Crazy Cadivi subsidizes Colombian smugglers

Venezuela's most profitable business
Venezuela’s most profitable business

This story from Colombia’s Radio Caracol was an eye-opener. The money quote (translated by me):

“The exchange regime in Venezuela promotes smuggling through that country. It’s an excellent business opportunity to import into that country at an official exchange rate, and then re-export out of it at the free exchange rate, which is 6 or 7 times higher,” said the Director of (Colombian think tank) Fedesarrollo.

Villar said that smugglers are profiting at margins of up to 700% in a single day for “the mere fact of having a license to import into Venezuela and being able to re-export to any other country, and obviously Colombia is the most attractive country for those kinds of operations.”

Just so we’re clear, here is how this works.

Suppose you import $1,000 worth of Colombian underwear. Market price: $1,000. This costs you BsF6,300 at the official, CrazyCadivi rate. You bring in the underwear, and then, surreptitiously, you export it back abroad at the same rate, $1,000. You are basically left with $1,000 in cash, which cost you BsF6,300. You can then sell those $1,000 in the local market at the going price of BsF47,000. In a single swoop, you made BsF40,700.

The key here is “surreptitously.” You have to do this via smuggling, because using the official channels means any money you get from exporting would have to be sold in the official market at BsF6.3.The key is to do it … unoficially. That’s where the money is. Easy pleasy!

Since Cadivi is basically subsidizing smugglers, the opportunities for corruption are rife. Anyone, from the Cadivi official to the National Guardsman at the border who looks the other way while you “export” Colombian underwear that you just brought in without the appropriate permits … is going to want their cut.

Is it any wonder that the military vows to defend the Revolution at all cost? They’re making tons of money off of it, and squandering a once-in-a-generation oil boom in the process.

The money that ended up in the Colombian underwear maker’s pocket is money that could have been spent stocking hospitals, or building roads.

Think about it next time you hear of a patient getting the ruleteated from one ER to the next. Or, perhaps, stare at the screen in wonder while you read my words if, like most people in Venezuela, you have no idea what opportunity cost means.