The other day a friend of mine went to CCCT — Caracas’s fashionable mall, as of 1983 — looking for a couple of cellphone chargers. It’s not hard: everywhere you look in CCCT there’s a cellphone store.

Soon he noticed something peculiar: in some stores, they wouldn’t give him the price straight-away. The clerk would first discretely  check the Dolar Today app for the current black market rate, make a few taps into a spreadsheet, and only then give him a price.

He ended up paying Bs.15,000 for each charger. More than half the basic monthly minimum wage or a social security pension. Some were going for 90,000. I paid 4,000 for a charger in August thinking I was getting ripped off. Actually, at the black market rate, we both paid a reasonable $4.

It’s the kind of real-time pass-through you read about in stories about the Bolivian hyperinflation.

That hyper-fast pass-through of the black market rate was already common for some kinds of stores and transactions; mainly for relatively expensive items like appliances, cellphones or jewelry. It’s now making its way into even the simplest imported goods.

It’s the kind of real-time pass-through you read about in stories about the Bolivian hyperinflation. Clerks in every kind of store would be constantly on the phone, getting new prices from their suppliers or asking for exchange rates.

It’s oddly fitting that my friend told me his story during a coffee-break at Ecoanalitica’s end of year conference last Tuesday. As a joke, the host would give out the most recent DolarToday rate in-between speakers, worrying and bumming the shit out of everybody. It’s also fitting that just a few minutes after that coffee, Ásdrubal Oliveros told the audience that consumer prices are adjusting faster and faster to changes in the black market rate.

The thing to worry about is not the DolarToday rate. Even though it’s driving prices higher by the hour, it’s really a lagging indicator: more consequence than cause.

The real culprit is the mostly ignored DIPRO rate, at a delectable 10 Bs/$. Of all the numbers shown in the Ecoanalítica conference —  and there were tons of scary numbers — the ones that scared me the most where 88.7%, and 64.9.

They are giving away dollars for what in the streets would only buy you two sips out a can of Coke.

Ecoanalítica estimates that the government is transacting 88.7% of public sector imports at 10Bs/$. They put the average rate at which the government sells its own dollars, the fiscal exchange rate, at 64.9Bs/$. Compare that with the exchange rate for private imports, which they estimate at 714Bs/$, or the rate for the whole economy, at 310Bs/$.

Those gaps are criminally insane. They are giving away dollars for what in the streets would only buy you two sips out a can of Coke.

As long as the government keeps selling its dollars at insane asylum prices — or, if we’re honest, just giving them away — they’ll need to print ever more money to cover the fiscal gap. It’s a death spiral. And that’s the real source of the high inflation: monetization of the fiscal deficit.

This is not news.

As we have written before, Venezuelan economists first started to worry about hyperinflation in January 2014, when Maduro announced that the CENCOEX rate would stay at Bs.6.30 for the whole year, which was akin to telling the Central Bank to “keep the printing presses well-oiled and working 24/7. It’ll soon be two years of that, and we’re more than ever firmly on the hyperinflation path.

A minimally-sane government would close that gap, sell their dollars at a more realistic level and reap the benefits of the devaluation in higher revenues. (An actually competent one would just lift the exchange controls, but let’s not get carried away, let’s work with what we have; the leprechauns won’t give away their pots of gold.)

But this government can’t even do the devaluation part right, not even after two tries.

Some economists see devaluations as a sort of huge vacuum cleaner that would suck up billions of bolivars out of the economy by virtue of the Central Bank taking more bolivars for each dollar, and that vacuum cleaner would balance money demand and supply.

I think a devaluation by itself would do little if it doesn’t reduce the gap between the different rates. Reducing the gap would not solve all our problems, of course, but it would at least allow the government to print less money, and slow down the rate at which we add fuel to the hyperinflationary fire.

But this government can’t even do the devaluation part right, not even after two tries.

First, they created the SIMADI rate and parked it close to 200Bs/$ in 2015. Then they moved it to the current 650Bs/$ in 2016. Both times they kept giving away the bulk of their dollars at 6.30Bs/$ and later at 10Bs/$.

Prices in the economy rose along with the SIMADI rate, but the government didn’t see a corresponding increase in its revenues. All pain, no gain.

Between 2015 and 2016, the fiscal exchange rate tracked by Ecoanalitica devalued by 47%, while the exchange rate of the whole economy devalued a lot more, by 74%. After the devaluations, the government was left with less money — in real terms — to pay for stuff. The gap grew larger with each try.

A devaluation in an oil economy that hurts the domestic fiscal balance: unheard of.

A devaluation in an oil economy that hurts the domestic fiscal balance: unheard of. Somehow they managed it, though. A thing worthy of a “special case” box in a basic economics textbook, or at least a very long and sad footnote.

Oliveros said they’ve heard rumors the DIPRO rate could be devalued to 50Bs/$ in early 2017. That would still be too low, and so would 100.

But the nominal rate doesn’t really matter. Within the government’s stupid framework, what matters is the gap between the lowest rate and other rates in the economy, the proportion of dollars the the government sells at the lowest rate, and how much the lowest rate lags the others.

I don’t have hopes for this government to change course. They’re intimately convinced that what they’re doing is working. No, really. “We’ve survived two tough years doing this, kept the party going. Why not a third? We can hang on until oil prices recover”.

