The Devil's Excrement

Now that I have your attention with that provocative title, I will give you my answer to that question right away and then I will try to justify it: I don’t think there will be economic collapse, dramatic social unrest or anything of the sort. I think that Venezuela under Chavismo will continued to plod along, drifting lower, as conditions get worse and worse, but I don’t think there will be some sort of dramatic collapse of the economy that will lead to some form of political instability.

My reasoning is simple, very few times in history do economies collapse in predictable fashion, nor do I think Venezuela is at an extreme. Yes, things are bad, but the Government has a number of degrees of freedom to act if necessary and it enjoys a level of popularity such that there is ways to go before its popularity is down to levels that could create sufficient social unrest for anything to happen.

Think about this year (2013): The Government had a shortage of dollars all year, it devalued to Bs. 6.3 from Bs. 4.3 per US$, Chávez died and was replaced by nebish Maduro, the Government spent like there was no tomorrow, inflation went up 100% from 25+% to 50+%, the unmentionable rate increased by a factor of 3.7 (It started the year at Bs. 17.4 per US$), scarcity went up from 20% to unknown and in the end, Chavismo actually got more votes than the opposition, with over 50% popularity in the Mayoral election.

Venezuela has The Devil’s Excrement, for better or for worse, we know the flow of foreign currency can sustain the types of distortions that the Venezuelan economy has enjoyed the last few years with total inaction. At some point,  things will unravel. but I believe this will happen only after the Government devalues sharply, which it does not seem ready to do and/or attempts to fix some of the distortions in the economy.

Because it is precisely the fact that it has not tried to fix these distortions that will allow the Government to make some adjustments. It can reign in spending, it can cut Petrocaribe and Cuba, it can devalue, it can increase the price of gas, sell the gold, mortgage more of the future than it has take over the banking system to issue even more local debt, issue more foreign debt and many other measures, before its popularity goes below 40%. Think Mugabe, for example, he had gizillion inflation and even held on to power.

Oh yeah, things will get worse and people will be unhappy, nobody enjoys 75%-80% inflation like we will see in the first half of 2014, but the Government will blame Obama, Capriles, Economic War or even Martians for the problems. And given the control f the media they will sell it yet again, once or twice more, but it will not be enough at some point. But this is not close, oil needs to weaken, some measures taken and maybe, just maybe something will happen. But I doubt it will be in 2014 and I doubt it will be dramatic.

Of course, the longer they plod along, the bigger the distortions and the sharper the eventual collapse, but we are not there yet.

Oil is indeed the Devil’s Excrement. Just watch!

As you know, I am not the most optimistic about Venezuela at this time, which sometimes makes it hard to sit down and write. Thus, as I was thinking about what image to post for the holidays, I had mixed feelings about posting something without a reality check on what is happening in Venezuela. Then, my brother sent me this image and I thought it was perfect, a somewhat cynical view at the type of Christmas Venezuelans are being forced to have. But despite all, Christmas has to be celebrated.

It is a time of the year to be thankful, to be with family and enjoy the holidays. I wish you all a very Merry Christmas wherever you may be. That Santa Claus or the Wise Men bring you what you want (hopefully not what is in the picture) and you spend some happy times with your family, forgetting about all the problems.

Thank you for coming back and putting up with my writings and my rants. I am humbled to have such a loyal readership and hope you keep enjoying it.

Merry Christmas everybody!

From the Devil Himself.

49.76 Liters (13 gallons) for Bs. 3.5 , that is US$ 0.55 at the official rate for a full tank, or US$ 0.055 at the parallel exchange rate. (4.2 cents per gallon at the official rate or 0.42 cents per gallon at the parallel rate)

I think the opposition is making a huge blunder criticizing the gasoline price increase and it shows its inability to evaluate how it reacts first before going forward. In the particular case of the gasoline price increase, which has now been opposed by at least, Henrique Capriles, Julio Borges, Leopoldo Lopez (The only winner in the recent election) and Maria Corina Machado, I think they should have waited for the full proposal before jumping the gun, rather than reacting viscerally to the announcement.

First of all, the announcement is incomplete, we don’t know what the new price will be and who it will apply to. The Vice-President suggested that it will not apply to public transportation and freight trucks, but we don’t know yet. Moreover, while the President of PDVSA has suggested that the new price for a liter of gasoline will be Bs. 2.8, there has been no formal announcement, what he had was a slide that showed at what price PDVSA breaks even in selling gasoline.

Second, if the opposition should believe in something is in that the current price is simply absurd (see picture above) and should be careful in opposing it today, when it may have to be in favor of it in a few years. It makes no sense to sell gasoline at a loss, it makes no sense to oppose the price increase if you believe in having a rational economic system and that the subsidizing of everything has to stop, particularly such a regressive subsidy.

