Giving adjustment a bad name

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.

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