Venezuelan Government Flip Flops Between Pragmatism And Radicalism, But…

February 8, 2015

biceLines at a Government owned supermarket in the middle of Caracas, almost daily now

Some people have written to me, asking why I have been so quiet, when so much has been going on in Venezuela with the takeover of Farmatodo and Dia Dia and the jailing of its owners.The reason is simple, yes, there is a lot going on, but to me what happened to Farmatodo and Dia Dia is more of the same, going back to the takeover of the Coca Cola warehouse way back in 2003 and going thru the nationalization (and destruction) of Agroisleña, or the Dakazo, or so many takeovers, nationalizations and jailings that have taken place under the Chavismo Dictatorship.

After all, Chavismo took over Dia Dia, a company founded in 2005 only to serve the lower strata of the population, the sort of project the Government should back and promote and not destroy, which is all it is doing by taking it over. After all, it is merging it with the Abastos Bicentenario (and stealing its inventory) , which was created when the Government forcefully took a majority stake in Cativen and its Exito hypermarkets.

They have not been the same since and have lines as long or longer than those of the private sector.

Thus, there is really nothing much different happening with the events of the last few days or weeks. What is puzzling, and I don’t have the answer for it, is why Chavismo (or Maduro) takes this self-destruction route. If I knew, I would have written a post about it.

Because what the Government is doing is sending very mixed signals. On the one hand, it dollarizes airline tickets, airline cargo and talks about a new “market” (I doubt it!) for foreign currency at a higher price than Sicad 2, but on the other, Maduro keeps confronting, threatening and acting like a Dictator, despite the fact that his popularity is in the low teens, according to the latest polls.

So, what gives?

I don’t know. The Comandante Eterno used to do the same thing when things got tough, but he was Chávez and Maduro ain’t. So, either Maduro is getting bad advice or he is full of himself. Personally, I don’t think Maduro can last this way until the Parliamentary elections. He can last, but he will have to repress a lot of people in order to survive.

But we don’t even know whether Maduro is completely in charge or whether others are telling him what to do, including his wife Cilia.

But I am sorry to tell you, the Government is not acting as stupidly as many lead you to believe. To start, they got US 1.9 billion from the Dominican Republic, which purchased  its Petrocaribe debt at less than half price. Then Citgo sold US$ 1.5 billion in a 2022 bond at a yield to maturity with a coupon of 11.5% and borrowed an additional US$1 billion from banks by pledging terminals and its shares. Not bad, US$ 4.5 billion at the blink of an eye in Maduro’s coffers. Jamaica could do the same and then Maduro may decide to close his eyes and send the gold to London and problem solved for 2015. Yeap, just like that, we are thinking 2016 and not 2015.

Oil is a many splendored thing indeed! Except Venezuelans are in charge…

My guess is that Maduro is betting (hoping?) that oil bounces from here and PSUV can keep control of the National Assembly. A tough and balancing act, given that the country will only feel the under-50 oil prices in March and April. Lines could indeed be long by the time Easter week comes around.

Yes, they are likely to become longer…

But things are really paralyzed right now, as the private sector awaits a foreign exchange system that I don’t believe will be functioning before Easter. Yeap! Think about it. You need to change the Illicit Controls Bill to allow the new market to function. This is at least two weeks from the time of he proposal, since it has to be approved by the National Assembly. Then, you need to issue the new foreign exchange agreement between the Government and the Central Bank, which is just a decree, but it has to follow the the Bill approved by the Assembly. After that, you need to issue the regulations for the market to function. Given that in one week Venezuela and its Government will be paralyzed by the Carnival holidays, even Easter may seem optimistic for this indecisive Government.

Which in the end is the biggest handicap of the Maduro administration. It is not only indecisive, but it has no clear view that a really free floating fx system will be any better. Except someone has told them to stick with it. And they want to try it out, but not everyone agrees.

