What adjustment is, and what it isn't

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    Stable, but not resilient
    Stable, but not resilient
    Stable, but not resilient

    In the wake of the Red Adjustment, Venezuela is on its way to macroeconomic stability. It’s a statement that seems especially prone to misunderstanding, so maybe it’s not surprising we have to keep going back to it again and again to explain.

    As usual, it’s Francisco Rodríguez of Bank of America who explains all of this most lucidly. It’s a message you may not want to hear. But you need to.

    Nonetheless, maybe I can attempt a “for dummies” version of the same argument:

    In Venezuela, the last few years have seen an especially perverse combination of terrible policies for the real economy together with terrible policies for the money economy. But what drives the day to day economic chaos that drives the collective arrechera is the acute mismanagement of the money economy – the “macroeconomy”, in the lingo.

    Adjustment – what we’ve been seeing for the last 14 months – is the extremely unpleasant process of working out imbalances in the money economy. That’s the process we’re now probably 2/3rds of the way through. It’s no one’s idea of fun. But it has a beginning, a middle, and an end. And we’re closer to the end than we are to the beginning.

    At the end of adjustment, what you get is stability.

    “Stability” seems to rhyme with prosperity. It doesn’t. There are plenty of countries – think of Cuba – that avoid extreme volatility in prices, interest rates, supply levels and employment without becoming more prosperous at all. The drivers of economic prosperity are conceptually – but also in real life – separate from the determinants of economic stability. The real economy can suck for decades on end without sending the money economy haywire.

    Saying the adjustment is slowly, gradually meeting with success does not mean chavismo is taking effective steps to make people more prosperous. It means it’s slowly doing things likely to curb the chaos of shortages, inflation and uncertainty that’s done so much to fuel protest this year.

    This is a message people badly need to grasp, because not to grasp it is to be unprepared for what’s ahead. There’s a naive sense in much of the opposition that it’s the micro policies – the price controls and the expropriations and the regulatory thicket – that are driving day to day chaos.  Since there’s no sign they’re to reform the micro policy framework, people figure the chaos is likely to drag on and on forever.

    That’s badly misleading. It’s bad macro management that’s driving the chaos. And the macro management is improving. Improving enough that they may even be able to afford a bit of a populist splurge ahead of A.N. elections next year.

    Guerra avisada…

    1 COMMENT

    1. MMmmh coming from the same guy who insisted that in December 2nd 2007, Chavez did win the reform referendum but decided to proclaim victorious the opposition. Its funny how people are easily persuaded by the official economic data without questioning it.

    2. I see you drank the Kool Aid, but I don’t buy it.

      1) 2/3ds of the way? The economy is full of arbitrage and I just dont buy that “wait till next year” for unification of the exchange rate. It will not happen months before the elction. We are 20% into it at most. As long as arbitrage rules, there is no adjustment possible.
      2) PDVSA continues to borrow like crazy from the BCV feeding and fueling inflation, I was told yesterday (have not looked it up) we are talking Bs. 75 billion since Sicad 2 began two months ago.
      3) The blackie is moving up closing in on the all time high, as people see the arrugas and guisos in Sicad 2 and realize they ain’t gonna get much.
      4) Where is the adjustment in the price of gasoline? The day it comes it will be too little and very late.
      5) Yesterday they issued US$ 5 bilion in bonds which will reportedly be used to put trapitos calientes on everything, from commercial debt, to Sicad 1 to Sicad 2.

      To me to believe in this adjustment, you have to believe in those in the Government and what they say. I watch what they do, not what they say.

      • Arbitrage is the adjustment between two prices of the same item till they are the same. Arbitrage is part of the adjustment process. Arbitrage should decrease to a very tiny percentage of 1 percent of the economy. The higher the absolute level of arbitrage in the economy, the worse the economy on a macro level.

      • They have not yet issued the US$ 5 billion in bonds yet , the bond emission is still in the works , This emission is not tied to payment of contractor bills as was the case last time . Understand the whole of the bond amount will be used to feed US$ to Sicad 2 where the US$ supply is far out stripped by the demand .

        If Pdvsa sold the whole of the bond amount into Sicad 2 it would be able to get 50 bs per US$ vs the bs 6.30 it otherwise would get from selling it to BCV ( Remember that the US$ received by Pdvsa from the export sale of oil cannot be legally sold via the Sicad 2 system) so this bond issue is a real opportunity for Pdvsa to lower its demand for bs loans from BCV .

        To people in the know , Pdvsa’s financial situation is not good at all , neither does it show any signs of improvement , the income it recieves from its oil sales is far from enough to meet its many commitments both abroad and inside Venezuela . thus its need for constant additional financing .

      • Miguel,
        Could you explain for the economy ignorant what “it will last two and a half months” means?
        That is how much those 3 billion would last for PDVSA? And they will just use that money for what? Repair the refineries, pay some debts?

        • Whether they are used for Sicad 1 or Sicad2 or both. US$ 3 billion if it goes to provide half of each system every week, we are talking US$ 200-250 per week. That is mid to end of July and I am being optimistic, since part of it will reportedly go to pay PDVSA’s suppliers.

            • My understanding is that they are not selling anything. They issued the bonds to pay debt with it. Airlines, importers, sicad 1 & 2. I guess that if they owe 1M to somebody, they will give 1M nominal value in bonds and consider the debt cancelled, eventough the person that received the bond will only receive around 50% of the face value

              In short, estan pedaleando la bicicleta hasta que se les parta la cadena.

            • Ive attempted some back of the envelop calculations on Pdvsas likely income based on a Reuter report and some Ministry announcements reported by the Universal about 2013 exports and their destination .

              1. total production : 2.8 million bls per day
              2.. domestic consumption : 750.000 bls per day (which is sold at a heavy loss)
              3.- total volume available for exports : 2.050.000 bls per day of which :
              – 580.000 bls go to China
              – 400.000 bls pe day go to India
              – 800.000 bls per day go to the US (EIA figures)
              – 120.000 bs per day go to Europe
              – 150.000 bs per day go to Petrocaribe and Cono sur ( to be sold under ‘special’ conditions)
              4. of the bls going to China some 350.000Bls per day are used to pay Chinese Loans
              5. of the 150.000 bls per day sent to Petrocaribe and Cono Sur 50% is financed for 15 years and 50% paid thru barter deals , which in the case of Cuba ( 100.000 bls) most of which goes to pay for Cuban medical and technical assistance to the govt and part of the rest is simply never paid or paid only occassionally .
              6.- Venezuela imports some 100.000 bls a day of gasoline and gasoline components from the US which it pays with money recived for exports to other paying countries ) .(although these US imports are dearer than most Venezuelan export crudes)

              If you add the volumes under 4, 5 and 6 above, the net actual income Pdvsa gest from its exports sales are equivalent to 1.450.000 bls .

              It has also been reported that because of slumping production by aging fields Pdvsa has begun from 2012 onwards a very expensive campaign to maintain those fields and and their production , which means that additional to its ordinary costs ( which far more costlier than ever) Pdvsa is spending much of its income in this campaign . The end result of course is that Pdvsa having to defray not only its own costs but all of the costs of govt programs is (plus the cost of large loans placed in the international financial market) is in dire financial straits and cannot possibly meet the USD demands made upon it .

              I cant vouch for the accuracy of the above calculation but the general feeling is that the govt is getting much less money from the countries oil exports than it reports .

            • Ive checked again the information used in the above calculations with other sources and I may have overestimated the volumes sent to India and understimated the volumes sent to Petrocaribe by a factor of between 50 to a 100.000 bls . The extremely unfavourable conditions for the placement of the 5000 million $ Pdvsa bond for use to meet Sicad 2 and posssibly pay some pending Cadivi authorized transactions are a sign of desperation , nothing else can explain Pdvsa going ahead with this ruinous operation !!

              The govt simply doesnt have the dollars to meet but a limited part of the country’s forex needs and pay its international obligations !! The stabilization might prove much more difficult than BOA is forecasting .!

            • You might be interested to compare your attempt to come up with some real numbers on oil export income, with what is claimed in PDVSA’s Annual Report for 2012: Informe de Gestión Anual 2012 (parte 1) page 10 PDVSA numbers: 2.56 million BOPD @ $103.42/BBL. This computes to $96 Billion of the verdes [mucho palo..], or $8 billion per month. Which should indicate a country with a lot of ability to pay for imports.

              I cant vouch for the accuracy of the above calculation but the general feeling is that the govt is getting much less money from the countries oil exports than it reports .

              Indeed. A country which has the above oil export income which the PDVSA 2012 Annual Report claims shouldn’t have the current difficulties in importing necessary goods. Like Miguel Octavio and President Herrera said, “¿Dónde están los reales?” Or, where are the real numbers on oil income?

              Or: 96 mill millones de dolares.¿Dónde están los reales?

            • Thanks BB and BT for some numerical meat on the bones. It’s unfortunate that BofA/ML’s analysis doesn’t dig as deeply. But then, its target audience only wants a flimsy veil of reassurance, which they’ve received. In forecasting stabilization, as opposed to a collapse of the economy, F-Rod nicely hedges and delivers a wee upside in key macroeconomic indicators, in 4Q14. His target audience won’t question it, or hold his institution accountable when predicted results are not achieved. Well, no matter. F-Rod has also hedged his timeline by stating that stabilization will continue well into 2015.

            • Im a bit baffled because whatever figures are used by BOA to support the idea that the system is heading towards a stabilization the info I get from people in the know , who are somehow privy to what happens ‘inside the whale’ , is that they are not thinking of stabilization any time soon , just of keeping their heads above the water for the time being, of responding to each crisis as it comes without any programmed long term strategy to meet tomorrows worsening challenges .!! the financial knoose is tightening not loosening which is what the recent announcement of a 5 billion $ Pdvsa bond issue is telling us loud and clear .. Also the stabilization if ongoing is coming at a very heavy cost , paralyzing whole industries , creating new shortages as essential imports are blocked or brutally rationed because of a dearth of forex , leading to mass layouts and a deepening of the economic misery of the whole population , lifts are out of order because there are no parts ,same for industrial equipment of all kinds , no way of buying a car, no way of repairing your car if it breaks down for want of parts , no way of traveling abroad , no way of buying a home or renting it , no way of buying the medicines your loved ones need . There is a critical threshold point beyond which the absence of certain key imports simply make life in Venezuela miserable or involve for many a non acceptable return to impoverished times . The govt is certain to use as much of the forex it has in attempting to meet the basic food needs of its constituency but doubt very much that they can keep all their social programs going , at least at anything near the rate they had been doing until this year.!!

              I prefer not to question the BOA analysts professionalism or motives , I have to assumme they act in good faith but there appears to be something missing in their calculus of things that makes at least part of their conclusions a bit suspect , a bit off .!! of course time will tell as it always does. !!.

      • Miguel Octavio : The way it works is that Pdvsa sells its bonds to a State Bank at its nominal value ( e.g. US1.000) so that it gets the full amount of the bond . The state bank then sells it through sicad 2 at the rate fixed by the system ( 50bs per $) . It then falls upon the buyer to resell it at the market rate ( 35% less than its nominal value) which means that the buyer is spending 50.000bs to buy 650$ , thus the effective exchange rate for the buyer in the end is not 50Bs but 35% higher or about Bs 65 per US$ which might raise it close to the black market rate . hence Pdvsa gets to sell its bond at its full face price but the buyer of the bond really does no better than if buying his dollars at the black market rate .!! The advantage of course is that because the purchase is legal it can be registered in its books (which for companies which books are subject to legal audits its an advantage) .

    3. The above interpretation reminds me of a metaphor used by a friend to describe Venezuelas most crucial historical problem . , he said the curse of Venezuela was oil , because it allowed the ship of the country’s economy, even if half sunk , full of water and, careening out of control never to sink entirely, because the ballast of its oil export income always kept it afloat. so that the pressure to get things right before the whole vessel sunk was never there.

      Stability as described in the above piece doesnt mean that the economy’s stabilization is going to make for improved or sattisfactory life conditions , only that it will allow the measure of our discomfort to settle at a level where we can still survive and probably allow the govt to have some spare cash to buy a bit of cheap electoral candy to throw at its followers come next election time .

      Of course it is dependent on our oil income remaining steady , if factors develop or worsen that cut deep into that income we may yet destabilize again but thats something that Dr Rodriguez analysis doesnt get into . The analysis is not implausible and has political implications which many wont find comforting but which certainly are worthy of thought and consideration .

      If to the above we add the possibility of the govt raising internal gasoline prices to reasonable levels and taking measures to allow more competent international oil companies to take a shot at increasing production on profitable terms it become even more plausible particularly if price controls are kept more realistic and some rationing is made of the oil supplies to allied countries.

      The regime has the tools to improve the countries macroeconomic situation , time will tell if they use them and how effectively they use them . Making imports more expensive may also help increase local production specially is a more rational policy is adopted towards private producers. !!

      Thank you Francisco for your patience in helping us self confessed economic dummies understand these ideas so much better.

    4. As usual, it’s Francisco Rodríguez of Bank of America who explains all of this most lucidly. It’s a message you may not want to hear. But you need to.

      Thank you, Toro, for this heartwarming explanation of Vzla’s current tightrope over macroeconomic waters. Now how about explaining what you may not want to write. But you need to.

      I’m talkin’ about F-Rod’s record of “predictions”, during his well-paid tenure at Bank of America. I’m talkin’ about his need to soothe bondholder jitters, especially those bondholders who bought through a BofA brokerage. The clues are so transparent. My favourite is the last sentence in F-Rod’s *focus*, as follows: “Most importantly, stabilization is exactly what you want to see if you are a bondholder, as it is ultimately protective of the country’s capacity to pay.”

      C’mon, Torito, you can do it. You can reveal the sales tactics between-the-lines, can’t you? Just put fingers to the keyboard .. and write.

          • My dear, you fundamentally misunderstand the issue of motive. F-Rod is not writing his article under the BofA banner for the good of his health, for his threshhold of conceit, or to “get it right” in the larger sense of the phrase (that is, beyond “getting it right for BofA”). I also suspect that you are unfamiliar with the bonus mechanism at BoA, clearly not for tellers, but more than likely for those who motivate the buying (or staying) of paper, beyond the obvious “line”.

            But hey, don’t take it from me, Torito. Show us how F-Rod “got it right” in previous papers. I mean, you’re such a groupie, surely you have an easy comparative to share with us?

            • FT fundamentally misunderstands that the “investment analyst’s” role is to facilitate the firm’s underwriting role.

            • I know. It’s weird. We keep trying to educate Toro about the real world, but he prefers getting giddy, whenever his BofA tocayo paints a fundamentally blue-sky scenario for VZ.

          • And if the bonds go 20% he was ok? They did in February, so what is his job? I think he wants THE JOB Ministro de Finanzas. He is smart, but he is and has been wrong for the last two years, all analysts say no default, the difference us he says buy all the time, the others don’t, as it should be.

          • FT, syd will almost invariably take the discussion to her thoughts about the person and hardly ever about the ideas presented by the person. Don’t get dragged into that.

            • syd, as per the script, you counter with thoughts about me, rather than the ideas presented… How about you prove me wrong and give us your thoughts about the posts arguments? Please, make me look like the fool you claim me to be.

            • syd,

              My reply to Quico was addressing the content of his comment; I did not judge the author. Your reply to mine does not address the content of my comment; you continue to judge the author, despite my pointing out that such an action supports my argument. The irony is one for the books.

              Please, syd, just prove me wrong and give us some thoughts of yours regarding Francisco Rodriguez’s arguments, instead of about him.

            • syd, and if you’re thinking of leaving in huff, it’s better if you don’t bother to comment.

            • yaaawn with the psycho defense mechanism.

              How about being more productive with your time? Try contacting the Economics Dept at Goldman Sachs, tell ’em about your cash distribution theory, and how it’s simply gonna revolutionize the Venezuelan economy. Don’t forget to add that there’s no time like the present to institute this idea. Remember to include a call to action at the end of your proposal; you don’t want it trashed. Especially when it’s received so-o-o much validation on a political blog about Venezuela. Don’t delay!

            • syd, thank you so much for your continued bringing up of the Unconditional Bonus Income proposal. You are the person I know that most brings it up out of the blue. Really, thanks.

              I don’t think Goldman Sachs is a good fit, though. It is not in their best interest to set up a system in which control of the oil money is taken out of the hands of the people with whom they want to do business. Imagine, they’d have to attract the interest of every Venezuelan citizen, instead of just the handful in government to leech the profits from the oil money.

              As for the topic that was at hand, thank you, again, for the continued presentation of supporting comments for what I was reminding FT.

