Dark Night of the Defecating Mephistopheles

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sad_devilMiguel, in a deep deep funk, makes a point that bears repeating:

You are worried that there is a shortage of dollars? Well, let me remind you this is a revolution. And the reality is, that there is a shortage of foreign currency for the private sectorwhich imported US$ 38.7 billion in 2007, but only received US$ 26 billion last year. That is a 32.8% drop. But guess what? The Government in the meantime, has gone from importing “only” US$ 19.7 billion in 2007 to importing US$ 34.3 billion in 2012, that is “only” a  74% increase.

So, you “feel” the lack of foreign currency, because you get essentially 33% less, but the Government has almost doubled what it imports and the Central Bank said those imports went up 25% in the first half of 2103. Yes, their imports are inefficient, overpriced, full of graft and the like, but they have the money, you don’t. Feels bad, but it’s reality…

It’s all part of a plan, folks.

  1. Overvalue the currency to high-heaven, making local industry desperately uncompetitive and leaving the private sector deeply dependent on imports (and, by extension, dollars).
  2. Shut down the dollar supply valve to the private sector.

We all had a fun time with step 1 in 2004-2010. We’re on step 2. now. Step 2 is no fun.

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1 COMMENT

  1. Sorry to be so thick , but what is “the plan” that this is all part of ? I must be missing something because to me, the government spending increase seems like a panicked response to massive mismanagement as opposed to a planned economic campaign to take over the sources of income.
    It seems to me that the government always thought that if they took over the private sector they would increase government income not have to spend money to make up for it.

    • “Plan”, sham. It’s just gross incompetence/mis-management. The real point is that the Venezuelan economy does NOT generate the total amount of dollars it needs, no matter how you distribute them between private and public imports, No government consciously sows the seeds of its own (economic) downfall, which is what’s happening now in Venezuela. The eventual social collapse will make the Caracazo look like child’s play.

  2. I truly don´t understand how will the people’s hunger for ex survive without the private industry, the goverment can’t supply everything with or without dollars

  3. 3. Make instant new Billionaires in corruption scams linked to public fictitious imports

    4. Buy a precio de gallina flaca all the remains of the private sector that is left from Step 2

    …That’s how you have a complete reshuffle of the economic elites in a petro-State

  4. The plan is to destroy the private sector in Venezuela. The hunger and the scarcity are also part of the plan: to make the people indigent and dependent on the government like Cuba.
    You do not believe yet the perversity of what you got.
    Meanwhile some worry about things like that Capriles should step aside when the only, the ONLY hope that you have is Capriles.

  5. Im not sure that the reduction in the amount of USD granted the private sector necessarily is sign of a conspiracy to ruin the latter. Quite simply as the amount of disposable USD from oil exports falls , priority has to be given to govt subsidies that favour its natural constituency , the very poor, for example USD needed to buy subsidised foodstuffs for distribution by Mercal. This means that USD basically destined to buy imported goods which are consumed by the better off or to allow local industry supply their tastes are cut or deferred . The govt needs the private sector to continue functioning to supply the basic necessities of life for everyone . But govt use of USD has priority to the extent it can help the regime retain its popularity . Its a difficult balance . At the same time the govt has to face a breakdown in govt services and industries after many years of neglect by importing equipment to steady or improve its operation ( Pdvsa, Conatel etc) . The explanation for what is observed in this post is that the smaller the pie of USD from oil exports the smaller the size of that pie that goes to meet private needs and the higher the part of the pie that is used to pay for govt imports . For the reasons why the pie of disposable USD is getting smaller we need another blog .

  6. It seems that as this seemingly irrational revolution, is not so irrational at all? You just have to realize that it is the work of a Defecating Mephistopheles? Oh, that make a lot sense!

    • Trying to make sense of what’s happening in Venezuela is like trying to understand how lottery winners who win 100’s of millions of dollars wind up broke in just few years!

  7. OT:
    Venezuela has now left the IACHR court – yet abiding by the decisions of said court is one of the commitments of Mercosur. Not only that, but Paraguay still says Venezuela’s admission to Mercosur was illegal! Perhaps it would be best for Venezuela to simply leave Mercosur? Not only would it be the honorable thing to do, but it would also protect what is left of Venezuelan industry for a bit longer.

