Archive for November 23rd, 2014

An Example Of The Absurd Subsidies And Distortions Present In Venezuela

November 23, 2014


As you all know, I go to Venezuela regularly. In fact, I just came back from there. Yesterday, right before going to the airport I had breakfast and, of course, I had to go to my friendly neighborhood arepera to enjoy the true flavor of nice local cheese and arepas, something I do at least once every single time I go. In my travels, it is incredible how I notice inflation from trip to trip. Even the chocolates I buy at the duty free store at the airport were up this time, a full 50%. They are no longer as cheap as they used to seem.

But going back to the breakfast, the picture above shows the menu I had: Two cheese arepas, a jugo de patilla and a cafe con leche grande. I was surprised at the cost, Bs. 402 for such a simple breakfast. Here is the breakdown:

Each arepa was Bs. 120

The juice was Bs. 80

The coffee was Bs. 39

Now, to get the right perspective one could calculate this at various rates. At the official rate of Bs. 6.3, it would be a scandalous US$ 63.8. At the Sicad I rate it would be a still expensive US$ 33.5, at the Sicad 2 rate it would be a still not cheap US$ 8, while at the parallel rate, it would be an very cheap US$ 3.24. Using a different perspective, the Bs. 402 represent 8.2% of the new monthly minimum salary, a clear outrage, as this is just one meal, breakfast, and there are 89 other meals every month. Which clearly show the absurdities of the Venezuelan economy.

But as I sat there reading El Nacional, the only daily left that can be purchased and has some true to what it says, I was amazed to read that Samsung had begun selling appliances, TV’s and the like, purchased at the Sicad I rate on Thursday and that people made long lines and even slept at the stores to get them.

Think about it, while people pay Bs. 402 for a simple breakfast, which is outrageous at the Sicad 1 rate, others benefit from the subsidy (and the luck!) of being able to buy appliances at that same rate. Note that this is simple populism, very few people actually benefit from the subsidy, but the image that the Government is doing something good for the people makes good headlines and many can only hope or dream that they can get their hands on one of these subsidized items. In fact, the Government makes headlines about this many times: when it calls for the auction, when it assigns the foreign currency and when the stuff finally arrives and gets sold.

Let’s try to put it into perspective, the clothes washer that El Nacional says was for sale at the JVG store, cost the equivalent of 31 breakfasts like the one above. That is, for a family of four, it is the equivalent of seven breakfasts. Cheap, no?

Which simply shows how screwed up the system is. Arbitrage is the rule of the day in Venezuela, you have to wonder how much of the stuff that arrived in Venezuela or is waiting in 243 containers at the port, will be sold and resold (or reexported to Colombia or Brazil) by those that are lucky enough to get their hands on one of these appliances.

Because in the end when you go to the store in Venezuela, you have little clue as to at what price something was imported. At Bs. 12,600, that clothes washer would be worth US$. 1,050 at the Sicad 1 rate (not cheap!), US$ 252 at the Sicad 2 rate (cheap) or US$ 101 ( a steal) at the parallel exchange rate. Thus, if anyone purchased this at the lower rate and tried to sell it for twice or three times at much in Bolivars, it would seem like a good deal and it would be the intermediary that was making most of the profit.

But the absurdity and the distortion is that the Government gives out money for this, which in the end is a “luxury”, in a country where there is poverty (and increasing) and people are having a hard times making ends meet.

Picture added from comments, sent by Ira, the Arepa Lady from Barinas at Walmart: