Is Venezuela dipping into recession?

FRod and one of our national symbols - empty shelves
FRod poses with one of our national symbols – empty shelves

Before devaluing the Bolívar, the government was predicting Venezuela would grow by 6% in 2013.

We already addressed how this was way higher than what most other people were predicting, as consensus was forming around a 2.5% figure.

Now that Venezuelans’ purchasing power has taken a massive hit, what can we expect?

To my mind, Harvard-trained economist Francisco Rodríguez is the first top-tier economist to predict a recession. According to this interview with El Nacional’s Blanca Vera, the Bank of America economist predicts growth this year will be -3.6%, i.e., our economy will shrink and we will have a recession.

He goes on to say that, even after devaluation:

  • the fiscal deficit is still a whopping 5.3% of GDP;
  • Venezuela needs $23 billion in fresh financing;
  • inflation will hit 33%;
  • government spending is bound to fall, as it has been doing since October’s election;
  • poverty will increase, and
  • the government will devalue to BsF 8 per dollar soon (he predicts 2014).

So much for those rosy accounts of how Chávez has done wonders for the economy. Not counting the one he inherited, this would be Chávez’s third recession – a dismal legacy, as others have already pointed out.

Let’s put that on his tombstone.

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  1. I partially agree on this one with FR. It’s true: in Venezuela, in the presence of inexistent competitive exports and inelastic supply of tradable goods, consumption –and consumers- takes all the heat and are the biggest losers of the devaluation game –with no gains in economic activity-. No doubt it is a draconian way to tame the demand for imports.
    What I am not so sure is why FR omits the big elephant in the room: New elections. His analysis seems little static in the sense that he is projecting the kind of spending cuts we’ve been observing since the last election, all through the end of the year. Elections will be announced, and then they will have all incentives to push a renewed spending binge, and they will push it. I don’t know if in a size enough to pull the economy out of the recession, but they will try. Lack of finance? An acronym comes to my mind: BCV

    • Interesting point. I think he’s assuming there is no cash to incur the massive stimulus package we went through last year.

          • There is always a delay between the printing and inflation. I think they’ll risk it. That’s what they’ve been doing.

          • This is the perfect cocktail: They devalue, blame greedy businesses for marking up by way of SUNDECOP/INDEPABIS. And now, although unable to import more Chinese electric appliances or ramp up housing projects, they will have more Bolivares to give away through Misiones to win the election before inflation is felt. They will be the benign government that gives plata away and protects the people from those hoarding/price gouging bourgeois. Problem solved!

          • Well, I guess the short answer is that you can imagine that, in a repressed economy with medium-high inflation, you have still space for a monetary expansion that -in the short run- faces a positive-slope supply curve -so you can obtain some mix of expansion and inflation-. But to assess the effectiveness of a fiscal/monetary expansion in the current context is an emprirical quest that I have not done

          • I agree with their solution is to run the bolivar inkjets a little harder. What’s a few more 100 bolivar notes?

            As I have been saying for some time, the ability and the overall trend in the “quality” of the financing has been declining. The money-well has run dry. I think the only alternative to Omar’s thoughts on this, barring angels in the east, is liquidation of assets to raise short-term cash. The issue with doing that is that the premium goods, such as concessions for mining and oil, will be discounted given the cooperation with PDVSA and recent track record thereof. After all, isn’t that a gripe of the Russians and Chinese.

            Alternately, how’s them thar gold reserves doin’?

  2. Economic activity implies orderly exchange of goods
    and services for financial gain or loss.
    Financial gain/loss is no longer part of the Standard
    Operating Procedures used by officials.

    Headaches tell me to take an aspirin.
    That’s feedback.

    Do any of you see a feedback mechanism telling
    gov’t pencil pushers how to proceed when
    economic activities become unpredictable?

    Recession? No Siree! IMPLOSION.

  3. I love how Blanca Vera “forgot” her report that FRod was manipulating his polling analysis ahead of Oct. 7th para montar un guiso con los Bonos 2021 and has now anointed him an economic savant once again. Que bolas esa caraja.

