Giving adjustment a bad name

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    If you follow Venezuela at all, you probably heard that Nicolás Maduro announced a slew of economic measures today.

    The reforms are wide in breadth but lacking in depth. Maduro decreed dramatic-yet-wholly-ineffective rises in everything from the price of gas to the price of the dollar. But in reality he leaves us with half-baked measures that count as an “adjustment” but do little to actually “adjust” our economy.

    The model that is the root cause of our despair remains solidly in place. All he did today was change a few relative prices.

    Let’s recap.

    Maduro raised the price of gas. In theory this is a good thing. In practice it is a temporary adjustment that falls short of tackling the fiscal problem caused by giving 30 million consumers free gas. Maduro raised the price of gas, but immediately announced a hundred different things he was going to spend the money on. Con real y medio compré una pava …

    More importantly the adjustment leaves us with a fixed price for gas, just like we had yesterday. In a hyper-inflationary context, this increase will mean nothing in a few months’ time, and the government will be forced to continue increasing it. Instead of changing the way gas prices are fixed, he doubled down on the status quo only changing the actual price.

    Maduro also “devalued” the dollar – although we’re still not sure if it was an actual devaluation. The two low rates that currently exist (BsF 6.3 for some purchases and 12 for others) were unified in a single rate of BsF 10 per dollar, which will supposedly be allowed to fluctuate. A separate floating rate, currently of about BsF 200, will remain in place. No further details are known, and whether or not we have a devaluation will depend on the proportion of dollars sold at each rate vis-a-vis what we have now.

    Its effect on the fiscal deficit is also unknown at this time. However, most people are assuming this amounts to a devaluation.

    There were also other measures – key among then, wage rises and an overhaul of our tax system in order to copy something they do in Ecuador (don’t ask, Maduro did not really know what he was talking about).

    Flanked by not one, not two, but *three* pictures of Simón Bolivar, Maduro put on a performance for the ages: meandering, colloquial, insane and overly long, it was a tour de force compilation of chavismo’s greatest hits.

    But the afternoon was deeply disappointing. Many of the measures point in the right direction, but they do not go far enough in changing the structure causing the world’s highest inflation, deepest recession, and most acute scarcity.

    Credit to Maduro for one thing: he bit the bullet. Hugo Chávez used to send his minions to deliver bad news to the public, but Maduro did it all himself, and judging by his ponderous tone and the fear in his face when he spoke, he knew he was pissing people off.

    Yet Maduro is incurring all the political costs of adjustment with none of the benefits. Maduro’s speech was all fat and no protein. His under-commitment to reform actually makes future reforms of the Venezuelan economy harder,  not easier. People will identify necessary measures with a lot of pain and no benefits.

    In the next few days there will be more to say about these measures, but right now our first reaction is one of deep concern. We always knew we were governed by lunatics, but now we might have in our hands something much, much worse: we are governed by lunatics who actually believe the delusion that they are being sensible.

    40 COMMENTS

    1. ‘Siempre supimos que estábamos gobernados por locos, pero ahora podríamos tener en nuestras manos algo mucho, mucho peor: estamos gobernados por locos que realmente creen en ‘el mágico mundo que estaban viviendo’.
      Algo así como un mashup entre Once Upon a Time y The Walking Dead… pero… (dentro de una cajita feliz: se puede elegir entre quien es el cerebro y quién es el cuerpo) …

    2. Man, 240 Bs. for a gas tank. Basically the price of a cheap breakfast. And people are making lines on the gas stations, chavismo sure is good in turning people into morons.

      • If there is an expectation of another imminent price increase of gasoline, and thus promote a survival instinct to hoard as much as possible, just imagine the kind of pressure this puts on the aging and decrepit Amuay and Cordon refineries. Spare parts only become available with foreign currency. When you plug a hole here, it puts pressure over…..there.

    3. Great point I haven’t seen anywhere in the mainstream media: is it really a devaluation?

      Shouldn’t there be some minimum “value” required to call state-planned currency regimes a “devaluation”?

