why counterfeiters does not print Venezuelan bills? The answer: very easy, the costs of printing does not pay the amount of goods you get for them. The economy here explain everything!!

    So, considering the rate of changes in prices, that is inflation will give all clues. However, the usual, but not incorrect definition of inflation which says that it is a sustained growth of price does not help people to understand what insight process is running up, But if we define inflation, says Hayekian definitions, Austrian economics one, that inflation is a sustained process of money income loss sing its value, you will get the answer immediately.

    Nothing to be surprised. Inflation or better said, hyperinflation, -does not matter the number of zeroes- is telling us that the monetary cone tell us, what is the shape of inflation, accordingly, printing bills has to be done following it. If you have inflation rate, say 2% yearly, printing bills with be cheap, it means as well that the bills will not rotate that much, bills are not going to be destroyed so quick.

    It is well known that inflations destroy bills paper, and the small denomination bills disappear at a very high pace from the market since these denominations (2.5, 10) does not pay for a coffee. so throw them away, they do not reach the furnace, the rotations ends very soon, in time, as they daily rotations is to high that the destruction runs rapid enough to eliminate them from circulation.

    People will replace them at the rhythm Central Bank print the replacement, and BCV does not print them quickly, since its BCV believes its inflation figures are right, but the ones who feels inflation, people, the accelerate the bills rotation as the inflation process runs. People use those bills as much as they can, not the lower denominations, but the largest, 20, 50, 100, then it is supposed that the these does not rotate that much, but inflation will destroy the monetary cone, so you will be short of these bills in circulation.

    The problem here is one of belief, if BCV believes that inflation is 60% yearly, the printing could reach people needs, it is not easy to keep running, but if inflation rate goes higher, at quicker pace than BCV figures, the bills are destroyed quicker than the BCV thinks, at the rate BCV issues its monthly announcement. Interesting!

    So, BCV can cheat itself, but you will not cheat people needs for higher bills denomination, since inflation evolves quickly, at hyperinflation pace; so the monetary cone will fail to do the job. The monetary cone, tells us how many bills for 100, 50, 20, etc. must be in circulation, the main variable her which will define the rate of printing is inflation, or hyperinflation, better said.

    BCV has to print at the velocity of inflation, and that it is not easy, particularly for one reason, the cost of print will grow not because you need more ink, but paper, and it is known that bills higher denominations, 50, 100 Bs, cost more than lower denomination, for security reasons, trying to stop counterfeiters, otherwise they will print them by millions.

    Now we face an endogenous variable, to print bills you need inks and paper, but BCV needs to buy paper, it happens that the cost of printing 100 bill is higher than the amount of goods you bay, or this way, BCV have to pay Canadians for the paper, but you need more dollars because you need more bills, and at the same time, if BCV does not pay for the paper, Canadians will not give it more paper. Government, BCV and all of them are really maulas.!!
    If BCV does not pay for the paper Canadians, or British, does not give them paper for free.
    AG

  22. N Smith Says:

    Miguel,

    It is very wrong – hugely inflationary – to advocate the introduction of higher denomination bills.

    • Dean A Nash Says:

      That’s simply wrong. Larger bills do not increase inflation. You could print a one thousand dollar U.S. bill (the current largest is just $100) and inflation wouldn’t budge. It’s not the availability of larger bills that causes inflation. It’s inflation that necessitates the larger bills.

      • N Smith Says:

        Yes, you are 100% correct. I agree with your facts. However, I am sure you would agree that larger bills would normally make creating even higher inflation even easier.

  23. N Smith Says:

    Daily indexing is the same as dollar-indexing which is not dollarization. Dollar-indexing leaves you with a 100% normally functioning central bank and your own national currency being dollar-indexed (daily indexed). A revised IAS 29 – requiring daily indexing – is the official way of doing it.

    With very costly dollarization there are no more bolivars and your central bank has no independent local monetary policy or local money creation capacity: there would be no more bolivars – and it is very costly.

    Dollarization guarantees stability in the non-monetary and monetary (the whole) economy.

    Daily Indexing would guarantee stability in only the constant real value non-monetary economy. It costs nothing. It is free.

    • Dean A Nash Says:

      If you state something once, you’re informing; twice, you’re clarifying, but any more than that, you’re campaigning. Enough already. There are many solutions to Venezuela’s problems, but until the source of the problems is removed, all efforts are fruitless.

  24. N Smith Says:

    Instead of asking: Is there a government in Venezuela? I would rather ask: Is there a National Accounting Standards Board in Venezuela?

