Shoot yourself in one foot. Reload. Shoot yourself in the other.

A brilliant primer on just why a government that should be at least competitive ahead of tomorrow's election is 20 points behind instead.

Deze freakin' guys...

Over on the Washington Post’s Monkey Cage, Dorothy Kronick has a fun piece exploring the catastrophic economic policy blunders that have brought PSUV to the verge of a historic defeat. I’ve spent a long time trying to figure out how best to explain the key problems in a digestible way for a worldwide audience, and I’ve never seen it better done than this:

Venezuela has long subsidized imports by allowing importers to buy dollars on the cheap. This meant that, for years, Venezuelan importers could purchase $10 from the government for about $7 worth of Bolivars (the Venezuelan currency). The importers then had to spend their bargain-basement $10 on foreign goods, bring the goods to Venezuela, and sell them to Venezuelan consumers for, say, $9 — the maximum price allowed by the government. This was probably not the most efficient way for the government to hand $2 to importing firms and $1 to consumers. But under former Venezuelan president Hugo Chávez, the system was at least minimally functional.

Under Maduro, Chávez’s successor and the current president of Venezuela, that minimal functionality broke down. Instead of selling $10 for $7, Maduro’s government now sells $10 for about a dime’s worth of Bolivars — and then caps the retail price of a $10 import at fifteen cents. This gives an importer two options. If she follows the rules, she spends a dime for a product she can sell for 15 cents. Great. If she cheats, she spends a dime to buy $10, never imports anything and keeps the $9.90. Sure, some people cheated under the old system: that same importer could have bought $10 for $7 and never imported anything, pocketing the $3 profit instead of the $2 she’d make by following the rules. But cheating is costly and, as it turns out, many more importers will break the rules for an extra 9,850 percent profit than for an extra 14 percent. Economist Francisco Rodríguez estimates that, of approximately $40 billion dollars Maduro sold to importers over the past year, only $20 billion translated into goods sold domestically. The rest was stolen.

One takeaway – and a sobering one it is – is that the state really has been completely captured now by a handful of white-collar types stealing money in quantities normal people can barely begin to visualize. If I didn’t know any better, I’d call it Kleptozuela.

But the other conclusion – also sobering – is that it’s not quite true to say this whole mess “is Chávez’s fault.” Chávez, for all his mannnny faults, never let economic distortions reach the insane, dadaesque levels they’ve reached in the last couple of years. It’s easy to scoff at people who say they’re chavistas, but not maduristas.

Maybe it’s too easy, though: the mess we’re in now is Maduro’s doing, not Chávez’s.

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  1. FT, I hope that you don’t really believe that, “…the mess we’re in now is Maduro’s doing, not Chavez’s.” Had Chavez been governing the last 2 years, Venezuela would be in a similar mess. You don’t bet the farm on a bankrupt ideology, bankrolled by the expectation of an ever-increasing oil price/income, without producing the arroz con mango that Venezuela is today, especially when your oil income falls by 2/3.

    • Bueno, if you didn’t understand Dorothy’s post, it’s not really likely you’ll understand my repackaging of dorothy’s post in a comment…

      • “…it’s not quite true to say that this whole mess is Chavez’s fault. Chavez, for his mannny faults, never let economic distortions reach the insane dadesque levels they’ve reached in the last couple of years.” For which statement my comment above still stands. Hopefully, you’re also being facetious in this statement, as you say you were in the statement prefacing my original comment above….

    • I think Toro means is that the insane levels of disaster we have right now would not have happened so drastically with Chiabe.

      I absolutely detest Chiabe and I rue the day that populist scum Caldera granted him a pardon for all of his crimes… But I will give the snake his due, he was a master at manipulating the masses and he would have done whatever necessary measures were needed to ensure the Revolution’s survival. If that meant freeing up the controls, he would’ve done so. If it meant not jailing the opposition he would’ve done so.