      According to DolarToday, the bolivar is trading at 1045.9, making each bolivar worth $0.00096. So by “devaluing” by 3.7 bolivares, you are really only devaluing the currency by $0.0035 — less than a penny per bolivar.

      In other words, a bolivar previously worth $0.0060 was devalued so that it will be worth $0.0100, for a difference of 4/10 of one US cent.

      “Devaluation”?

    4. Juan, you missed the part about raising food bonus compensation/cestatickets (13000) way above minimum wage (Bs.11578) … a neoliberal move that Chávez would be ashamed of…not to mention one that will surely put a nail in the coffin of many small and medium businesses currently barely getting by…. As well as the supposed government expenditure of Bs.190 billion in public infrastructure projects. Oh and the Mi Negra card, 2016 version.

        • Cesta tickets dont go into your severance payments nor other benefits based on your salary. By increasing the total wage (regular + cestaticket) because of mainly cestaticket, then the mighty capitalist oppresor will save more than half on severance payments, while the poor proletarian will be given off the middle finger with diminished benefits.

        • I think she meant that now so much part of the wage comes as a bonus instead of proper salary. Cestatickets don’t account for paid vacations, aguinaldos and prestaciones sociales. They’re not considered as base for future raises either.

      • I think it’s rather communist that the government gets to decide that over half of your monthly income, you can not spend it on what you want but solely on food.
        Of course he prefered to raise the cestaticket now, because the Tax Unit won’t be raised again until next year, and was purposedly undervalued by SENIAT this time.

    5. Listening to Maduro was sheer torture , the rambling , unphocused , endless prattle , the fulsome self celebratory, sirupy bombastic chatter , the pious remembrance of the galactic ‘genius’ of the dear departed one , the silencing of the substantial aspects of the crisis ( the lack of money with which to pay the debt) made hearing him unssuferable !!

      In the end some largely expected measures were taken but with very little detail as to what specific form their implementation might take , the general impression is that as presented they will be woufully inadequate for facing the crisis that now bears on us .

      One thing I can understand is that to the extent that money from the raised gasoline prices goes to attend the missions then other moneys now spent on them will be released for use in more productive and necessary purposes .

      I am terrified at having the improvised comuna members handle the food distribution of the govt markets and supermarkets , the idea that highly ideologized amateur rubes with no expertise in the handling of complex organizational and managerial issues will be entrusted with the task is a sure sign of coming disaster……..its the sentimental view that the people are wise and all knowing whatever their ignorance , they will soon learn that they have left guatemala to fall into guatepeor….

      • The message they are sending with the comunas thing serve to tranquilize their own ilk at the same time that they threaten the “dissidents”: “no matter what happens, our comrades will have full control of the distribution of food, thus, no reason to panic if you are with us, but if you are not with us, the comunal advisers of your neighbourhood will know…”

        Really terrifying.

      • When he spoke of it, the point I got was “Bicentenario is rotten, filled with criminals. That will end. From now on, food distribution will be handled by the people, by the communes!”

        Which to me is the same “negro con distinto cachimbo”; what tells you that these commune people won’t take that food, distribute part of it and keep the rest for the black market, a much, much more profitable activity?

        It seemed to me that Maduro thinks the problem was Bicentenario and not the system. The problem is the system, that courts the type of black market abuse that we know so well.

    6. Juan, you made pretty good assessment of the situation.
      The adjustments are so mild that they won’t fix the fundamental issues.
      You can put lipstick on a pig, but it’s still a pig.
      Inflation, public spending and debt will keep rising.

      In other words, nothing really changed.
      Maduro is utterly incompetent.

    7. To sum up the Speech: “We have met/engaged the Enemy…and it is Us.” Or, “We have revved up our 14 “Motores”, to achieve warp speed, and now the good ship Lack Of Enterprise will accelerate into hyperinflation space.”

