Cracking down on street vendors

0
buhoneros
One year ago, this practice was sort-of tolerated by the authorities. Not anymore.

The central government has launched a new front in the economic war: going after street vendors (buhoneros) who sell groceries and other regulated products, as well as those who engage in the practice of smuggling (bachaqueo).

The latest Official Gazette has a list of 42 products including food, hygiene products, medicines & medical supplies, school supplies, etc., that can no longer be sold by buhoneros. Those who don’t comply with this decision will face the legal sanctions included in the Fair Costs and Prices Law, which includes prison.

A bit of background is necessary here. The chavista administration (this one and the previous one) has been extremely tolerant with street vendors, whom they see as part of their political base. The last fifteen years has basically seen their presence multiply all over our cities. Under the guise of “social justice,” they have allowed the informal economy to flourish without regard to the simple fact that, many times, buhoneros are in a much more precarious situation that their legal commerce counterparts – worse working conditions, less stable incomes, lower wages.

Just last year, the official line reflected this lenient attitude, as in the words of then INDEPABIS (Consumer Protection Agency) head Eduardo Samán:

“Buhoneros are not guilty… why do people insist on attacking them? I’ll say it loud and clear: I’m not going to go after buhoneros, the revolutionary government won’t go after the people. We will talk to them and solve the problem that way…”

But a lot has changed since then. Scarcity is now worse (thanks to the drastic reduction of imports), Samán was laid off, INDEPABIS is no more, and the government’s own E-Rationing program isn’t enough to control the problems caused by Venezuela’s byzantine system of currency and exchange controls. The shelves are empty, and so are the government’s coffers, so there is no choice but to clamp down on street vendors in order to somehow ease the many lines at grocery stores.

Related to this announcement, the Fair Prices Superintendent Andrés Eloy Méndez has singled out foreign street vendors, and has threatened with revoking their residence permits or nationality if they are caught. Sadly, this quote brings to mind the infamous “Andrade doctrine”, as well as the fact that the central government has applied it before.

Another measure comes out of the nostalgia files: the return of the B.C-era (Before Chávez) P.V.P. (Sale Price to the Public), a mandatory regulation requiring all products have a price printed on them. You can imagine the chaos this creates for companies, who must now contend with printing prices on the packages in an environment where monthly inflation is roughly 4%.

But PVP has not been resurrected, there has been a change of one single letter. Meet the P.V.J. (Precio de Venta Justo or Fair Sale Price) which will start on November 1st. Of all the pre-Chávez presidents, Chavismo likes to imitate Jaime Lusinchi quite a lot.

Will these measures work? Highly unlikely. As the old saying goes: the more things change, the more they stay the same.

1 COMMENT

  1. Buhoneros need no defending. The military on the other hand ….

    http://www.el-nacional.com/politica/Maduro-rechaza-criticas-sueldos-militares_0_510549100.html

    Absolutely amazing. One of the more implausible Maduro quotes I’ve ever read. What a great guy.

    Rougly: ” I have to defend the armed forces from the “oligarchy” and give soldiers the raise they deserve [as opposed to the rest of the government employees – sorry guys] and …. hrrmmm … should the oligarch’s take power WATCH OUT because they would destroy the military!” etc etc.

  2. “You can imagine the chaos this creates for companies, who must now contend with printing prices on the packages in an environment where monthly inflation is roughly 4%.”

    How so? There are contentions based on date of purchase. You don’t retroactively apply new prices; inventory was acquired at a fixed moment in time for a then fixed amount. Compared to the book keeping that’s already required for tax purposes–which isn’t particular to Venezuela, by the way–and it’s already present subjection to volatile prices, what chaos are you talking about?

    • The chaos produced by buying an item at a price X in one date, then having to pay a replacement cost which is almost equal or higher than your last sale price (with the full 30% included)
      Try to sell something not regulated AND not supported by any subsidy, and see how the black market of dollars pushes prices by 50 or 100 Bs DAILY.

      • “Try to sell something not regulated AND not supported by any subsidy, and see how the black market of dollars pushes prices by 50 or 100 Bs DAILY.”

        You have to be off by many orders of magnitude. Show me an example of 50 .. 100 Bs. daily
        increase (.5 .. 1 USD at current black market rate, for foreign readers).

        • Take a look at computer parts (Not a essential product, so it’s not supported by any subsidy, and the regime won’t sell a penny at “official” rates for buying even a micro SD memory card)
          Take note of the prices of the most wanted parts (Hard disk drives, RAM memory cards, power supply units, UPSs are some examples, because they get fried like 70% of the times there’s a socialist blackout)
          Then do it again the next month.
          Then the next, and so on, feel free to see how the prices on some parts take ridiculous leaps of 100 and 200% from one trimester to another (Double and triple prices)
          Now try to drain your inventory fast enough so the inflation doesn’t eat away all your profits when you have to replace the merchandise.

