Thoughts On The Venezuela-Colombia Border

July 19, 2016

Frontera1

Venezuelans crowd the Simon Bolivar bridge in the border with Colombia waiting for its opening to go buy food and supplies there.

I have been fascinated by the events at the Venezuela-Colombia border for the last two weekends, as the Government decided to open a relief valve and let Venezuelans go over to Colombia for the day to shop. The scenes have been fascinating, but more importantly, the political, social and most of all, economic significance of what we have seen is simply riveting.

Start with the fact that the Government shut down the border a year ago in order to supposedly stop contraband from Venezuela to Colombia. An explanation which was simply grandstanding, as the contraband flows through the hundreds of unpaved paths (trochas) that criss-cross the  border under the watchful eye (and sponsorship) of the Venezuelan military. Thus it was simply a remarkably sight, as well as lesson to the Government, to see an estimated 135,000 Venezuelans cross the border this weekend alone, in order to purchase the food, medicines and supplies that they can no longer buy in their own country.

This is exactly the opposite of what the Government had shut down the border for.

But the more important lesson is how Colombia´s distribution system is so much more superior to the Venezuelan one by allowing markets to run things. Not only can Colombia feed Colombians, but border supermarkets did quite a good job in providing food for 135,000 Venezuelans overnight. Yes, they did run out of some stuff, which was not unexpected, but there was also a transportation strike which influenced the fact that some supermarkets actually run out.

And imagine how many Venezuelans had to feel to have to go to Colombia to buy that very Venezuelan product Harina Pan, which was not only fully stocked on the other side, but to the surprise of many that were not aware of it, it was actually made in Colombia and was made there by the Venezuelan company that the Chavista Government has demonized so much: Industrias Polar. Not only do markets work, but companies can move from one country to another looking for the best conditions to operate in. A lesson Maduro and his cronies simply will not understand.

Harina

Venezuelans buy Colombian’made Harina Pan in Colombia at roughly a dollar a package

And Colombia´s distribution system is better because it is orders of magnitude more efficient than Venezuela´s. Whether a product is imported or made there, companies can buy foreign currency and then proceed to deal with the their processes to deliver the product to the consumer. In contrast, the Venezuelan manufacturer has to deal with a supply chain, a control chain and a corruption chain.

Because at every step in Venezuela, from the request for foreign currency, to the request for certificates of having paid taxes, to a certificate of non-production in Venezuela, to requesting the foreign currency, to receiving approval, to having the stuff arrive, to have the stuff be brought out of the port, to have the stuff trucked to the factory of distribution point, etc, etc, etc.; at each of these steps there will be an official to get through, an office to stamp a seal or give approval, an official asking for money, a gestor (agent) that needs to be paid, a peaje (toll) to be complied with.

And each step adds costs and time to the process to the delivery of goods.

And it is not much different for the Government. Each ship of meat, grains or whatever needs to be accompanied by the approval of the appropriate General that decides how many Tons of each should be bought, which then jumps to the next step so that another General approves the payment. and once the boat arrives, it takes days to unload, to truck it out of the port and begin a distribution chain that has all of the same problems that the private one has, as stuff is deviated, stolen, smuggled out of the country and given to those that can pay money to to those in charge of the distribution system

But Chavismo refuses to see reality. Each time their Rube Goldbergeresque distribution and supply system fails to deliver, they decide to add a layer, assign a General to the new position and simply ignore economic reality and their own failure.

And the crowds going across the bridge were politically charged. An image for the rest of Venezuela and Venezuelans of over a hundred thousand people voting with their feet, taking their hard earned savings to buy their food in Colombia, food that not only they can´t buy in Venezuela, but that many were surprised as to how many items were actually cheaper on the other side of the border.

How can any Government use this image for its advantage? How can it possible erase it from people´minds come election time?

And at the same time, the images were broadcast around the world, clearly demonstrating the opposite of what the Government contends: There is indeed a crisis in Venezuela and Venezuelans are not being fed by a fairly wealthy but inefficient and corrupt Government.

And as I watched the scenes, I could not help but wonder about the economic implications of the shopping spree outside the country. How much did each person spend? How did they pay? How much was it for personal consumption, how much for bachaqueo? How do the merchants turn the Bolivars into pesos or dollars?