    8. I was perplexed by the difference in the new prices between 91 Octane and 95 until I realized that it is just another sort of window dressing. They will tout the price of the 91, but shortly there won’t be any available to buy. So, the effective price will be the Bs. 6 per liter. That make my tank of gas cost me as much as my morning coffee. So… no affect on my life whatsoever. Gasoline has gone from being “free” to merely absurdly cheap.

    9. I’ve been telling you, guys. We should consider the posibility that some of these guys, not all, but some of them are “true believers”. All signs indicate that they actually believe their crazy talk. Which is why they won’t understand, ever, the only solution must be a change of administration.

      • Vic – I think some of them really are true believers, but many know exactly what they are doing, and are just trying to hang on a little longer so they can steal some more.

        • That’s a fact. Guys like Nicolás believe the creed through and through, but I’m betting my worthless bolívares that people like Tania Díaz, Godgiven Hair and José Vicente Rangel are thinking about how to save their own skin or, at least, how to diminish or delay punishment.

    10. Oh, btw, the BCV published inflation figures for 2015 … in the dead of night. Great timing! (A eso los colombianos lo llaman “malditicidad”)

    11. Summing up my take: 1) Changing 6.30 to 10 (12.50 down to 10 is largely irrelevant-little $ were available at this price) means a doubling of Mercal/all imported food/paper/other product prices; 2) Increasing min. wage + cesta tickets from 16m to 25m means more unemployment, but, with gas price increases, means another 100% increase in general food/other non-Mercal products pricing, for a total of 300%; 3) The parallel rate, while lagging, will follow suit, altough maybe less; 4) The pensionados 20% only increase means they’re more screwed; 5) Changing Bs. 10 food import distribution away from Govt./even bodega distribution centers to “Comunas” means higher pricing/corruption/more bachaqueo to the “Pueblo”; 6) The Simadi Bs. 200 rate, which supposedly will be “free floating”, will probably continue controlled at a similar level, and there are few $ available for it anyway; 7) Gas price increases from Bs. 40-80/tank for 91 and Bs. 240-480/tank for 95, will impact Venezuela’s poor, especially since many gas stations already are not receiving 91, forcing filling at 95, which has for some time been of questionable quality, since the imported additive it depends on probably is not being imported; 8) The new plastic card promising access to subsidized goodies, even cash to the poorest, would possibly work if there were funds/efficient administration, but in Venezuela today there are neither; 9) Prices of Bs. 10 goods will continue to be controlled, but some non-essentials will be allowed to slip (soft drink pricing has increased 25% + 25% in each of the past 2 weeks), and scarcity and long lines will become worse, so that the short-term salary/pension bump-up effect will quickly dissipate into more despair; 10) The fat cat military present were dubious, but happy with their new mining/oil/other scams, but wont be able to continue sitting on their hands for much longer as the crisis worsens; 11) Min. Perez Abad seems happy with the stripping of the Uverito pine forest protectorate, probably because with so few $ available, at least alli es donde lo hay.

    12. Finally, the good thing is that the ill-effects this of this pernicious/ineffective “adjustment” will be blamed on the Govt., not the Oppo. And, on a lighter note, NM,, in his several-hour pre-meat opening monologue, mentioned he was promoting Venezuelan tourism (?) by having signed a deal in China for Chinese China-Canada-Cuba flights, at which signing Castro Soteldo’s heavy (fur?) coat caught on fire, and threatened to burn down the 2000-yr. old Palace site of the signing, which NM found quite amusing….

    13. He is just the messenger, and yes they are trying to provoke a social explosion and rule over a scorched earth. Whomever keeps the coroto will rule at will over the serfdom

    14. alto pana god given, me trauman especial mente al ninio que no sabia ser alto pana! malandros con su donacion, eso es una tabla de la? dimelo, VIVOS con sus coloquio!s

    15. Didnt anyone catch the reference to making things attractive for Venezuelans with forex deposits abroad ( Maduro mentioned 700 billion USD worth) to bring their money back home to invest in national projects ……, purportedly as a means of using private capital for launching Venezuela as an export haven…….. Isnt this a sign that Maduro is becoming delusional in wishing his way out of the regimes desperate financial straits !!

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