Maduro Adds Fuel To The Inflation Fire

November 3, 2014


For eighteen months, Nicolas Maduro has refused to make any adjustments on an economy suffering from all sorts of distortions, for fear of losing popularity as well as the lack of clear advise from anyone close that grasps economic theory. To Maduro and his Ministers, economic policy has been limited to decisions on controls, foreign exchange policy and salary increases, as inflation and  shortages increase dramatically and the limited funds available are shifted to cover the immediate needs of the Government.

And after firing in September the only Minister that had some sense that adjustments should be made, we spent four weeks thinking that no adjustments were forthcoming. Then, statements by various Government officials suggested that something may yet happening. Nothing dramatic, a small devaluation, a small gasoline price increase, less deficit spending, monetary measures and the like. Instead, Maduro goes on TV tonight and bombastically announces that he has approved a 15% minimum salary increase starting December 1st, such that the minimum salary will become Bs. 4,889 a month (US$ 776 at Bs. 6.3, US$ 444 at the Sicad I rate, US$ 97.8 at the Sicad II rate or US$ 47.66 at the parallel rate). Maduro also boasted that Venezuelans have the highest minimum salary in Latin America, as he used the impossible to get rate of Bs. 6.3 per US$, when the reality is that it is the lowest minimum salary in the region at the other extreme and likely at the Sicad II rate too. Maduro was very proud that with this increase, the total increase in the minimum salary for the year is now at roughly 68%. It will never occur to him that inflation being at 70% and the increase at 68% have any relation whatsoever.

Just to make sure the fire keeps burning, Maduro also increased the “food tickets” given to all employees every month by “only” 50%.

No other measures were announced…

So, at a time that the economy is really screwed up, Maduro simply decides to add fuel to the fire, with no accompanying measures to mitigate inflation, reduce scarcity or reduce the deficit. In fact, at a time of falling oil prices, this forces the Government to print even more Bolivars, as it was clear that it had no Bolívars to finish off the year.

I guess Maduro read that Wall St. analysts were beginning to predict triple digit inflation and decided to make sure their predictions become true.

But more importantly, what Maduro is doing is guaranteeing triple digit inflation, with 50% shortages, a sure recipe for social unrest.

And a huge devaluation…and unrest.

And I am not exaggerating, it is difficult not to envision some form of social unrest with 100% inflation, Chávez dead and  a rudderless leadership. While many think the Government is in control, I disagree. With Rodriguez Torres’ departure, the hoodlums have taken over. Dario Vivas, Freddy Bernal and the Colectivos are up, everyone else is down. The “military” takes over PDVSA and you know nothing good is going to come out of that. Meanwhile, Marea Roja is being shunned, forced into becoming a party and becoming “opposition”. As if the opposition was not diverse, an extreme  left Chavista party may be soon part of it.

But what worries me is that despite all of the controls, all the media manipulation and all of the intimidation, people will simply explode when things become untenable. Because in the end, the only solution is an adjustment, an extremely strong adjustment. An almost impossible adjustment that would bring down any Government. But few people are saying how bad the adjustment has to be. In fact, I was disappointed at Voluntad Popular calling today for a 45% salary increase across the board.

What is this, a contest to see who is more irresponsible?

Anyone wants 100% increase?

What I fear is that we are going into a period of chaos, where the Government will have trouble maintaining order, unless it wants to resort to brutal repression. A period of instability and uncertainty never before seen in the country´s recent history.

And Maduro might not only have thrown some fuel into that fire, but he may just have ignited it…

Sorry for the optimism… 😦

28 Responses to “Maduro Adds Fuel To The Inflation Fire”

  1. […] November I said that I feared we may be going into a period of chaos, unless the Government wants to use brutal […]

  2. Ronaldo Says:

    Compare and contrast
    –Between 1961 and 1989 along the Berlin Wall alone, at least 136 people were killed or died in other ways directly connected to the GDR border regime, including 98 people who were shot, accidentally killed, or killed themselves when they were caught trying to make it over the Wall;

    –Over 50,000 people have died trying to leave Cuba. At least 20,000 people were assassinated by Fidel Castro, his brother, Che, and their cohorts.

    The Berlin Wall is down. Let’s open the Cuban wall now.