  25. N Smith Says:

    The solution – DAILY INDEXING – is freely available to Venezuelans. Ask your National Accounting Standards Board to do it for you via a revised Venezuelan version of IAS 29.

    It worked fantastically well in Brazil from 1964 to 1994. Read the history. Chile was using it up to 2010. Colombia uses it today for indexing all mortgages in the country. Chile actually daily indexes more than 25% of its entire money supply for a number of years already.

    Why not give it a try? You have nothing to lose.

    • Charly Says:

      I quote: “Yes, I have no fear of hyperinflation as long as I can update selling prices and debtors daily in terms of the parallel rate”

      A simpler method to fight hyperinflation blues is to carry US dollars in one pocket, they go a long way to help survive from month-end to month-end.

  26. N Smith Says:

    Things are getting worse in Venezuela: that rate is now back at 86 – very close to the previous all time high of 88.

  27. N Smith Says:

    Obviously the money supply in Venezuela can be (is being) increased via the banks without an increase in the number of physical Bolivar bills.

  28. N Smith Says:

    It is very sensible not to print larger denominations of the bolivar.

    Printing larger denomination bills, for example a 500 and 1000 or 10 000 Bolivar bill, would give hyperinflation a free reign. Maybe that is why hyperinflation in Venezuela is staying more or less stable at 60% per annum: round about 5% per month.

    The best would be for Venezuela to stop printing new bolivar bills altogether and implement monetary correction or Daily Indexing on a daily basis.

    This can be done by the Venezuelan Institute of Chartered Accountants, which is also the Venezuelan National Accounting Standards Board, changing IAS 29 Financial Reporting in Hyperinflationary Economies (which Venezuelan companies listed on the stock exchange have been implementing since 2009) to require DAILY INDEXING instead of using the monthly published CPI. This can be done by authorizing a Venezuelan version of IAS 29. Only the IASB can change IAS 29 and they are not doing that – although I made them very aware of the fact that it needs to be done. It would obviously make a massive difference if the Venezuelan National Accounting Standards Board were to ask the IASB to change IAS 29 to require DAILY INDEXING.

    It is in the power of the Venezuelan National Accounting Standards Board to authorize a Venezuelan Accounting Standard for Financial Reporting in a Hyperinflationary Economy which should “require” Daily Indexing in terms of the Venezuelan Daily CPI. It would basically be IAS 29 simply requiring DAILY INDEXING instead of using the monthly published CPI.

    That would stabilise the constant real value non-monetary item economy in Venezuela over a short period of time.

    Stop printing bolivar bills altogether for a while and inflation would be 0% – in theory. In practice, Venezuela would experience disinflation, that is, lower inflation.

    • Island Canuck Says:

      “Maybe that is why hyperinflation in Venezuela is staying more or less stable at 60% per annum: round about 5% per month”

      Wow. You obviously don’t live in Venezuela.
      There is no way inflation for July & now August was “around 5%”

      It is much closer to 10% monthly & growing.
      The rate for 2014 must be around 100% by now.

      As the government doesn’t hand out inflation numbers any more you have to be on the ground to appreciate what’s happening.

      Your constant rants about Daily Indexing are super unrealistic when you are dealing with a government that has NO CLUE and only bases decisions on ideology & staying in power.

      • moctavio Says:

        It is a practical matter Nicholas, it takes 80 Bs. 100 bills to make 100 dollars. Do you understand what a nightmare that is? Well, it is. Going to the bank, to the ATM, paying for things. You should visit, it is hell for tourists that live only with cash.

        As to your proposal. First, you gain little by writing it again here, I have never seen a member of that board comment here on this proposal and I dont think it is being considered. As to the probability of them doing it, this is a Dictatorship, they will probably think they would be jailed. You dont rock the boat in a Dictatorship.

        • N Smith Says:

          Miguel,

          If your accounting authorities are too afraid to do it, at least they can use their contacts with their peers in Argentina, Brazil, Chile, Mexico, Uruguay and other LA countries to influence the IASB.

          But, someone has to talk to them about it. I have Rafael Rodriguez Ramos, the President of your FCCPV´s three email addresses. Unfortunately he does not communicate in English and I do not speak Spanish. I have tried already in 2012.

          I think there is a possibility that it can be done via the IASB and IAS 29. But, the request has to come, ideally, from Venezuela. If not Venezuela then from the other LA countries. There was a commission for that in 2010 in Argentina.