  4. These guys can stimulate and spend up to an election in the first half of the year, but after that, if they don’t change policies, they are in deep doo-doo. As Rodriguez says, they need US$ 23 billion this year, despite the devaluation to 6.3 VEF. Then, they need to do it again Nicolas, as shortages and bankruptcies mount (Read Daniel’s post on what they are doing of not recognizing debt before Oct. 15th. at Bs. 4.3). If they continue blaming the other side, when they are THE side that matters and dont change things like Cuba and Petrocaribe financing, gasoline prices and red tape, then oil will have to go to 250 for everything not to unravel. My feeling is Maduro does not get it. His speech tonight sounds like he has no clue on the economy (Par for Venezuelan politicians). He seems to be in a collision course with more devaluations, more inflations and a big explosion at the end. The mother of all adjustments will have to be implemented. Hope Chavismo is in charge for it.

    • Venezuela is headed for an explosion, hopefully Chavez hangs on for a good while so the election happens after the majority of the population has realized things are unraveling. I’m praying for Chavez’s health.

  5. If they print more money we’ll also get More scarcity in the short term since supplies are running low due to the dollar issues. And scarcity hits the gvnmt hard as per the 2007 elections.

  6. Cuba’s blockaded since ’62 and survived.
    so who cares when vzla faces food shortages?
    ‘tina ‘ll supply the beef, ‘zil will send soya beans,
    pranes will return some munitions to the armadas,
    and this red govt will come out as rosy as ever.
    all maduro needs is mouth …
    oppo lacks heart …
    Wish Hugo was around to kick butt …

    • I think its is different, Venezuelans on Chavez’ side will revolt. So will the military, most of which care more about their pocket than about the revolution. Chavez invented a revolution for the wrong type of people. In Cuba, they were taken by surprise.

      • >>> wrong type of people … nice point.
        Call me a romantic if you will, somehow the military may
        still nurture a yen for orderliness, [as well as money].
        they might hopefully stick MADuro & co. into a straightjacket …

      • “Chavez invented a revolution for the wrong type of people”.
        This is so true. Before his 1st election, he had the middle class and business people + El Pueblo on his side. Then came the greatest windfall of petrodollars ever in Venezuelan history.
        Venezuela by now could be another Dubai or Qatar or a Costa Rica like “Switzerland”. Dream for a moment: no ranchos / Caracas, the most modern city in the Americas / zero poverty / free healthcare for all / a stable, dollar pegged currency / 6MM barrels of oil production per day and on and on.
        However, when he refused the US’ help with the Vargas disaster, I believe we all realized that social resentment would make him turn left, but had no idea how radical it was going to be and what it would look like 14 years later.

        • I had no doubts about his left leaning policies, I knew what Giordani was about and that he had advise and funding from Cuba. He is just like Pablo Escobar, no scruples and audacious. Escobar went too fast.

    • Cuba is not blockaded. They can buy whatever they want just not from the U.S.. Most of Cuba’s food come from the U.S. but Cuba must pay cash since the Castro brothers won’t pay debts.

      • At last someone has mentioned the obvious. For years Cuba has been free to trade with the rest of the world so the US blockade shouldnt be blamed from preventing Cuba from carrying on an active exchange many other countries allowing it to develop its economy. The main barrier for Cuba’s economic and commercial development is not the US blockade but Cuba’s lack of any thing to offer the world , its chronically unproductive economy which in turn is the result of an economic system which is self destructive . For decades they traded with the Soviet world on terms which must have been very advantageous to its products and yet they had to depend on Russian subsidies merely to survive . After the Russians withdrew their subsidies they fell into an era of extreme want because they had nothing to trade with the rest of the world . As Chavez stepped in to help them survive with the gift of oil at give away terms which they could resell all they could offer in return was the grossly overcharged services of their ‘doctors’ and ‘sports and police advisors’ which no one else in the world would pay for . The blockade for one thing is not total , it allows quite a bit of trade to go on, it allows offshore cubans to send remittances to their relatives on the island which helps the cuban economy no end . The Cuban economy is not sustainable not because of the US blockade but because its run in away which doenst work!! How Chavez could have been blind to this is a sign of how fanaticism makes people stupid!!. . . .