  3. SETC Says:

    Some people have tried and are still trying to explain the economic constraints facing the country to hardcore ideologues in the government (for example, but so far they have not been successful… let’s hope for the good of Venezuela that ideologues stop paying attention to cubans and start acknowledging reality soon

  4. Sales Man Says:

    The management long ago destroyed PDVSA’s ability to routinely purchase internationally. Routine technical maintenance was lost years ago. The required technical maintenance ‘adjustments’ required for the oil and industrial infrastructure will be brutal. Many good people and engineers have been crushed by a bizarre system.

    The Golden Goose is starving, decrepit, sleeping in the cold and rain; someone ate a wing and another took a bite out of its leg.

  5. FrankPintor Says:

    I think you over-estimate the effect of shortages (50%), basic goods are mostly available now in shops, you can readily get milk, sugar, butter, harina PAN, wheat flour, pasta and rice most of the time. Manufactured goods are available and are mostly cheap Chinese imports.

    Things are clearly fairly random, from time to time the coconut trees stop producing coconuts and the hens stop laying eggs ;-), but basically the regime has bought itself more time by providing basic goods, even though at much higher prices than before. The thing is, there is so much money in circulation, and I expect people have savings due to not being able to buy goods before, that the effect of the high prices hasn’t been felt yet.

    To be sure, the shortages have simply been re-distributed and disguised, before you couldn’t buy, say, milk, now you can but you can’t get paracetamol. Milk you need most days, paracetamol not. If it wasn’t for the Chikungunya epidemic, people wouldn’t even notice the paracetamol shortage. Nature isn’t being kind with the regime…

    It’s just stretching the resources available to buy time, it seems that there will be enough imports to cover Christmas, look to January or February when people’s savings are used up and the parties are over to see the real situation.

    • moctavio Says:

      Its rotation, not better supplies. Once something is in short supply, the Government devotes resources to it and other things disappear. But the total amount of goods available does not improve. With less money, (in US$ which is the real problem) there will be fewer goods, but more money going after it. I am not making timing predictions, I am just looking at the history of 100% inflation and what it did to Governments. Yes, people think Zimbabwe, but why dont they think Alfonsin?

      • Boludo Tejano Says:

        Yes, people think Zimbabwe, but why dont they think Alfonsin?
        Because Alfonsin in Argentina was the leader of a democracy. I doubt that many people would call Mugabe’s Zimbabwe and Maduro’s Venezuela democracies. Dictatorships or autocracies with democratic veneers, such as Mugabe in Zimbabwe, or the Junta in Argentina, can survive hyperinflation.

        It would be a stretch to say that hyperinflation toppled Alfonsin, as he wasn’t running in the 1989 elections. However, he did step down five months early to President-elect Menem. In that sense, hyperinflation did topple Alfonsin.
        [Not too bright to have such a gap between elections and assuming office.]

        • moctavio Says:

          Yeltsin? Allende?

          Maduro is quite a nebish character….

        • Boludo Tejano Says:

          Yes, Maduro is a nebbish, but so was Allende. The difference is that Allende the Nebbish, while allied with Castro [no accident that Allende’s daughter Beatriz married a Cuban intelligence operative], didn’t take Castro’s advice to go hardline. Such as purging the upper echelons of Chile’s military.

          Whereas Maduro the Nebbish will faithfully do whatever the Castro brothers “suggest.

          Yes, hyperinflation had a lot to do with Allende’s fall.
          As it did with Isabel Peron’s fall.

      • FrankPintor Says:

        Yes, of course it’s rotation, or in more prosaic terms, it’s a game of whack-a-mole. Once they finish with one shortage, another will pop up.

        In terms of predictions (which you’re not making, but still I would like to understand where this is going), which hyper-inflationary regime would you choose as an example? How many twists and turns can there be before all the liquidity, savings, and patience are used up?

        About the 45%, I don’t think you can be too disappointed by the opposition: that’s politics, it’s saying “you’re giving 45% to your favourites, this is your solution, but what about all these people, don’t they deserve some too?”. Letting the regime’s internal contradictions show isn’t bad.

        And by the way, vmglaffitte30, Jesus Mary and Joseph is my taxi line here, I hope they answer today. People are scared shitless, passengers are afraid to take buses, taxis are afraid to pick up passengers. It’s a mess.

  6. Boludo Tejano Says:

    And I am not exaggerating, it is difficult not to envision some form of social unrest with 100% inflation, Chávez dead and a rudderless leadership.