So, we enter a very uncertain period, with many surprises possible. It is truly uncertain territory with a very indecisive and flip flopping Government. But it is clear there is a short term strategy in place, hoping for the best in the long term. And it will likely fail, leading to uncertainty, chaos and social unrest.

Not a pretty picture…

 

 

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43 Responses to “Venezuelan Government Flip Flops Between Pragmatism And Radicalism, But…”


  1. I’m curious to find out what blog platform you’re using?
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  2. John Says:

    They are not going anywhere for now. They have too much to loose including gathered wealth and freedom. Many have a date with U.S. courts and a federal prison. They still have a lot of room to maneuver and plenty of tools in their toolbox.

  3. Mitchell Says:

    Perhaps in their sick and twisted logic they know that they will be forced from office soon, one way or the other, and are intent on destroying as much of the country as they can. Why you might ask. Well, because they always look ahead. Ahead to more power. So if they destroy what is left and the opposition comes in and can not pick up the pieces, then in 4 or 5 years “Chavismo” can stage its comeback. With so much destruction, so much bureaucracy to undo, so much rebuilding, it will take the Opposition years to even get a good start. By then People’s patience will be running out (not fair, but probably accurate) and an alternative may be that they are once again searching for a new Messiah. The Opposition is going to have to explain how badly they have destroyed the country and how long it is going to take to get back on its’ feet. And then they are going to have to beg for patience. And Pray that “Chavismo” does not rear its ugly head again in a few years.Think about it, it isn’t so far fetched.


  4. […] Octavio looks at the chaos, But we don’t even know whether Maduro is completely in charge or whether others are telling him […]

  5. Alex Says:

    So let’s suppose the country doesn’t default and no real traumatic, explosive events occur, which is the most realistic scenario. Indeed, there is no reason to believe in the likelihood of social uprise of any sorts. People are accepting the long lines, coping with scarcity, surviving among deadly crime, adapting to electric shortages and carrying buckets of water from a well. Safe to say “forget a second Caracazo”, at least not for now. Humans have always adapted to harsh conditions, especially the resigned and hopeless.

    Under this scenario, albeit the continuous, slow deterioration of life conditions, Chavismo could hold indefinitely. Elections? Oh well, they’ll figure something out, some way to keep up the democratic facade maintained so far.

    Sad, but realistic.

    • moctavio Says:

      Something will happen, the question is when. It could be this year or 2022.

      • Getashrink Says:

        As long as poor people continue to tolerate whatever crap the government throws at them, the only thing that’s gonna happen is the continuing deterioration of the quality of life in Venezuela. And unfortunately, poor people WILL tolerate anything. To them, complaining about long lines is a middle class snobbism.

        • Alex Says:

          At the end of the day, it’s the needed, the poor that spend their whole days in line. They do it because they have to, they accept the line as part of the cost of receiving subsidized, cheap goods. Oh sure, they preferred when there were no shortages and the long waits under the sun were not required but they are not dumb, they know the country is going through tough times and therefore such burdens are now required.

      • Roy Says:

        “Something will happen, the question is when.”

        My first reaction to that statement was, “Well, of course…” Eventually, something happens even to stable and sound societies and governments.

        But, if it isn’t until 2022, then the question is moot. No one who has a choice is going to stick around that long. The only way they can stay in power for even another year is to chase out anyone capable of opposing them, which is, of course, what Fidel did in Cuba. If they can get about 5-10% of the educated population to flee, the remainder will be passive and manipulable, content to survive on rice and beans, while a very tight elite share in the oil wealth. This is clearly their plan. But, can they pull it off?

        Can they demoralize the Opposition sufficiently to believe there is no more hope and thus start the mass exodus?

        Can they manage the anger of Colombia over having a million plus political/economic refugees streaming across the border? And Panama? And Brazil?

        Can they diplomatically blunt the international opposition over the extreme and brutal repression they will have to employ?

        Can they find a way to control internal communications even better than China does?

        If the answer to all those questions is, “Yes.”, then it could well be much longer than 2022.

