The Devil's Excrement

This video of Minister of Housing Ricardo Molina has been going around a while, showing the type of fascist hordes the Government is breeding, as the Minister is hailed by the people for saying he does not give a damn about what Labor Laws say, he will not accept anyone that supports the opposition (he also shows he does not understand what the word belligerence means)

But what is interesting is not the video, is the fact that Fernando Bello, a worker at the Minister for Housing, who taped the video, has been detained tonight for taping it. He is reportedly being charged with “informatic crimes”, as the CIPCC has been investigating him and determined that he made the video, which he readily admits.

Thus, Mr. Bello is detained for taping a Minister saying that he does not care about the law, or people’s rights, but the Minister is the hero and he is the criminal.This is the upside down revolution in Venezuela.

How I wish Snowden had come to Venezuela! That way international reporters would all see this stuff. Will they notice now?

Well, at least now everyone will see the infamous video

Note added: Guy was released today (day after), which does not change the story very much, he was held overnight, the Minister slept at home.

After announcing the results of the first “modified” Sicad auction, where the Government sold some US$ 180 million dollars at an exchange rate probably close to three two times the official rate and around half one third of the unmentionable black rate, Minister of Finance Nelosn Merentes announced two more upcoming auctions and said:

The country is going well.

Yeap. As the Government formalized another devaluation, introducing a “second” official exchange rate (or third for that matter, the rate is secret), the Minister said things are going well, as inflation has soared and shortages are still out there. Even more boldly, the man who has so often predicted single digit inflation and economic growth and who has no clue as to what an econometric model is, said confidently that inflation will go down in the second half of the year and growth will be stronger. He even challenged those that do know economics, to wait until the year is over to see who is right.

Unfortunately, Dr (in Math). Merentes does not even appear to understand that growth in the next two quarters will not be compared to the last quarter, but that economists have this quirk, that it is measured with respect to the same quarter a year ago. Given that the economy has likely shrank for the first six months of the year, it will have to make up the loss and then show a gain for the third and fourth quarters to show growth, something that looks difficult right now. Additionally, given that the growth last year was driven by Government spending and that spending is down by double digits so far in 2013, it seems unlikely that growth will be positive for all of 2013.

But the real trouble is inflation. As recently as October Merentes was “questioning” predictions of 28% in 2013 and inflation is up 25% in the first six months of 2013 alone. In fact, a month after saying that, he said it was “feasible” to achieve 14-16% inflation in 2013. Jeez, Nelson, you will be off by 100% at least in that econometric prediction.At least as a Mathematician, you should be able to understand how bad that is.

But the real problem is that the Government has built in continued inflation into the system with its policies. By holding back price increases, there is a guarantee that there will be shortages and later more inflation as goods get scarce. In fact, inflation for controlled goods was 21% in the first six months of the year, another sign the whole system does not work. Reportedly, Vice-President Arreaza has presented Maduro with a list of 10 items whose prices need to be increased, which will do little to slow down inflation.

Neither will the fact that what used to be imported at the SITME rate of Bs. 5.3, will now be purchased at Bs. 16 or so. Yes, some of that stuff was being bought at the black rate, but the truth is that much of that stuff, like auto parts, was simply not being imported, as importers were not willing to buy parts at the black rate with the scant dollars they could find in that market.

Meanwhile, the black rate is likely to slow down for a while, until people realize that they will get little from Sicad. Individuals only got half of what they asked for in today’s Sicad auction and despite estimates that there were requests for US$ 800 million, the Government mysteriously sold US$ 20 million less than expected in the auction.

But Merentes was not alone this week in making statements that make you wonder if these people are brain dead or what. Maduro said, even before the auction, that the new Sicad auction “had generated great positive expectations”. Somehow it seems par for the course that this Government accomplishes so little that it boasts about expectations that simply can’t and will not be satisfied.

And Central Bank Director Armando Leon, he of the Bolivar Fuerte creation, dared say that inflation in the second half will be significantly lower and that this new auction does not imply a devaluation. Sure Armando, and the Bolivar Fuerte is your most important creation.