I confess I don´t have all the answers. I do know that people paid largely in Bolivars. I also know human nature. I am sure that people that waited hours to cross that bridge did not do so just to spend Bs. 10,000 (US$10 at the parallel rate) or to find a single item like toilet paper or toothpaste.

Look at this man for example:

guy

Man crosses back into Venezuela with a bike full of goods

The man may be an outlier (or a bachaquero), but he is certainly carrying a lot of goods in that bike. My guess is a few hundred dollars. But let´s assume it is much less on average. Let´s say the average Venezuelan carried US$100 in Bolivars across the border. This turns out to be US$ 13.5 million. Believe it or not, this is a large amount in Venezuela these days for the black market. Thus, I have no idea how the Colombian merchants could possible hope to convert this money back into Pesos or US$ swiftly. Moreover, I don´t see how they could have done so without the paralell rate of exchange increasing significantly.

But there has been little movement on the black market rate so far.

So, what gives? How did they do it? Because these border people are sophisticated when it comes to taking currency risks. They just don´t do it!

My guess at this time, absent any other theory, is that it may have been the Venezuelan Government that provided the hard currency. Since the Government planned the opening, prepared this sort of relief valve, it must have been aware of the possible pressure on the black market and excess liquidity and provided funds to the money exchangers at the border. This not only make sense, but lest you think that they are too dumb for that, remember that when it comes to guisos and graft, these guys are the best there is. I welcome any other alternate explanation.

Meanwhile, while this scenes were visibly reported, it is less well known that in Zulia State, just north of the pictures above, the Governor has promoted contraband from Colombia to Venezuela, purposedly looking the other way as the stuff is smuggled. Maracaibo and Zulia supermarkets are full of Colombian products at Colombian prices, a clear indication that at least some in Government have realized that allowing markets to work may be the best thing for Chavismo at this time.

Meanwhile, the Governor of Tachira State said that he would not open the border this week, giving him arbitrary power over the border, arguing he does not want to disturb the effort by both Governments to have a peaceful border. The reality is that the Colombian Foreign Minister said that the border will not be opened until it this becomes a permanent status. Nothing could be more logical than that.

For now, reopening the border will likely lead to much better supplies in Venezuela, but will certainly put pressure on the black market rate. As soon as the reopening is formally announced, many new businesses will set up on the other side of the border, where markets function and there is the rule of law.

Meanwhile, Maduro and his Government have been completely exposed as a total farce and failure. It is Colombia that can provide us with food and supplies. And Venezuelans are desperate enough to wait for hours to get to the other side…

 

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27 Responses to “Thoughts On The Venezuela-Colombia Border”

  1. Christina Says:

    The biker is Colombian you pay for bringing the stuff to Ven.border.
    Some serviceman make pesos by a helping hand.


  2. I was envisioning a Venezuelan government set up to buy bulk bolivars and ship them back to Venezuela in large wooden crates. They must have had this arrangement working for years.

    • Ira Says:

      I don’t get it:

      Doesn’t this HAVE to be some kind of secret agreement between governments? Why would the store owners take these Bs unless they knew they were guaranteed to be able to reasonably convert to $s or Colombian Ps?

      And the store owners certainly didn’t have items marked in Bs, right? So did they all accept Bs at the same exchange?

      And what about people not returning to VZ? Any estimates?

      So many questions.


      • No, merchants at the border are quite sued to taking pesos, Bolivars or dollars and have rthe rate of exchange handy. Prices are marked in pesos.

        Apparently most people went there shopping.


      • Shoppers do take bolívares and use them. Evidently there’s a large scale bolivar purchaser, the exchange rate doesn’t move much, and this means that bulk purchaser is soaking up bolis.

        This tells me there’s a government connection. It’s a handy way to devalue the currency, obtain more bolis. If it’s the Maduro regime doing the operation they can destroy those bolis and print new ones in Venezuela.

        • Alexis Says:

          I’m not convinced at all. Why would the Venezuelan government spend hard foreign currency on buying back bolivars that it can print indefinitely?

          Unless it’s cheaper to buy them back than printing… but it hasn’t reached that point yet.