          • Yes, you have explained the problem caused by 30% profit cap (“ley de precio justo”) + high inflation…

            Does PVJ compound this problem (‘chaos’)? How so?

            If you mix all these concepts in a broth in such a way that PVJ is conflated with govt. mandated 30% profit cap, are you bettering your understanding of the situation or worsening it?

          • PVJ worsens the problem when you are made to sell something by a fixed price, which doesn’t cover all your costs to produce that specific good or service, because the regime’s only regulating the price in one step of the commercialization chain, while the other prices and costs are free to soar.
            Come on, it’s just common sense, PVJ is the same as “regulating” all the prices only at the final seller, which is to spread the already known problem of prices-under-cost which we all already know it’s happening from years ago.

            And we all know how that ends: Absent products because no one will neither sell any product or service at a loss.

            Also, one example of an item that’s multiplied its price like microbes, a desktop computer cpu:
            http://articulo.mercadolibre.com.ve/MLV-428690987-computador-intel-core-i7-870-nuevo-_JM

            That same machine, only better, costed 2 and a half years ago (february-march 2012) barely 7.000 weak bolivars (7 million old bolivars, I know that because I sell computer parts in my job, and I bought a better combo than that one at 5.000), now the thing costs an absurd, unaffordable EIGHTY-FREAKIN-FIVE THOUSAND (85 MILLION old bolivars) and I’m pretty sure that guy isn’t getting the full 30% out of that thing.

            I’m pretty sure that thing went in average more than 1k bolivars per month (more like 2,6 k bolivars / month average), nevertheless that’s just only one example, but it still shows how some products can spike their retail prices as an effect of the government’s stupidity.

          • “[…] the regime’s only regulating the price in one step of the commercialization chain, while the other prices and costs are free to soar.”

            But that’s patently false. The 30% profit cap is enforced from the manufacturer, all the way to the distributor and end reseller.

          • The PVJ wont work my friend, it didn’t in the past.

            What it would happen is that products are going to desappear as already happened..

            Isn’t the definition of madness to do the same thing over and over again waiting for differents results?

      • … that’s tangential to PVJ. “Precio justo” (30% profit cap) and this comparatively benign measure are different things, Jimmy.

        • The 30% profit cap is not benign, and is not what it seems. Firms get way less than 30% profit per unit.

          Let’s remember that 30% doesn’t cover administrative costs (like accountants, lawyers, etc), publicity, taxes on gross revenue, and a bunch of different expenses companies have to incur.

          • If the replacement costs stay relatively steady, then it’s possible to sell the product at a much lower profit percentage, like 20 or even 15%.

          • That “if” is measured by risk.

            Say I bought a power plant in October 2013 at USD 5000, and a parallel rate of 60 VEF per USD. That’s VEF 300.000 which means the maximum sale price is VEF 390.000.

            Anouncing on El Universal for a whole month costs VEF 2968 today. I have no idea how much it cost a year ago, so lets say it averages a VEF 1500 a month, for a yearly total of VEF 18.000. Let’s also say that I need a cellphone line active to make the sale, which costs on average VEF 100 monthly for VEF 1200 in a year. These costs are not recognized by the fair price law.

            If I sell that power plant today in VEF 390.000, and I substract the 19200 I had to expend, I get a net VEF VEF 370.800 out of my investment, or VEF 70.800 of “profits”. Unfortunately for me, those VEF 370.800 only cover USD 3708, so I actually lost USD 1.292 thanks to this “benign” 30% profit cap, that I would have kept had I simply stashed the dollar bills under my matress.

            The 30% profit cap couldn’tcompensate me for the risk I took wanting to sell a power plant. Which means that power plants won’t be brought because the law makes them unprofitable to sell. And any business that suddenly needs a power plant is screwed because they can’t find one when they need it, and instead have to order one abroad and wait 6 months for it to pass customs. Thus causing a major loss of productivity for the business and the country (because others depended on the output of the business and so on).

    • “How so?”

      For non regulated items, like shoes, clothing, yogurt, chocolate, candy, etc. companies would have to adjust the price being printed every month (this is a non issue for regulated items as the price changes by presidential decree/sundee resolution). Which means it can’t be printed in large bulks.

      – A near monthly change in prices, means that there will be losses if the wrong price is printed, wether the item is sold at a loss, it has to be repackaged, it has to go to waste or donations.

      – It means you may have to get new machines to print the price in the production line because you don’t have one that can do the job, as could happen in a shoe factory without expiration date printers).

      – It means production may require more time as every package has to stamped first with the expiration date and then take another pass to print the price. This reduces the output per shift, which may jeopardize contractual obligations with clients, further affecting the productive process of the clients depending on that production.

      – It’s a new vector for fines and sanctions

      So yes, forcing business to print a Maximum Sale Price causes problems.