    Venezuela can just say that Hugo Chavez was getting a bit loopy because of the cancer in that last year. He didn’t really mean to join Mercosur after all, no hard feelings? Let’s everyone just forget the whole thing and pretend it never happened, it was just a drunk hookup.

    http://www.eluniversal.com/economia/130912/venezuela-breaks-three-mercosur-regulations-by-leaving-the-iachr-court

  8. Quico, that was my optimistic post!

    But seriously, this plan has been implemented all along. The object is not to receive the income of the private sector, but to replace it, by drowning it. Whether land, mining, steel, cars, paper, you name it, that has been the story the last few years. The result is that the Government has become the biggest distributor, importer, producer of a wide raging number of products. And the numbers bear this out.

    They could care less about income, profits and subsidies. Take the pipe company Tavsa. They took it over and shut it down the next day. The pipes now come from China and Argentina, but the Government has control. And that is all they care about. Control.

    Imports kill the local producer in the long run. With inflation at 25-30%, it is impossible to compete with the official rate, which is devalued less. In the end, you shut down your company, it gets taken over or nationalized. The Government takes over the business. If not enough widgets are produced locally, then lets import them, thus the 72% increase in Government imports, while the privates sector gets fewer dollars.

    • So then, if this is their intent, what is their end game? It seems that their rhetoric is quite the opposit, doesn’t it? The rhetoric was that socialism would be better than capitalism, and this end game should disappoint a whole lot of supporters!

      They are definitely an enigma! Their tactics include lots of chicanery. They work hard to cover up the truth about their failures. They waste money in ways that express their ideological principals but do nothing else. They show a reckless disregard of the consequences of their actions, seem to be unaware of their failures, while strenuously keeping information out of public view. So, we have a bus driver leading the way to the future! Somehow, this is too crazy, and their has to be a plan behind it that we educated intelligent observers can figure out!

      • I think their end game is control, then they will figure out how ti run things. Going back to Tavsa, what sense can it have to expropriate a factory and shut it down the same week? Except that they had a loan from China and they could bring the same pipes with commissions? I know for a fact that the company that used to operate Tavsa has contacted the Government to see if they wanted to restart the plant in some sort of joint venture. No answer. Time, value, maximizing equity are not words these guys manage.

        • Miguel, control certainly doesn’t even begin to allow them to …”figure out how to run things.” The failed Soviet Union is a great case in point….

    • Moctavious : yours is probably not the only explanation for the trend but certainly an important part of the explanation . Chavistas are viscerally obsessed with having a totalitarian hold on Power , Direct Control over all important economic activities is Power , whatever the adverse non political consequences , No one can be trusted to do the right thing except the Regime . The corollary: the State must control all imports . This has manifested itself in a trend for the State to increase its control and presence in the Economy and thus in the percentage of imports which are State controlled or handled . Not sure that this is part of a machiavellian deliberately thought out , nefarious plan to take over the whole of the economy by backrupting the private sector .Thats too neat and melodramatic , too calculating and rational , Chavistas are visceral people with a big mouth,and a frothing utopian imagination following their power mad and paranoid instincts . They are waking up from their delusions that they cannot fail in any of their statist undertakings , They are going broke and starting to see the need to retain or accept a private role in many key economic sectors because the private sector has the resources and capacity to keep certain key part of the economy running, the tide of expropriations is stemmed , now is the time for accomodations , they have to control their own instincts if they are too survive as a purportedly popular revolutionary dictatorship. and not bring mass popular anger against them . Because they have each day less and less disposable USD they have to cut down on the part of the USD that go to feed the private economy unless the latter is part of the segment that helps them maintain supply of essential demand . .

      • I really agree. Even putting aside the craziness of chavista discourse, anti-market socialism sees private sector as inherently unjust, subversive, corrupt, selfish and evil, and public sector/cooperatives/collectives as solidaric, benevolent expressions of a non-competitive society where the greater good is in focus. Ending private sector (beyond the vengeance and even control desire) becomes a necessity for reaching the promised land, and any problems on the way are simply not important.

  9. All very true. Rational planning, even to achieve an amorphous ideological goal, is not a characterisic of either Chavez, or of any Chavista government. Their “awakening” to their collapsing economic reality is, even if implemented, too little too late, and this is assuming even if they had the administrative means to manage a successful outcome which would not be devoured by corruption, which they don’t.

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