          • Easy, it is a cheaper and simpler way of providing food to the population. Otherwise the money has to be spent to import.

            • Ira Says:

              I still don’t understand the answer.

              Fernando’s insinuation of a government connection in the currency manipulation is the only one that makes sense.

              How did the rapidly devaluing B all of a sudden stop devaluing?

  3. Diocletian Says:

    MO, that was a very insightful posting.

    The whole thing is quite ironic. I remember travelling to Cucuta to have the opportunity to cross the border and go to San Antonio. And not just for gasoline! I remember being happy when Cocosettes (is that the right name?) were produced in Colombia.

    The northern border is wilder and more dangerous. I suspect that neither country could control Maicao even if they wanted to.

    I really hope that you keep trying to udnerstand the economics of it. I have an interview with a vendor saying that he did accept bolivars. I also see that the Bolivar is still quoted in La Opinion (Cucuta newspaper).

    Second, how much do people in Venezuela know about this whole thing? Is it covered on the media? Did anybody really beleive that people in Colombia were starving?

  4. Paul Says:

    Do Venezuelans just have an addiction to Harina Pan and cooking oil? I understand these are cheap items for the populace but in all pictures of food related items reported in the media, this seems to be all I see. What about fruits, vegetables, etc.?

    • Emilio Suarez Says:

      The thing is that you could feed a family of 5 with a package of Harina Pan for less than 1 $ ( a lot less than 1 $ if you found the regulated one). Vegetables and fruit can be quite expensive because producers rely on imported raw materials and they pass their expense onto the consumer. A humble avocado can be sold for 4.000 Bs (around 4 dollars).


    • Harina pan can be used for all sorts of applications, from arepas to temporary tooth fillings. Fruits and vegetables can be too expensive for the poor, and today over 50 % are poor.

      Mangoes are fairly easy to find outside Caracas, but they are harder to find in Zulia state. As far as vegetables are concerned, I hear yuca is still available.

      Cooking oil is used for everything. I survived for years in Cuba and we ate even worse unless we risked the black market.

      Venezuelans haven’t got pushed as far into starvation as Castro pushed us. And I’m convinced Maduro is being steered by the Cubans. This is a fact Venezuelans can’t grasp: the Castro regime can be genocidal if they think they can get away with it. Unfortunately USA and EU elites think it’s fine and dandy to help Castro and condemn the Cuban people (and by extension the Venezuelan people) to servitude under one of the cruelest and most destructive regimes ever seen.

  5. Alexis Says:

    Thank you for the great post, as usual.

    You know, I am surprised the value of Bolivar actually went up despite the flood of people exchanging them for hard currency. And it has otherwise remained stable for months despite the government printing money, paper or digital, continuously.

    So, who buys bolivars these days? And what for?… You can’t really purchase anything with them. You can still pay for people’s time and services, but the country is way too insecure for any kind of tourism industry. There are niche markets like paying people working online, but that’s very limited.

    Who is buying all these bolivars?


  6. Reblogged this on How to s..t on humans and commented:
    An excellent outline of the situation along the Venezuela-Colombian border in mid July 2016

  7. Javier Says:

    A very naive hypothesis is that the Bs will be used to buy gas in Venezuela for contraband back to Colombia.


  8. Ira: the Government is restricting excess monetary liquidity, there are very few Bs. Held by those that can buy US$ Excess liquidity about a month ago was about US$ 300 million at Bs. 1,000, try to sell US$ 5 million into that!

    Private banks cant lend much either as they have liquidity problems, all of this is holding back the black rate. On top of that each time someone buys a dollar from the Govt. and pays from a private babk, that Bolivar goes to the Central Bank or a public bank, same with Dicom.

  9. Humberto Says:

    ” Not only do markets work, but companies can move from one country to another looking for the best conditions to operate in. A lesson Maduro and his cronies simply will not understand.”

    Yep. they do. Yep, they will never understand this basic point. Or wait, is it that they simply don’t care?

  10. Lee Kuan Yew Says:

    Excellent post..

    “the Venezuelan manufacturer has to deal with a *corrupt* supply chain, a * corrupt* control chain and a corruption chain.”