    5. Quico, I like the way you distinguish between real and money economy. It can be useful sometimes. However, this time I think you have gone a bit too far. It is not like the macro adjustment has no effects in the real economy. In fact, all the macro adjustment does, is to constraint demand so that internal equilibrium (price stability) and external equilibrium (foreign payment capacity) can be achieved. However, macro adjustment does that at a high price for the domestic economy. In the case of Venezuela 2014 we are talking about a 7% contraction in real per capita private consumption (ask your BofA pals). This is huge! And in absense of structural reform and a growth strategy this is here to stay (I mean, the new lower level of private consumption). So, I dont care about how stable the macro conditions are (I have doubts the adjustment is actually big enough to restore stability, I agree they have done enough to avoid hyperinflation dynamics tho), but at the end of the day people will be able to bring home, in 2014 and beyond, singnificantly less than in 2013…This is good news to Wall Street maybe, but for your average venezuelan? Not so much…
      Just one more word. I am with you when you say that Inflation has all to do with macro policy and nothing at all to do with micro stuff (incentives to production, regulation, etc). On the other hand, Scarcity has very little to do with macro policy. It has all to do with pricing policy/regulation. It is because of price controls you cannot find stuff at supermarkets, If it were only for macro conditions you would see goods there but at very high and increasing prices. So, again, I am not convinced the adjustment will solve this either.

        • My only question would be if you think that the adjustment is just temporary or if you think that there are real changes to “fix” at least part of the reasons why the dis-adjustment was created in the first place

        • Right, poverty might not be politically destabilizing… But sudden impoverishment might. Remember Caracas, February 1989?

            • Yeah, funny how its just the richer half of the streets though huh? But yes, it must be the “sudden impoverishment” as Venezuelans consume 50% more calories per capita than 12 years ago.

            • Yeah, ok, (poor) people has as much purchasing power now as they had three years ago. It has not decreased dramatically since then. Not one bit.

              I understand you. Under the current circumstances, It must be very difficult to find smart ways to troll around the web pretending to defend the government…

            • well. Not at all in 2013, depleting inventories allowed private consumption to remain stable.We have just started in the first quarter of 2014 and it will get worse in the next few quarters. Fasten your seat belts!

          • It is not sudden, although it is clear.

            Here you see how many kilograms of chicken someone with the minimum wage could buy from 1998:
            http://1.bp.blogspot.com/-OpeEiFoTtOg/U2DsWjlj6GI/AAAAAAAAEI4/3RkX1R-j2zI/s1600/chickindex.png

            I will produce a chart with tomatoes, onions, etc and you will see: we got a max in 2010 or so, well before the caudillo kicked the bucket, but still the situation was better…last year the same…now we might be reaching the level of 1998 but still not the level of 1989 (although I think we might get faster there than many think, the potential for squandering resources is incredible among Chavezcrats)

            • Heheh, the irony, we’re gonna end worse than in 1989, we’re certainly going there a vertigo speeds.

        • I think you are severely understating the scope of the adjustment.

          Think what you may, but Daniel put it very well in his latest.

          Today in Venezuela you cannot replace your cel phone even with a cheap one, you cannot find batteries for your car, elevators cannot be fixed because there is no money to buy the electronic control cards, your production lines are compromised because there is no spare parts, there is no electricity, there is no functioning infrastructures. We are regressing faster than what many think, regressing in a way that will make it much more difficult to come back.

          This is exactly what happened in Russia after the breakdown of the USSR. It sucked, it sucked, it sucked, but it was kinda sorta tolerable and you could make do, everyday a bit shittier, a little crappier, but you could make do. Then, one day, everything started to break apart. Everything. It just went “non-linear”, when the breakdown just feeds the breakdown further. And nothing could be done to stop it because every effort you could make to fix something somewhere would be rendered totally ineffective by all the other broken stuff somewhere else. The economy just went non-responsive.

          And that’s where Venezuela is going. The economy is collapsing, dragged down by all the broken stuff sprinkled all over the place. Venezuela is going towards a real GDP per capita somewhere around $4,000 or $5,000 over the course of two or three years. That’s Nicaragua.

          Poverty at Nicaraguan levels over the course of two or three years isn’t just politically destabilizing. It IS chaos.