And then, of course, is the price-Nazi, Eduardo Saman, who not only said that the institution he runs is “a repressive institution of the State”, which reveals a very definite state of mind and attitude towards the citizens of Venezuela, which seems to have permeated the Government. Most institutions of the Government are run as repressive institutions, with little regard and concern for the people.

But Saman’s crowning glory was to suggest that if a company is losing money because of price controls, it should just go borrow money from a bank, which will help “capitalize” the company. Mr. Saman clearly has no understanding of how a productive system or the economy works, he seems to believe loans are free, banks are charitable institutions and has no understanding about how a loan really works or what it is.

And so it goes… Venezuelan is going well in the mind of the guy in charge of the Minsitry of Finance. Maybe he should go and ask the opinion of his friend at Merril Lynch who is talking about a deep reecession. Speaking of ML: Whatever happened to Merentes’ visit to New York in the first half of July?

I guess since things are going so well, he no longer needs it…

As you may have guessed, I have been away, biking in a very nice area of the world, which together with sightseeing and resting from the exercise, gave me little time to post. Which does not mean that I did not follow the news, despite spotty internet coverage in many places. And I am very happy that I avoided the Snowden drama, which I will post about at some point, but consider it to be mostly a distraction.  What I found more interesting, was that after only three months, the incompetent Venezuelan Government finally will start selling dollars into a new, and they claim, improved, SICAD system. It took only three months to create rules, limitations, allocations, quotas and the like, attempting to include almost everyone. I have been somewhat surprised at the positive reaction to this new system by many analysts, suggesting is a step forward and that the unmentionable rate will somehow go down.

But I am not impressed.

To begin with, the Government will sell US$ 200 million every two weeks in this new revitalized SICAD system. This comes out to about US$ 20 million per day, well below the US$ 40 million that used to be regularly sold per day in the old SITME system. The difference is that now there are some quotas and individuals will be allowed to participate (and more Bolivars in the system). Sitme was good about oiling the system in providing dollars to importers and in emergencies, but I really don’t think it eased the pressure in the black market very much.

As if this were not enough, there will be more participants. And I think this is the weak point of the system. With the control the Government will exert on the rate at which dollars are sold, the arbitrage between the SICAD rate and the black rate will be large and more and more individuals will register to participate and that number, much like what happened in the Bolivar/dollar bond system, will balloon in time as individuals try to take advantage of the system. If a family of four, for example, plans to travel, having each member participate creates a subsidy for the trip that can even be partially funded selling dollars in the other market.

The rules reportedly will be different for each auction, which simply creates too much guesswork for importers who really need the foreign currency to function. In the first auction Margarita and Paraguana will receive a quota, if this is not permanent, it may not do the job desired. But more importantly, companies have lots of pent up demand and now that a mechanism in which they can get what they need is available, they will all go to Sicad to complement their needs. Massively. Access to Sitme had more rules than the new Sicad does, so the demand side will be stronger.

The good news is that exporters will be able to sell their foreign currency in Sicad, which is definitely a very positive development. But one needs to be careful in estimating how much this will bring to Sicad, as exporters can keep part of their dollars, so that not all of their foreign currency will flow back. What is positive is that it increases the competitiveness of these exporters, a sector that has been affected severely by exchange controls and the overvaluation of the currency.

I think the unmentionable rate may slow down its increase with the expectations of the first of auction, but I really don’t think it will have a significant impact in bringing it down. The new Venezuelan foreign exchange market, under Sicad, will not be a true market. There are billions of Bolivars that will be chasing for those few dollars. With monetary liquidity about Bs. 851 billion, at Bs. 20, for example, there are US$ 42 billion in the system. Pent up demand is large, as for over six months, the only game in town has been Cadivi and to a lesser extent that other market. Thus, you have lots of demand with little supply comparatively speaking. The only way that other rate would go down, would be if the Government did not impose any limit on the price of the Sicad dollars, but as long as this is under control, it just will not happen.