        I think the answer to “When?” is, effectively, this year, or never.

        • m_astera Says:

          I agree 100% that is the plan. The Fidel plan. The difference is the assets Venezuela has, and the massive debt. No one in the world really cared when Fidel stole Cuba; it didn’t have the assets or the debt. When the present Venezuelan government defaults, there are going to be some bill collectors showing up.

          Another factor is that communications today are 10^6 times faster and wider, and the internet and cellphone systems can not be shut down because the government needs them just as much as the common man. Nor is there the competence or skill to control them in the way China does.

  6. elpemon Says:

    Dear Miguel,

    I don’t think there’s enough evidence to reject the null hypothesis; which is that there is no plan. I think the government just don’t have their s**t together.

    On the other hand, do you really think they can keep this up throughout 2015? According to Miguel Angel Santos the government is in need of no less than $35 billion (http://runrun.es/la-economia/economia/182618/miguel-angel-santos-la-verdadera-crisis-estallara-en-abril.html). And this does not include a possible event such as a sentence favoring Conoco-Phillips for $10b. Even if they can scratch money from here and there, I don’t think they can get more than $10b cash. That means they will be forced to apply a really extreme macro economic adjustment or default. Sure, they can start selling the gold, but this is really pushing the envelope.

    It’s perfectly possible that hyperinflation starts occurring this year. If the government keeps giving away dollars at 6.30 and subsidizing the deficit by printing bolivares, the scarcity will make Bs bank accounts to swallow rapidly. It’s a matter of time before people start buying literally anything they can get their hands on..

    • moctavio Says:

      I dont think they can keep it up, but so far, they gave me a 4.5 billion surprise. Furthermore, they are acting like they dont want to default, buying back PDVSA 2015 and 2017N. They have cut imports like no neoliberal would have ever done it. They have a plan and are executing it and it clearly involves paying the debt. Why? Because they probably have been told default is not an option, as history shows that defaults are followed by instability and change in Government. On the other hand, political unrest doe not always lead to the Government changing.

      Look, I try to explain what I see to the best of my abllities and this is what I see. I still think that their wold card is sending the gold to London and borrowing against it. That will give them a cool 15 billion, 4.5 fom CITGO Rep. Dom, buy some debt cheap, get another 4 bill from the Chinese (unlikely at this point) and they could make it to the elections even if they lose, they adjust right after.

      • mick Says:

        They are too afraid of keeping anything where someone else might get to it. And, they wouldn’t dare undo something St Hugo did.

        I am curious though. It seems like every dollar mentioned is being accounted for several times. Once for imports the government buys, once for currency swaps for others to buy imports, once for service of debt, once for payment of court rulings, and once again for purchases of toys for the military. Not to mention the hefty percentage that disappears into other secret offshore accounts(since Venezuelan banks would probably be the worst possible place to hide away a retirement fund).

    • N Smith Says:

      Venezuela has been in hyperinflation since November 2009, the month when cumulative annual inflation over three years reached 100% which is the International Accounting Standard Board´s definition of hyperinflation followed by all governments since April, 1989.

  7. Dr. Faustus Says:

    A year ago everyone was speculating as to how much money was left in Fonden or Bandes. Observing the method by which they’re plugging holes in their decrepit budget today, it is quite obvious that all of the money is gone, poof! Breathtaking. Simply unbelievable. Some day a real accountant should be allowed to go through those books. I’ll bet the graft/corruption here is simply stunning.

  8. LT Says:

    Your post already answer why the Maduro gave the order to occupy Dia a Dia and Farmatodo. As soon as Maduro got the 5 billion dollars from Sto Domingo and Citgo he turned around and spent it on food imports, which are on their way to Venezuela right now. When the food imports arrive and hit the gvt stores, what do you think Maduro will say? “You see? I told you!!! Scarcity is the result of economic war waged by businesses against the people of Venezuela. So our strategy of terrorizing them is working: we just occupy a few businesses and put a few business owners/managers in jail and presto, the food hits the shelves. Great!!