          In 2012 I offered my help to the special commission set up by the Argentinian Accounting Federation to advise the IASB regarding accounting during high inflation. They refused my help when I pointed out to them very clearly that it is not inflation but the stable measuring unit assumption in accounting (Historical Cost Accounting) that is the culprit and that only Daily Indexing can solve the problem.

          Without even discussing it with Rafael Ramos nothing will ever happen. Someone has to speak to him about it.

          Who?


          • N. Smith, you are missing the optimum solution, which is to index daily but simultanelously issue a new currency, the “Chavez”. Tradition dictates this new currency should be worth 33 1/2 Bolivars. The Chavez will work fine for about a year, at which time it can be replaced by the CUC.

      • N Smith Says:

        I lived and worked in Luanda in Angola with 3200 percent hyperinflation. I personally received big hessian bags filled with blocks of notes of money. Piles or small mountains of money. I remember a 100% increase in hyperinflation in two months.

        It is very disrespectful from you calling my constant references to Daily Indexation “rants”.

        I am surprised in myself that I am actually responding to your comment.

        In Angola I killed our fear of 3200 % per annum hyperinflation after 15 months of daily dealing with it in our company. We dollar-indexed our accounting in terms of the daily USD parallel rate. That was the end our fear of hyperinflation in the company. We were lucky because we could update our prices and debtors DAILY in terms of the parallel rate.

        That is the way to go in Venezuela too. If your accounting authorities are too afraid to do it, at least they can use their contacts with their peers in Argentina, Brazil, Chile, Mexico and other LA countries to influence the IASB.

        But, someone has to talk to them about it.

        • Caracas Canadian Says:

          I invite you to get on a plane and come and talk to Nicholas Maduro yourself. I’m sure he’ll be happy to meet you and immediately put in place your ideas and you can finally quit bombarding all of us troglodites with your daily indexing wisdom.

        • mumra Says:

          Sir, after a while you single song stops being advertising and starts being spam. I’ve already read about all the wonderful things you’ve done for Angola . . . in fact, I’ve read it a dozen times here.

          • N Smith Says:

            Yes, I have no fear of hyperinflation as long as I can update selling prices and debtors daily in terms of the parallel rate 🙂

            • moctavio Says:

              To start with, the Government does not recognize the parallel rate, so it would be illegal to use it.


            • N Smith, your solutions are achievable in a country such as Angola because their “communists” are pragmatic. If the nation´s tax and accounting authorities don´t accept your books then your solution is meaningless.

              I´m familiar with the chavista government´s culture. The only advice they will take on this matter has to come from Cuba, and the Cubans are confused and have internal conflicts. There are quite a few Chavistas who realize their behavior is autodestructive and irrational, but they have to remain silent or they get demoted.

    • N Smith Says:

      Miguel,

      I acknowledge that the government does not recognize the parallel rate – at the moment. Close to unification, they will. But, that is in the future.

      The Venezuelan Daily CPI is a good start. The government recognizes the monthly published CPI. Listed Venezuelan companies use the monthly published CPI to implement the current version of IAS 29 with no effect on the economy. IAS 29 needs to be implemented in terms of the Daily CPI.

      The formula to derive the Daily CPI from the monthly published CPI is very simple and very well known and available all over the internet as confirmed many years ago by Robert Shiller, the Nobel Prize winner.

      I also know the government is late with publishing the normally monthly published CPI. In Argentina local economists constructed a proxy CPI while the Argentinian government published a fake CPI.

      What is required is that someone speaks to Rafael Ramos, the President of the FCCPV, about this matter to start the ball rolling.

      Do you want his emails, telephone numbers or address?

    • N Smith Says:

      I can send you a copy of Rafael Ramos´s business card.

    • Alexander Says:

      It seems that Smith definition of inflation, as I quoted in my reply, is the accounting official CPI from not BCV but from INE, definition which register prices for a basket of goods, based -in our case- in the year 1997, and which does not account for the change in consumption patterns, occurred in these inflationary eighteen years, which is accordingly, biased downwards.
      As such it says that inflation is a process of sustained growth of “some prices”, my quotes. Indeed, that is a bad definition, from economic point of view, and it is easy to observe once we note the statistics discrepancies between what it is in the “basket” and what is people consuming. So, it is not an economic useful definition since does not account for the losing of money purchasing power.
      As such, CPI could be just useful for accountants adjusting taxes documents, but is useless for people’s reaction to price expectations. That is when they ha feel in theirs hands the money losing purchasing power, something which CPI does no account, as in our case.
      The best definition of inflation, considers what is inflation really destroying, money income, rent, (salaries and profits). Accordingly, what is destroyed is money, its value, its purchasing power. So let’s s define inflation properly, this way: a sustained process of money losing power purchasing.
      That way we could understand why in Venezuela CPI inflation it is not comparable with that one which takes the money as pivotal for prices growth, the money loosing purchasing power.
      By the way, that is the definition of inflation that Steve uses to characterize the inflation in Venezuela as hyperinflation in Venezuela, it is the one I am using for more than ten years, once we noted the dispersion and disparity of both definitions quoted above. I note that definition of inflation is the one common from classics to Austrians, from Manger to Hayek and Friedman.