So, a new era in foreign exchange games begins in Venezuela this week. The Government is likely to increase rules as it goes along (there are rules even at what times you may access the system depending on your cedula or tax number), they simply like to do this too much. And the players will all be ready to adapt, change course and develop strategies in order to get their foreign currency. We have seen this movie too many times in the last few years. Moreover, all of this will be done with no transparency, as to who gets the dollars and at what price, allowing once again for favoritism and graft.

As usual, some will make a lot of money, others will be frustrated and then the Government will reintroduce a new and improved Sicad again, as the problems are noted. They are just too predictable.

As I was leaving Venezuela last week, this guy in the picture above in his Pa’lante Comandante and PSUV jacket, created quite a stir, as the immigration line was about 40 minutes long, but the jacket gave this new oligarch the privilege of bypassing everyone and be thru the whole process in about two minutes. Some people silently bitched about the whole thing, others were vocal, yet others were quite loud about it. Using Capriles’ phrase, they called him “enchufado”, plugged into the system to get his privileges.

But then, I had to open my mouth. There was a group of young guys, excitedly going to Miami for the first time in their lives. They were quite pissed at the Pa’lante gordo and I talked to them about it as I took the picture. But then, I created another stir, by reminding these young guys, that they are as privileged as the Pa’lante guy, even if to a lesser degree. (They get the ticket, but not the special line)

These guys took offense at this, so I explained: “You guys pay a cheap ticket, get a couple of thousand dollars at the official rate so that you can go out and party for a week or so, that seems quite a privilege in Venezuela, if those that can not afford it could see this line and understand, they would be as mad at you, as you are at the Pa’lante guy”

Well, I did not make much headway, to them traveling at Bs. 6.3 and their CADIVI dollars is essentially a right by now, the same way the poor think that they should be given a home by the Government and free food and appliances when election time comes up.

In fact, it seems as if Venezuelans are all trapped in their own inconsistencies.

The opposition does not dare say what they think, because they know they would not get elected if they did. But neither do Chavistas. Most of them understand how screwed up the revolution is, but they can’t say anything , for they risk their own future. It is hard to explain to opposition people that yes, the opposition is censored, but Chavismo/Madurismo is censored even more. Some in the opposition are not allowed to say what they want, but if you are Chavista and you say what you want, you are banned, recused, accused of treason and the like. So, all Chavistas stay silent, it is the Arepa muzzle at work. (Bozal de arepa)

And privileges are everywhere.

Nobody believes the gasoline subsidy can be removed. (I do!). But how can the price of gas have an impact on anything, when a bus costs 500,000 Bolivars and if you fill the tank up daily, you spend Bs. 10 per tank? That is one third or one quarter of an arepa per day. Make it five times more expensive and the owner of the bus would spend 15,000 Bolivars per year. That’s 3% of the cost of the bus. Are you kidding me? Raise it by a factor of twenty!

But everywhere you turn, there are privileges. I was talking to a Colombian that wants to leave the country, but he sends his parents $300 per month via Cadivi and another $600 to his kids. That is all of Bs. 5,400 he spends, but the family keeps only $300 and returns $600, that he readily exchanges for a net of (18,000-5,400)=13,600 Bolivars, more than he can make in a moth working in Venezuela or Colombia! This guy is really trapped!

And the whole education discussion in CCSC reveals the same. Why should CADIVI give anyone money to study undergraduate abroad? (Don’t get mad bro!) It’s absurd. And graduate work is even more absurd. That is a sure guarantee that the person will never return.

As for the University conflict. Yes, it is very valid, but so are a few dozen conflicts around the country. I mean, why would a Guayana worker complain if he gets his salary without working? He is also trapped. Or maybe he has more than one job, since he does not have to go to the other one to get paid.

Everywhere we look is the same. And if the Government, any Government, tried to rationalize anything, from gas to electricity prices, to Cadivi, to make pensions available only when you are 65, let alone make people work, that Government would have to face the consequences.

Venezuelans are trapped and I don’t see anyone “poniendole el cascabel al gato” however you may say that in English (Putting the bell on the cat???)