    6. It would be great if we could gauge how these price hikes influence on smuggling. I reckon not in a dramatic way but at least in a meaningful way…
      If we had someone in Cúcuta to report…

    7. Dollarization stabilizes an economy in a country, is very costly and kills the central bank. That is all it does. It does not make the country grow per se. Daily indexing of all economic items (including the local currency – the money economy) is free and IFRS approved, would kill hyperinflation overnight at no cost (see Brazil in 1994), would stabilize the real and money economy and would leave the Central Bank intact: with full monetary policy powers. Unfortunately the most powerful of those sovereign powers is the power to print/create local currency/money. As long as the CB continues to print/create excess amounts of local currency, hyperinflation will persist. Fortunately daily indexing of the entire money supply as well as all constant real value non-monetary items in the economy would result in the economy operating as if there is no hyperinflation or inflation or deflation while actual hyperinflation (too much money printing) still carries on. The $3 Trillion in global government daily indexed bonds does not stop inflation in all those countries: there is still inflation in all those countries but for the $3 Trillion sovereign daily indexed bonds there is no effect of that inflation or high inflation or even hyperinflation – I was told Venezuela also has government daily indexed bonds.

    8. All the adjustments in the Venezuelan economy are simply very feeble / far-off-the-target attempts at daily indexing. Daily Indexing would be almost perfect stabilization. Daily indexing would be almost perfection: following all changes in the general price level would be perfection. The price level can change more than once per day during hyperinflation.

    9. Ya’ll need to remember one simple basic fact that never changes( due to intentions):

      If the Maduro government does it, it won’t work.This saves time.

    10. It seems that the Economist doesn’t feel so sanguine about the economy and the general future of Venezuela.

      http://www.economist.com/news/americas/21602210-moderate-opposition-announces-suspension-talks-stumbling-towards-chaos

      The closing lines:

      The economy is fast deteriorating. April’s monthly inflation figure is rumoured to be over 5%. Venezuela is in de facto default on around $4 billion just in ticket revenues owing to foreign airlines. The state oil company, PDVSA, owes the central bank $75 billion. The construction industry is at a halt because state-owned firms have virtually stopped producing cement and steel bars. Car sales are down by 90% from this time last year. PDVSA is planning to issue new debt, which will ease the country’s dollar shortage. That will buy Mr Maduro some time; nothing more.

    11. A surge of the economy near the AN elections of 2015 would be disastrous, counterproductive to the electoral chances of the MUD that year. Even in a favorable environment in 2010 we still couldn’t win, despite exceptional showings (think Zulia). Now, with a probably even tougher redistricting process and the gerrymandering that will maximize gains for the PSUV, the MUD will have “Defeat” written in its forehead.

      • “favorable environment”

        Our environment will never be favorable. PSUV has the entire resources of the state at their disposal and they use that and more. Look at how Chavez almost doubled government spending in the 12 months before the 2012 election, he had to manufacture an economic boom. (With characteristic timing, he wasn’t around when the government had to face the macroeconomic consequences of his years of vote buying.)

        Not to mention the coercion and pressure put on government employees, those receiving benefits, TV time, media share, partisan institutions, etc. Hell, my brother in law works in a factory for a private company, and he had to sign a pledge at election time stating that he stands with the revolution and he would vote for Chavez!

        Even if we somehow managed to win in this environment, they would never allow a result that jeopardizes their complete hold on power. A local election won by MUD, some parliamentary seats, are all good for the illusion of democracy and pose no threat to their rule.

    12. To put this all into very stark political-economy terms: this is an extraordinarily badly run country, whose national income does not meet its national aspirations, and never will again under this regime. The economic stabilisation involves lowering aspirations until they match income (and then probably some more, as income per capita keeps on declining.) The political part is forcing people to accept it. It’s a lot easier to make macro-economic predictions than it is to determine in advance, for a given society, what level of repression is required to damp down dissent for, say, a generation. But I would hazard a guess that we ain’t there yet.

      • Well-said. Sure sounds easy–“Pueblo, you live in an oil-rich country with immense natural resource reserves, but you’re dirt poor–here, have some more Kool Aid, it sure tastes good to BOA.”

      • The economic stabilisation involves lowering aspirations until they match income.

        Except that decay is spreading fast into the domestic productive structure. It means real income is going towards what PDVSA can generate to finance imports, with a very weak domestic multiplier, just like some African petro-state where nothing works except the oil company.

        You have no idea how low that income is.

    13. Haha, is fun to read Francisco. A person can not believe everything you see. What i see in this paper is so much theorizing, based in theoretical models. In fact, is very little the empirical evidence.

      So, the paper is just theorizing; nothing more.