    • N Smith Says:

      Fernando Leanme,

      You stated: ” If the nation´s tax and accounting authorities don´t accept your books then your solution is meaningless.”

      That is completely wrong in the real world:

      Tax and accounting acceptance would be the least of the problems: you do your books in terms of what they want: you give them Historical Cost Accounts. No problem. However, you do your actual accounting in terms of daily indexed items.

      The two crucial items are not tax and accounting acceptance. They are:

      1. selling prices and

      2. debtors.

      As long as you can

      (a) daily index selling prices and

      (b) daily index debtors you would operate your business as if your were in the USA no matter what the rate of hyperinflation.

      I am sure you would agree.

      A) Daily indexing selling prices maintains your (i) capital (invested in purchased stock) and (ii) profit margins constant in real value: in units of constant purchasing power.

      B) Daily indexing debtors maintains your retained earnings (capital plus net income) constant in real value: in units of constant purchasing power.

      Give the tax and accounting authorities Historical Cost financial results: no problem. That is what we did in Angola. However, we kept our real accounts with all items parallel-Dollar-indexed. We knew our real results and we maintained our capital constant in daily updated units of constant purchasing power and we gave the tax and accounting authorities what they asked for: meaningless Historical Cost Accounting.

  29. CarlosElio Says:

    Printing bills is an example of the main topic of the article: the destruction of the government–and, in a highly centralized government, the destruction of the government also destroys a big chunk of the nation like its schools, hospitals, roads, utilities, and so on.
    What is most salient characteristic of Venezuelan government institutions today? Grandiose statements followed by improvisation and then followed by blaming unidentified “enemies.”
    I would like to see a reasonable study of the dominant culture of current government institutions. The shared set of values and beliefs that serve to assemble the organizational behavior of public employees.
    The case of GM comes to mind. A 14-year snapshot of the ignition switch problem that recently surfaced was put together by National Public Radio detailing a culture of errors, inaction, and failed leadership. It smells like chavismo was running amok in the corridors of General Motors.

    http://www.npr.org/2014/03/31/297158876/timeline-a-history-of-gms-ignition-switch-defect

  30. xp Says:

    http://listado.mercadolibre.com.ve/mediecitas

    Bella Moneda
    De 0,25 Cts De Bolivar De 1948 (mediecito)
    Tipo de artículo: Artículo usado
    Bella Moneda De 0,25 Cts De Bolivar
    De 1948 (mediecito)
    BsF 120,00

  31. moses Says:

    It can get worse yet, the other day i went to an ATM and asked for 300 bs, and got 15 bills of 20 bs …

  32. Steven/Setty Says:

    Your conclusion is perfectly fine, but I think the leaked document shows just how far gone even the “professionals” are. The only extant coins possibly worth minting in Venezuela are maybe the .5 and 1-bolivar coins, and the 1-Bs coin should be made of a simpler composition. It is made of the sort of bimetal blank that is used for a $1 coin in Chile or a $2 coin in Canada. It makes no sense to use such a fancy blank for what’s really a 2-cent coin. The 2-, 5-, 10- and probably 50-Bs notes should be coins. You realize that in Canada there is no note worth as little as the highest denomination in Venezuela? The introduction of a 500-Bs note is too little too late. It’s already past time for a 1,000-Bs note.

    Here are a couple posts I wrote on the topic in past years: http://settysoutham.wordpress.com/2013/11/20/the-life-span-of-your-billfold-in-one-chart/ and http://settysoutham.wordpress.com/2013/08/13/another-1-minute-search-another-venezuela-scandal/

    The latter was especially interesting for me. I would like to hear what your correspondent thinks about it. I strongly suspect that no 1c coins ever leave the mint. The staff have every reason to buy all of them and sell them immediately for scrap.

  33. Ira Says:

    Do they even know that when they print the new bills, they’re supposed to burn an equivalent value of the old ones?

    Rim shot, please…


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