    Yes, there will be unrest with 100% inflation, but dictatorships – or autocracies with a veneer of democracy – can survive hyperinflation. Zimbabwe’s inflation didn’t topple Mugabe. The Videla Junta took over Argentina when inflation was around 300%, and eventually got it down to around 100% inflation- still in the hyperinflation range. While there was dissatisfaction with the Junta’s mishandling of the economy, what brought the Junta down wasn’t hyperinflation, but the Junta’s misadventures in the Falklands, a.k.a. Malvinas/Malditas.

  7. Tomate Says:

    I’m just waiting for the decree to take 2 zeros of the inflation… “eramos muchos y pario abuelita”

  8. I believe the repression will be worse than you can imagine. Sadly I don´t see much of an international reaction to the ongoing crisis, and the Cubans will want to keep receiving oil and cash. This means they´ll want Maduro to stay in power (and given the ongoing mess I don´t see anybody wanting to take over). If I had children in Venezuela I would get out ASAP.

  9. Island Canuck Says:

    I’m surprised by 2 things in the reporting of this increase.
    No one is touching the fact that the inflation numbers are pure fantasy.
    For example we don’t have a number for Sept. as yet.
    I’ll guarantee that the true inflation is above 100%.

    Secondly that he may have given 60+% in increases this year but they were all just catch up & way too low to do the pueblo any good.

    This is all just a web of lies to hide the deperate situation they find themselves in.

  10. Robert Sonderman Says:

    Linda, More bad news for employers.

    Our plan to increase Guadaloupe’s salary as of Nov. 1, to Bs. 2.700 a fortnight is still ok. I believe as long as she is above the minimum we do not have to give her an additional 15% in December over the raise you will announce when you return.

  11. N Smith Says:

    A proper economy and the necessary capital (credit) are needed after that to make the economy grow.

    The daily change in the Daily CPI indicates the daily change in the general price level.

  12. N Smith Says:

    “In fact, I was disappointed at Voluntad Popular calling today for a 45% salary increase across the board.

    What is this, a contest to see who is more irresponsible?

    Anyone wants 100% increase?”

    The only way you get to stability is when ALL prices follow ALL (at least daily) changes to the general price level. So, if you had no salary increase for 12 months and annual inflation is 70% then a 70% increase will only keep the real value of your salary the same as a year ago: no increase at all. So you have to ask for at least 100% or more if you expect inflation to carry on at the same pace.

    All prices (selling prices, salaries, capital, rent, gasoline, etc) have to follow all (at least daily) changes in the general price level. This does not stop hyperinflation.It only stabilizes the economy for free and very easily. Only when you stop the excessive increase in the money supply, do you stop hyperinflation. Nothing else works. Obviously dollarization works to give you only stability. By itself it won´t make the economy grow. Good governance, correct economic policies and lots of extra capital(credit) is required for that.

    Daily indexing only removes the EFFECT of hyperinflation for free. It does not stop it. It stabilizes the economy for free and you still have your central back with full monetary policy powers. You do not have the latter under dollarization which is also very costly.

    Obviously a proper economy and the necessary capital (credit) is needed after that to make the economy grow.

    It is quite a simple process. 🙂 🙂 🙂

  13. Rick Flowers Says:

    As their outdated, failed ideology slides Venezuela further into chaos and ruin, the incompetent communist ruling class will show their true colors-repressive mass murderers trying to impose a stupid, idealistic fantasy on the masses while they get rich. They will fill prisons and cemeteries to overflowing while huge numbers of people will flee across the border.

  14. m_astera Says:

    Force employers to give the workers more money and more food coupons to buy what is not in the store anyway. Something makes me think this idea came from Cuba, and is in alignment with that last great idea of forcing electronics retailers to sell below cost, from which none of them recovered nor will. because the government never made dollars available to restock the goods.

    When the employers cannot afford to pay the higher wages or the food coupons, they, too, will go out of business. That is right in line with the (communist) goal of having everyone dependent on the government for everything. So, I see this as a very strategic move aimed at destroying whatever private enterprise still exists other than buhoneros, and they had better watch out because they will be next.

  15. Maybe Maduro intends for this fire to spread.

    • LuisF Says:

      Maduro is just a puppet remember!.
      The one pulling the strings DO want the fire to spread and the social explosions to blossom!

      …who is going to go after them for all their pillaged monies, when people are killing each other on the streets?

  16. Says:

    Jesus, Maria, y Jose! What a hell hole of a mess!

    Sent from my iPhone


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