    14. If these ‘stabilizing’ adjustments were happening in 1999 we would be heading to an inevitable regime change and or to a few Caracazos. Whats really different is that the regime has control of the institutions through which such change would normally flow , isnt shy about using such control to retain power in violation of any rules or laws.that may allow the opposition the possibility of ousting it institutionally , has developed a more efficient and brutal system of violent and coercive repression than ever existed before , can silence or smother the voices of critical voices so they are hardly heard among the masses and finally has a large solid albeit minority block of fanatically brainwashed segment of the population absolutely and unconditionally sold on the virtues of the regime however miserable its performance .!!

      This means that it may be able to hold on to near absolute political power even if its performance as a govt is a very stark failure and there is a substantial deterioration in the level and robustness of its popular support..

      The other part of the equation is that enthusiasm for oppo leaders and their message among many of the discontented poor is not quite as strong as it has to be to wean them from their lingering nostalgic Chavista
      leanings .

      To the extent stabilizing measures are capable of stopping the current free fall in living conditions and keeping them above a certain threshold level of deterioration it will make the chances of a regime change more remote than might otherwise be the case in more normal circumstances.

    15. Does someone here really believe the economy will bring the regime down? I’m with Quico on this one, I see the PSUV cruising through the crisis totally unscathed. Throw some tear gas here, jail some more mayors, rinse, repeat.

    16. Capa: One thing is to think that under current conditions the economic crisis will bring the government down another to say that it will leave it totally unscathed. While I too think that for the time being thats probably unlikely, the further into the future the crisis extends , the more deeply it ravages the lives and comforts of ordinary venezuelans the greater the odds that something might happen. The crisis isnt over and no one has yet predicted when if ever its consequences will cease to be felt .

      To state that it will leave the regime totally unscathed is not very credible , already the polls show that the effect on public opinion is already been felt and will probably grow worse!! I agree with Francisco that people shouldnt be overly sanguine about the crisis automatically leading to the regimes downfall , but it certainly isnt going to improve its popularity !!

      The other possibility of course is if that the regime openly becomes a totalitarian police state , using fierce daily coercion to keep popular discontent down . Then the odds are open on how long it can keep a hold on to power .!! .

    17. I’m sympathetic to FRod’s argument that there has been a big external adjustment, which in principle should reassure foreign bondholders (which are his intended audience). But…
      The fact that PdVsa is continuing its crazy debt-issuance-to-support-distorted-exchange-rate scheme suggest the balance of payment problems have not gone away.

      http://prodavinci.com/blogs/sabe-cuanto-dinero-debe-pdvsa-claves-para-entender-el-bono-pdvsa-2024-por-barbara-lira/

      The insanity of the country’s exchange rate regime was reflected in the now defunct sitme, because the government was issuing net debt to sustain an overvalued exchange rate. I think it was something like 25 billion over two years. This was a clear indicator the external accounts were running into a wall (it was like allowing reserves to go in the negative).

      Now, in spite of the adjustment, and if the article is correct, we still have pdvsa issuing bonds for the same purpose. Also, the same article mentions that previous Sicad 2 disbursement were funded with pdvsa bonds that were in the hands of state institutions. Again, this is worrisome because the net external indebtedness of the consolidated public sector is increasing.

      Another way of putting it is that, if the full adjustment had taken place, the government would not have to issue debt to fund imports. Now, there may be a difference in magnitudes, and maybe this is mainly for rolling over existing debt. But it’s not a good sign.

    18. There’s a reason why big monies migrate to Goldman Sachs, why their minimums are so high.
      Miguel Octavio ‏@moctavio
      “@iTolj: @moctavio goldman says is NOT enough ! pic.twitter.com/lzOgLfG4s3” Goldma no cree en lajueste. Dira el VP: Y q saben esos?

    19. Quico, whether or not there´s a spending binge in 2015 or there isnt, it would not be a contributing factor for determining PSUVs fortunes at the ballot box. Either way they´ll end up victorious, since the electoral laws that la MUD will embrace makes them win more seats with fewer votes than the opposition. In 2010 the economy contracted for a 2nd year in a row, the opposition claimed 52% of the votes and yet it won fewer than 40% of the seats at the National Assembly. Chavismo makes the rules, tampers them, turn them in their flagrant favor and yet we keep discussing “guerra avisada”…and the MUD often tells us of picturing the “long run”…Chavismo knows about gerrymandering and malaportionment too.

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