  2. Now we are about to play a game called ” Words are insufficient to describe the world”. What does “being responsible of something” means? A case could be done that even in the scenario you describe, this is still Chavez fault: the reason Maduro cant devaluate like Chavez did is because he doesn’t have enough power to face the boliburgeses and ruin their multi billion dolar business. But then we can go even further and put the blame in Lusinchi, Colon, in Adam and Eve, and in the Bonduary conditions of the universe.
    A better way to rephrase this is: “If Chavez were still alive, would we be in this mess?” You seem to imply we wouldn’t, and I agree. We will be in a different one, for sure – maybe we wouldn’t be in a food import crisis, but something else altogether. But then again, we will never know…

  3. Kronick’s argument has the advantage of presenting and explaining for outsiders some of, if not the core issues around the current state of affairs in Venezuela, on the eve of what might very well be a transformative election. Her argument is also effective because it avoids the pitfalls of ideological polemics, and it also capitalizes on Maduro’s lack of political acumen in comparison to his predecessor. Of course Chavez and Maduro can’t be disassociated, but what counts is that it’s Maduro who is the current mess, and, more importantly, Maduro is who people blame for the current mess. Lastly, one can’t deny that price controls and exchange rate madness is a key reason for why things are as they are in the country.

  4. Kronick’s argument also begs the question of what is the tipping point at which people will decide to throw ethics (accountability, concern for the social good, etc) out the window in order to pursue their own economic interests.

  5. However you explain it, or analyze how it all came to pass, the question worth asking in 24 hours is how to fix it, how to nix an exchange rate/swindle so sweet that Jesus H. Christ would be tempted to cheat. There has been loads of discussions per dolarization as a possible move to quickly stabilize the economy, and while there are counter-arguments why NOT to go this route, the main thing dolarization has going for it is it largely precludes ANY party from gaming the system with ease and impunity. And the government cannot simply print dollars.

    One has to wonder if those who stole the bulk of the purported 20 billion will ever be held accountable.

  6. Sometimes didactic oversimplification allows some of the facts to be better understood at some cost to the truth they ought to reveal . Im not certain that if the exchange rate had been handled more reasonably (presumably by Chavez) and the price of gasoline had increased somewhat we would have avoided the crisis altogether , perhaps , its effects could have been mitigated somewhat but there were many other actions by the regime that put us into the spin thats landed us in the abyss.

    One way of looking at it is that it was Maduros fear of losing political capital to the oppo by taking unpopular measures which the country needed to take to avoid the worst of its effects what has led to it becaming as bad as we now experience. In which case one might argue that Chavez would have been able to take those measures because his charisma would have allowed him to take them without taking such a large blow to his popularity . But there is however no guarantee that he would have done so. !! Thats all highly conjectural and to assumme that whatever measures he decided to take would have been enough is not something we can ever know.!!

    Im also not sure about FRods belief that 50% of all dollars sold were diverted to corrupt purposes. I had access to some expert information on the matter and the correct figure is probably closer to 25/30% which is still a very high figure but not as high as 50% . Also I suspect that benefitting from such diversions were not only people directly connected to the regime but some that simply rode piggy back on the general mayhem.

  7. This is a silly game:

    1. It is Maduro’s fault for being incompetent.

    2. It is Chavez’s fault for… well… being Chavez.

    3. It is Fidel Castro’s fault for manipulating Chavez.

    4. It is CAP’s fault for allowing the government to become so corrupt before Chavez.

    5. It is the ADECO’s fault for creating a system that suborned will of the public to change the society.

    173. It is the Spain’s fault for not being more progressive about their methods of colonization.

    Etc, etc, etc…

    Whatever the reasons, we are here, and on the eve of a massive change in fortune. We should be feeling pretty good right now, and not bickering.

  8. I remember that shortly after Maduro sat on the throne, Rafael Poleo wrote an article stating that Maduro was only the “pagapeo” and explain at length the origin of the word, its meaning, etc, etc. Those who had some wisdom knew exactly what the situation would eventually come to, which is what is happening now and to get worse after 6D, whether Chavez, Maduro, Fulanito, etc. leads the pack.

  9. the argument is only as good as the numbers and unfortunately the numbers are not known for sure. we only see the price of oil came down and the regime went bankrupt.

    • Here are some numbers I know for sure:

      Chavez dies:
      Official Dollar = Bs.6.30, Black Dollar = Bs.21
      Official Dollar = Bs.6.30, Black Dollar = Bs.920


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