Archive for April 12th, 2015

Don’t Touch My Subsidy!

April 12, 2015


The issuance of the new decree on travel allowances or quotas demonstrated how upside down things are in Venezuela and the damage that Chavismo has done to the way the population population thinks. We already know or knew beforehand how incapable the Government is and this decision once again exemplifies it: Only fifty days ago the Minister of Finance said the previous policy would remain in place for the full year and the decree is a mixture of inconsistencies and bizarre facts.

But the short sighted and self-centered reaction by too many Venezuelans is what is really a sad commentary on how Venezuelans think today and how much Chavismo has screwed up their brains in the last 16 years. How people can complain about a reduction in their travel quotas, in a country with shortages of food and medicines, where hospitals can’t provide basic services and care and is a tribute to how successful Chavismo has been in turning most Venezuelans into rent-seeking, self-serving and egoistical citizens who only think about themselves and are no longer able to distinguish the trees from the forest.

Touch anything, but don’t touch my subsidy!

But the problem is not the quotas, there is no basic right to provide citizens with the ability to travel abroad. Least of all, at a subsidized prize. The problem is the controls. Not only that they exist, but that there is no free or open market to which people can go and buy foreign currency to travel, if they can afford it.

The problem is that a time of falling oil prices and facing a deficit of US$ 25-30 billion, the Government was ready to use US$ 4 billion in 2015 to subsidize travel abroad for the more affluent sectors of the population. The most absurd part is that this was reduced to about US$ 2 billion, still an incongrouos amount, given the lack of foreign currency and the crisis facing the country.

This is still only about 10% of the gasoline subsidy, another subsidy that is also skewed to favor the wealthier part of the population and which should also be reduced dramatically.

Of course, it is the Government that is to be blamed for all of this, but the travel allowance is as much of a way to buy people’s sympathy as cheap food, cheap gas, cheap electricity and all the other crazy subsidies in place in the country.

But via this decree, the Government also shows how incompetent and incapable it is. To start with, nothing has changed, macro-economically speaking, since the beginning of the year. If anything, oil is slightly higher, but the deficit still looms large. How the Government thought or believed that it could get away with using US$ 4 billion for travel simply boggles the mind. You would think if the Government made a budget for foreign currency at the beginning of the year, the US$ 4 billion for travel would have stood out dramatically on that short list if you ordered foreign currency expenses by size.

But it is also part of the same absurdity implied by the fact that the Government is keeping the Bs. 6.3 per US$ rate for 70% of imports (for now) or the Bs. 12 per US$ Sicad rate for other things, despite the fact that there has been no Sicad auction yet since the “new” foreign exchange system was announced. This is as unsustainable as most policies by this Government.

In fact, when it comes down to it, the Government can not even afford the US$ 2 billion for travel allowances, what it should have done is eliminate the travel allowances altogether and use that amount in a free floating market, or to feed it to Simadi, which has been a gigantic failure so far. Because the first effect of the new decree is to push people over to the black market to either buy dollars for travel or complete their needs. This will only push that rate higher, which will be followed by even more inflation. A losing game in the end.

And the decree itself is bizarre and full of strange biases. Like, what is the rational for giving people almost three times more for a stay in Europe, over a stay in Mexico or the US? Is life really that much more expensive in Europe at a time of the euro going rapidly towards parity with the US$? And since the amounts are obviously insifficient fr a stay of more than eight days in the US, isn’t the Government simply acknowledging that this is a subsidy?

Or what is the rationale for eliminating the cash advance? Or the amount that can be withdrawn via an ATM, which was reduced to only 10% of the travel quota? Or the rationale of leaving the cash advance only for people underage? Why do they need cash and the adults do not?

And without noticing, the Government via this decree, is forcing people to open accounts and obtain credit cards in state-owned banks by banning private banks from participating in this business. Another effort to add controls and screw the private sector that goes unnoticed and nobody complains about. This is in the end should be what scares the people the most, how with one swipe, the Government creates a system in which the private sector can not participate and which forces anyone wanting to travel to open an account and obtain a credit card with a state-owned bank.

Uncle Nico will be watching you!

But people did not seem to notice these details. All they saw was their privileges reduced, their perks limited, even if it was absurd to keep the current quota allowances. But in the end, this subsidy will be paid over the coming years by all Venezuelans. In fact, we are all paying for the absurd travel subsidies of the last eleven years.

In the end, the reduction of the allowances exposes how privileges and subsidies distort people’s thinking, leading them to believe they are entitled to absurd rights. Which only indicates how tough the road back will be to a Venezuela in which priorities are set in logical and reasonable fashion, with subsidies aimed only at the weakest of the population.