    Fixed. As the Devil explains the the next paragraph, corruption is everywhere, not just the “government” and the politicians:

    “Because at every step in Venezuela, from the request for foreign currency, to the request for certificates of having paid taxes, to a certificate of non-production in Venezuela, to requesting the foreign currency, to receiving approval, to having the stuff arrive, to have the stuff be brought out of the port, to have the stuff trucked to the factory of distribution point, etc, etc, etc.; at each of these steps there will be an official to get through, an office to stamp a seal or give approval, an official asking for money, a gestor (agent) that needs to be paid, a peaje (toll) to be complied with.”

    Which means that “el pueblo” itself is corrupt at every level. Everyone bribes their neighbor, to get special favors. In plain English, most people are into murky business, most average people participate and are complicit in the corrupt mess. You see, in Kleptozuela you can barely survive unless you become a crook of sorts. One way or another. You must bribe, or get bribed, or both. At every level. For the low-level workers, obreros, to the little managers “gerentes” to the owners, and of course, to the mega-thieves “bolichicos” for PDVSA, Corpoelec, etc.

    The entire “chain of distribution” is corrupt, from beginning to end. Millions of corrupt people, not just the “government”. Corruption is contagious, and when there is total impunity, no laws, no punishment, eventually almost everyone is forced into illegal activities, theft, bachaqueo, contraband, bribes, extorsion, etc. It becomes a Criminal country, at every level of society. At the barrios and pueblos, at the grocery stores, at public and private small businesses, everywhere. Puro Tigre. Puro Guiso. Everywhere.

    That’s what killed Kleptozuela. Massive Corruption everywhere and at at levels. The “pueblo”, you see, is not very honest.

    The one thing I do disagree about here is:

    “But Chavismo refuses to see reality. Each time their Rube Goldbergeresque distribution and supply system fails to deliver, they decide to add a layer, assign a General to the new position and simply ignore economic reality and their own failure.”

    They know what’s going on. They want to live in chaos. Chavismo knows what should be done to fix the economy. Everyone knows. It’s not rocket science.. Free the markets, get rid of exchange controls, stop the bureaucracy, endless permits, import regulations.. STEAL a bit less, and get a massive loan from the IMF.

    These are all austerity measures that “el pueblo” (vastly corrupt itself) would not like at all. The IMF loan is not free candy, they have demands. And these measures limit the $$$$$ all these people are stealing. From Maduro and Cabello, down to the average “pueblo” people. Millions of crooks.

    Thus, they don’t want to fix anything. They know what’s going on, exactly. They know how to fix it. But they want to keep on STEALING and getting richer.

    As simple as that.

    • Dean A Nash Says:

      I’m afraid that Lee Kuan Yew is correct – they know what they’re doing. I believe the correct word for this is ‘conditioning’.

    • m.astera Says:

      I only disagree with the part about getting a loan from the IMF. That would shortly be stolen as well. The answer as I see it is to claw back the hundreds of billions already stolen and in overseas bank accounts.

  11. Dr. Faustus Says:

    Love to read your comments on the proposed “debt-swap.”

    http://reut.rs/2acuqhD

    • moctavio Says:

      Until I know the details I would prefer not to comment, but it sounds outrageously expensive to do.

  12. YngvarG Says:

    “…and provided funds to the money exchangers at the border.”

    Any evidence of this?
    Maybe someone (that cares more than me) should tweet or e-mail the journalists writing these harrowing border stories and rouse them to look into the matter.

    And report back here for the reply!

  13. Rick Lee Says:

    The radical left is wedded to certain beliefs and refuses to accept the failure of its ideology. Any failure is explained by blaming capitalism and its nefarious agents of repression who hover in a nebulous cloud over the beautiful revolution. So while people in countries with rational economies eat well, those in collectivist economies either go hungry or run away. The fact that Red China, Vietnam and other previously collectivist nations like India or the USSR/Russia have all enacted successful market economy reforms is completely beyond the comprehension of the Chavista idiots, who continue to live high on the oil money while everyone else gets screwed. When Venezuelans go to Colombia and see shelves full of food and medicine, they must have sense enough to wonder why they don’t have these things on their “oil-rich” socialist paradise.


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