        • The Cuban state allows foreign investment (nickel mining, tourist resorts) but takes 50%, that’s right, 50% of returns.

          And the Cuban state is unproductive, not only because of political decisions, but also because it made life impossible for those with an entrepreneurial motor and drive. As a result, the productive engine left — in droves — a perfect scenario for the psychologically damaged and power-hungry Fidel, who needed to control.

          • Syd: thanks for the information on foreign investments, it always amazes me that the 500.000 cubans in the US statistically create a multiple of the economic wealth created by the 7 million remaining on the island. Castro is certainly a megalomaniac and inhumanly ruthless and cruel man (vide his advise to Krushev on the missile crisis to launch them for the sake of revolutionary dignity) but he also has a very sharp mind and maliciously fertile imagination, See how he turned poor Chavez into his complacent stooge and exploited the wests fascination with romantic third world ‘revolutionaries’

          • A colleague is an executive of a Canadian mining company operating in Cuba. He says that wages are paid directly to the state, in dollars. The wages are more per day than the average monthly wage in Cuba, measured in dollars. The state then pays the workers in non-convertible pesos, at the exchange rate it sets. It keeps the difference. He said the most surprising thing to him was that when workers are on holiday, typically a monthlong period, they would still come in each day to eat lunch/comida at the free company canteen.

          • About what I would expect from the Cuban slave masters. Communists deride what they call “wage slavery” but Cuba and North Korea both welcome foreign capital and then confiscate the entire wage of those employed by foreign companies. North Korea and Cuba have successfully replaced wage slavery with outright slavery.

  7. Possible scenario:

    Chavez dies, forcing elections. (There is a rumor that he is already brain-dead, which means the Chavernment could “pull his plug” when it suits them.)

    Maduro et al need a lot of $ to finance another consumption party and win the election. But there’s no one borrow from. What then? Like a desperate small businessman, they borrow from the Mob – in this case, the gangster regime in Russia. The Russians advance the Chavernment $15-25 billion to buy the election. But as with the businessman and the Mob, their terms amount to control of the enterprise.

    The Russians insist on some of their men – and a lot of Cubans – getting control positions in Venezuelan security forces. Cuban troops on the ground. “Bolivarian militia” led by Cuban cadres, with Russian officers at the top. Venezuela’s police leadership and army officer corps purged of all potential rebels against Russian/Cuban control.

    What does this get them? As much of Venezuela’s oil revenue as they want. The Chavistas will want keep money for Venezuela’s needs, and to honor at least some of the international debts. The Russian answer will be what the Mob said to the unfortunate restaurant owner in Goodfellas: “Fuck you. Pay me.”

    That ended with the Mob torching the restaurant for the insurance, which they collected. In this case…

    The bolivar will collapse to hundreds or thousands to the dollar. Most of the foreign debts will be defaulted. Imports of food and other consumables will cease – perhaps even gasoline. This will lead to massive civil violence, which will be put down ruthlessly. Probably Maduro and some other chavista leaders will be scapegoated, both for the collapse and for the repression. The rebellion will be blamed on criminals (who will no doubt be major participants in the violence) and the opposition, which will be liquidated.

    Venezuelan oil operations will be restructured, with Russian companies entering the process at every level, and extracting most of the money.

    There will be a Venezuelan front man for the puppet regime – possibly one of the semi-Chavista Communists.

  8. For our economy there are no clean , straightforward solutions , magic bullets , short cuts ,to resolving its intractable imbalances only messy , equivocal , provisional short fixes that make things much worse in the mid term. The regime must keep the Pinata going at least for a period to maintain its electoral advantages using any means mean or foul that are available , including printing inorganic money whatever the latters impact on inflation . Once all the flying vultures come home to roost there are only two ways of handling the resulting mess , one communicational manipulation that places blame on speculators and the like or direct brutal military suppression of any ensssuing protest or complaint. In either case a cataclysmic worsening of peoples lives . A third complementary strategy tampering with election , inhabilitation of potentially powerful oppo candidates ( such as we are seeing now)


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