Third, tying it to the Cuban or Petrocaribe subsidy makes it a very complex issue that most people will not understand and it is not true that the gasoline  given to these countries is “free” either, as most of them have suggested. Petrocaribe countries pay 50% within 60 days of delivery and the remainder with a loan that makes no sense, but that is a different matter. And while Cuba does not pay with money, it pays the gasoline with services. These services are paid at absurd prices, yes, but again, if you start lying and saying half-truths you are behaving the same way we criticize the Government for behaving.

Fourth, the Petrocaribe subsidy has actually been reduced in 2013, as clearly explained in this article in El Nacional, so the Government is actually doing something about that too. So, check your facts before you speak should be an important rule.

And finally, the opposition should be careful with anything proposed by a Government that has been so clever at manipulating public opinion and getting its way. While everyone thinks back to El Caracazo when talking about gasoline price increases and its consequences, people seem to forget that a very unpopular President, Rafael Caldera, actually increased the price of gas by about 800% in 1996, with little political consequence, as it sold the idea well and people understood it was needed. I don’t believe for a moment that the Government is being naive in proposing this price increase. They must have polls that show that people would support it and are ready to make the subject even more popular. Even to the point of having a referendum on the subject and beating the opposition (again!)

So, I think the statements made were wrong. The opposition should have waited for the details and oppose the details, but not the very logical and sensible gasoline price increase. Not doing so is simply cheap politics of the worst kind. The same way, it should say it backs it, but it also backs better terms for Venezuelan in the Petrocaribe and Cuba deals.

What the opposition is showing is that it has no solid proposal of any kind, it just reacts and opposes what the Government says. Maybe that is part of the reason why a large segment of the population does not trust it.

While people are still trying to show that the municipal elections were somehow a victory for the opposition, the more the results are analyzed, the worse it actually looks for the opposition. I had tried to analyze the results of the election to look at local parties which ran independent candidates and separate the votes according to the leanings of those parties. But since the CNE  site is blocked outside Venezuela, it is very difficult to do. Someone was helping me locally, but then today Eugenio Martinez did an even better (more precise) job in El Universal, as he even had two additional categories, candidates supported by both sides (bizarro country) and really independent candidates with no ties to either side.

The results are shown in the table above. The first two lines are the Lucena-style results, in which you only take into account the votes for PSUV and the votes for the MUD, which makes it look like PSUV got 54.4% of the vote and the MUD 45.6%. (Both in red).

The opposition had a different interpretation, which was to add ALL votes not for the MUD or PSUV to the opposition, which made it look fairly close, with a slight advantage to the opposition.

But the reality is that, as Martinez shows, of those additional votes, about 533,000 correspond to candidates who are part of Polo Patriotico, but were in municipalities where the votes were divided. Similarly, about 270,000 were for parties which are part of the opposition, but ran separate candidates from the MUD. Finally, about 300,000 votes can not be accredited to anyone, because the candidates were either supported by both sides or neither.

What the totals say is that the results up to yesterday, are quite close to the Lucena-style results with PSUV and its allies obtaining 53.7% of the total vote and the MUD and its allies 43.4% for a total difference of 1.1 million votes between the two sides.

This means that the results are even worse that they looked initially, as the opposition lost by about 8% of the vote, compared to the minimal difference (if any) of the April Presidential election. Thus, about the only positive thing you can say is that the opposition managed to win the more “emblematic” races, including most large cities, but losing Maracay, Distrito Libertador and Sotillo (Puerto la Cruz), as well as the “in your face” opposition victory in Barinas.

Chavismo on the other hand won the popular vote handily, won nineteen of twenty three states and only lost 26 cities when compared to the 2008 election. Maduro can also say that he is now more legitimate than he ever was and Capriles lost the plebiscite.

By now, even one Mayor elected within the MUD has already switched sides in Aragua, while the opposition lost one Deputy in the National Assembly because both the principal and his alternate were elected as Mayors in Zulia State.

Meanwhile, both sides are claiming victory with Maduro even saying his candidate won in Lagunillas (??). But what is true is that the Daka offensive, the so called “Cadakazo” worked, it changed public opinion overnight. And the opposition had no time or did not have time to react. Thus the loss. And it is a big loss.

And in the best Chavista (and Venezuelan!) fashion, to celebrate his victory, Maduro decides to give Venezuelan a “gift” by cancelling school all of next week with return to classes on Jan. 6th. Makes sense, the last thing Chavismo needs is an educated voter. Maybe they would start to understand what the populist game is all about.

Three I “forgots”: 1) I think we may have a referendum on the gasoline price increase, that would really divide the opposition, Capriles already came out against it.  2) Government discovers 40% of companies given CADIVI are fake, but it is someone else’s fault. 3) Apparently inflation in Novemeber was imaginary= i, because the number is already three days late.