    • Miguel Octavio Says:

      It takes months between importing something and it arriving, lines are not going away, as I say, the price the are getting todayis near 80, that is 5 billion per month, at 40 is 2.5 billion

      • mick Says:

        Don’t forget the production costs they cannot avoid paying. Even the cheapest oil costs $5-$10/bbl to pull out of the ground and they have fattened up their payroll hugely since the pre-Chavez days.

  9. Ira Says:

    As far as these takeovers go, there’s not any rhyme or reason to it, nor is it based on ideology, nor based on the hope it will make things better.

    He’s kind of forced to do this, because they’ve done it so often in the past. It’s been their only answer to problems, so in lieu of doing nothing, they do this…

    Again.

  10. Andrea Says:

    One last comment: Farmatodo and Dia Dia were lesson taught to Patricia Janiot. Take a look at her report “La Venezuela del Siglo XXI”… …these guys aren’t stupid!

  11. Morpheous Says:

    “And it will likely fail, leading to uncertainty, chaos and social unrest.”

    “Uncertainty” is certainly a very appropriate word for the situation in Venezuela. I remember one of my professors who said that the difference between “risk” and “uncertainty” was that “risk” is when you don’t know what will happen but you know the probability distribution. On the other hand, under “uncertainty” you not only don’t know what will happen but also you don’t know the probability distribution either.

  12. Andrea Says:

    It would be naïve to believe the Government is acting stupidly. The Government plan is quite intelligible and straightforward.
    Aggravate the crisis, trigger popular disorders and unrest (the worse, the better, the opposition will be blamed for it), put on hold the elections, call in the GNB and the FANB to restore the “order”, and install a kind of Bolivarian National Salvation government, under the guidance of the ‘Comandate Eterno’.
    Ties with the sections of the international community, which may oppose this plan, have been already severed.
    No communist regime ever needed ballots to justify its staying in power.
    Not ballots, bullets is what await Venezuelans in the fall of 2015. It’s either this, or we shall believe the Chavistas are really stupid.


    • I agree. Reality hasn’t sunk in. Those National Assembly elections are a mirage. They will squeeze the people, and Maduro will keep goading those who wish to protest. The idea is to flush out the troublemakers now, jail them, terrorize them, or force them to leave the country.

      And as long as there are businessmen working hard to stay afloat Maduro’s handlers will continue shaping the new communist fatherland, which will allow the survival of a small business class as long as they are willing to be enslaved and show no opposition. In a sense these businessmen, from Chevron to Schlumberger to Polar, are the true enablers of the hell Venezuela has become.

  13. Miguel Octavio Says:

    I think they are in an ideologocal trap, they really think they can control everything and ignore the evidence of their own destruction. It is ignorance in the end.

    • Fifi Says:

      They think they can destroy everything they don’t control. And they are right.

      When you run a petro-state, by definition unaccountable to its own population, you don’t need much to be working. You actually need only two things to work : the oil industry and the security services. The rest doesn’t matter much as long you’re willing to shoot at those who speak up and let those who don’t live in destitution.

      As long the opposition refuses to look straight at the core problem of Venezuela, its mineral wealth, and to acknowledge how toxic it is, the country will go nowhere.

    • Lobo Says:

      Exactly Miguel. Ideology over reality. Ingnorance. Sad for the people.

      • moctavio Says:

        It’s been that way for long, the only thing Chavismo is good at is staying in power, even their coup attempt in ’92 was a failure and badly executed. And they are military, that is the only thing they were supposed to be good at.

  14. Ronaldo Says:

    Chavismo could have kept the economy running with a free market attitude and a little effort early on. This would have consolidated their support. But no, they screw things up and destroy the economy. It does not make sense.

    My conjecture is that Maduro stole the last election, knows his time his limited, he is afraid, and that he has to be blocking challengers early. Either that or Maduro is just plain ignorant.


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