      • “For non regulated items, like shoes, clothing, yogurt, chocolate, candy, etc. companies would have to adjust the price being printed every month (this is a non issue for regulated items as the price changes by presidential decree/sundee resolution). Which means it can’t be printed in large bulks.”

        For products whose prices are a function of the exchange rate at the point in time said products where acquired or manufactured, how would vendors be able to print ahead of time an exchange rate that’s not there yet?

        The missing point of information is that prices aren’t retroactively increased; you’re mandated by law to sell them at “precio viejo”.

        In view of that, your comment is misinformed.

        • Listen. You dismissed the possible chaos printing PVJ can bring to companies. I pointed out 4 problems printing PVJ brings to companies (the paragraphs begining with the dash). Now, you are choosing to ignore all 4 problems and focus on the “printing ahead” issue as if it invalidated the four problems I mentioned (it doesn’t at all).

          About two years ago I traveled to Colombia, and couldn’t help but notice the nice sign the Hotel had made indicating the price per room. When I asked if that was the price every day of the year, the receptionist told me that it was the maximum price, and that in the down season they discounted the price. I asked how long had the maximum price stayed the same, and she said “about 4 years”.

          That is being able to print ahead. If inflation wasn’t 4% monthly, the shoe company could have the shoe boxes made with the price already printed, confident they could use any of those boxes 2 years from now, like a company in Colombia could perfectly do it. Ordering 1000 boxes with the price already on it is way cheaper than ordering 1000 boxes sans price and then buying a machine to put the price yourself. That is what I meant about the inability to print prices ahead. It’s a consequence of the economic uncertainty in Venezuela of not knowing what the replacement item will cost, what will be the value of the USD months from now, etc. In Panama, Colombia or Chile companies have a pretty solid idea of what the exchange rate is going to look 3 months from now. In Venezuela they don’t.

    • It IS illegal.
      Working without a RIF or with your proper taxes fulfilled might lead to heavy fines on your wallet.
      But, as Gustavo stated in his article, there was a very simple reason they were given that privilege above the “by the book escuálidos”: They were seen as part of the political base of chavismo.
      Do you know where that applies too? To murderous criminal drug gangs.
      “I promise you IMPUNITY if you vote for me!”

    • Alejandro,

      I remember those ‘buhoneros’. Moreover, this style of street vendors and the cat and mouse game with the police is played in many other big cities around the world (Madrid, Rome)

      The type goods being sold by Venezuelan street vendors make the phenomena singular. Traditionally street vendor sell trinkets, but in Venezuela they are selling scarce food staples. Everyone is in the market for these goods in a regular basis which makes its size of the market huge and unextinguishable.

      Now, if we saw street vendors running with their blankets away from the police in the past, something of sad spectacle, can you imagine the magnitude of the exercise that will unfold now? Can you imagine the frustration a “senora” ready to buy her ‘harina pan” and have the guy take off because the cops are coming down the street wielding batons? I imagine there are going to be ‘flash mobs’ sparking all over the place given the frayed moods already in Venezuela.

      We know that illicit trade of drugs on the street thrives in spite of the efforts (or by the corruption) of the security forces. The size of this market is small compared to the consumers of food staples.

      Finally, the street vendors are usually poor people at the bottom of the food chain of the illicit food staple supply enterprise. It will be very hard for Chavistas, que aman al pueblo, to reconcile squashing their meager livelyhood, chasing them through the streets.

  3. There has always been divide between the official price and the real price in Venezuela , govt pretends that the official price is real while people who buy them know they are not. What allows the divide to exist is lack of enforceability either because enforcement is only punctual and temporary or because both officials and tradesman ignore them altogether . Just a modern version of the old colonial posture towards royal decrees : ‘El Mando del Rey se acata pero no se cumple’ , part of a cultural legacy which has authorities decree things which because their enforcement leads to such impractical consequences no one pays any attention to but taking care not to formally defy the authority of whoever issues the decree.

    Carlos Rangel mentions this curious cultural artefact when he compares laws in the US with laws in Latam , in the former laws are more flexible and practical but enforcement is rigorous while in latam laws are impractical and fanciful but enforcement is law or non existent .

      • A mistake with a hidden truth: if a law is not enforced, practically speaking it is not a law.

        while in latam laws are impractical and fanciful but enforcement is law or non existent .
        With the periodic sweeps of enforcement, such as holidays or election time.

  4. From some of the opinions I distill that the problem here might be as simple as the impossibility of chavismo considering the buyer somewhat responsible for what occurs during a commercial transaction. If prices are regulated, why should they be printed on each item? Suffice it not to post/distribute price lists, the responsibility of distributing price info being shared by commercial establishment and government?

    Never mind that the idea of buyer beware has 0 traction among chavistas.

Leave a Reply