The Bottom Line on Red Friday

 Far too little, far too late. That’s the bottom line.

It’s important to get this right. Taking cheap shots at the devaluation as such is irresponsible and counterproductive. The Bs.2.15:$ exchange rate had long since crossed over from being an ineffective inflation anchor to being out and out demential. Real appreciation had done nearly as much to hollow out the country’s industrial base as all the crazy attacks, confiscations and regulations Chavismo had thought up over the years. The scale of the distortions introduced was staggering; the policy was destructive on so many levels I lost count.

This step should’ve been taken long ago. But it’s not enough.

Because the overvalued bolivar was just one of the dozens of problems making Venezuelan firms internationally uncompetitive. From dodgy property rights and an unending firing-freeze (inamovilidad laboral) to the myriad controls, regulations and petty administrative dictates that have made trying to run a firm in Venezuela an exercise in regulatory compliance and little else, Venezuelan producers have become uncompetitive for deep, structural reasons that go far beyond exchange-rate misallignment.

There’s no chance of export diversification without a serious program to address these issues, which would imply a copernican shift in policy from treating businesses as The Enemy to championing businesses’ efforts to restructure so they can produce more, better and cheaper.

There’s no reason to believe chavismo is capable of understanding the hole  it’s in, or that it’s willing to take the sorts of steps needed to address it. Certainly, we heard none on Friday, or over the weekend. Just the opposite.

Which doesn’t mean devaluation was the wrong thing to do. Just that it was far too little, far too late.


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