As for you and me, ease up a little on the morbid and masochistic habit of checking Dolar Today every other minute. Whether they announce it tomorrow or in January, when they make changes to the exchange controls the one to watch is the other one, the DIPRO.


  1. So you are Maduro and you have no more assets to pawn. Your income is down, way down. You called the military to make a miracle, no dice. You hear of this economic-chemotherapy administered what you consider the most despicable capitalist hacks: World Bank and IMF.

    You call your buddies, you argue the nobility of the Bolivarian revolution. They don’t give a shit, let a lone a penny.

    You have this alternative economist guru, Alfredo Serrano, encouraging you to keep the course. It will be OK he tells you. If he is wrong you must take the dictator’s retirement plan, jail or death.

    You MUST believe. Maybe Venezuela will join the ranks of Cuba, Zimbabwe and North Korea. Personally, I wish to think Chavismo lacks the talent to be an effective tyranny.

    Pero hasta cuando!!

  2. You forgot to mention one important aspect of this whole disaster:

    The government keeps the 10Bs/$ rate because that’s where the enchufados steal their dollars from.

    It’s all an organized plan to suck dry the country’s resources in massive amounts, it’s what they’ve done since 2003 when Giordani first created the dreaded cadivi monster.

    • My company just told me that they are not lifting the ban on business trips to VZ. Not because of the violence or political instability. Its because the cost for a single hotel stay is now over $9000 a day.

      Instead, they are insisting that employees who MUST travel there fly into Columbia or another border country and purchase Bs. on the black market wth USD and then cross the border. The company cannot afford to send any US or CA citizens to VZ with that exchange rate so lopsided. The other option is to find a family that will host (local employees) and then handle reimbursements on our books vs local exchanges. (we have just a few people who live there, but, they all negotiated to be paid in USD as part of their contracts)

        • Employees are probably (definitely) pulling a fast one. Paying for things themselves and then requesting reimbursement.

          So when “Leslie” at accounting checks the receipts and sees a very legitimate Marriott bill the employee sent her: “Hotel night. 90,000 bolivares,” she goes to Google (or any other forex calculator) and sees 90,000 = 9,000 USD.

          “Leslie,” like Google, doesn’t know squat about Venezuela or DICOM rates or anything else.

          Think how many times that company payed 3, 4, 5, 6, 7 thousand-dollar night hotel rooms before they finally said, “no more” at $9,000.

          This is the gringo equivalent of those SENIAT customs agents that say “they are willing to work for free,” because clearly who would give a damn about a salary with access to that guiso?

  3. Exactly, the narcosobrinos told it clearly: PDVSA for Maduro, Cadivi, Arco Minero, Alimentos, Seniat for Diosdado and the milicos. Everytime Maduro wants to adjust the exchange rate (as was the case with Rafael Ramirez, Perez Abad etc) the mafia knocks on his shoulders and says no no.

    Esta trancado el juego.

  4. The government keeps the 10Bs/$ rate because that’s where the enchufados steal their dollars from.

    Any opinion saying that any party is all corrupt is an exaggeration, but an interesting question would be – if no one in the government or enchufados as well was cut off from profiting from this insane exchange rate, how lone would it stay in play?

    Already, the bolo is a proxy currency for the dollars that back it up, so in theory at least, the only reason to keep it in place is for gaming the system. Otherwise the government could just discount whatever is available and eat the difference in dollars. Shifting to a dollar economy in the short terms might be something to consider, though the perils are also significant, and nothing is guaranteed.

    Tough choices.

  5. I first knew about inflation from stories of my long dead 1905 born grandfather. In 1923 he grabed his daily (!) wage, rushed to the shops and bought some food for his mother, younger sister and 3 younger brothers. You are not there yet. Still they seem to be able to keep up kind of a buffer, which shields local prices from the exchange rate of foreign currency.
    This has a price. For instance, the old chavista trick of simply not paying bills in foreign curreny. Yesterday I read in dolartoday that even the personal of embassies and cosulados did not receive paycheck. I hope, the enchufados from consulado Hamburg and embassy of Berlin are among those, who desparatedly wait on a daily basis. For a lot of you galls and guys: well deserved.
    They still may sell the remaining 10 Billions of reserves.
    But I guess at some point the elasticity of internal prices to rises in exchange rate will be much more close to 1 than to 0.(*)

    (*) .

  6. mientras aquí se mantienen discusiones técnicas sobre tal o cual tasa, el gobierno reactualiza el Dakazo y va directo al grano como pueden ver aquí En un centro comercial la gente expulsó a los fiscalizadores pero en ese video se puede ver a gente aplaudiendo lo que no es más que un robo a plena luz del día perpetrado por su propio gobierno. Cuando la miopía de la gente allí es de tal calibre, entonces Venezuela tiene el gobierno que se merece.

    • “Venezuela tiene el gobierno que se merece.”


      Los cretinos malnacidos que aplauden eso no son prueba de que “Venezuela merece comer mierda hasta que el chavismo mate un millón de personas”, son cretinos marginales malnacidos, son el detritus de tarifados a los que les pagan para que vayan a las marchitas escuálidas que no llegan ni a media cuadra, los mismos que hasta venden a sus propios muertos por una bolsa crap.

      ¿O es que el carajo al que metieron preso SE MERECÍA QUE LO METIERA PRESO un enchalecadito de mierda, viejo?

      No, Venezuela NO se merece ese aluvión de mierda que es el chavismo, la gente que no pudo votar en 1998 NO se merece esa mierda, y la gente que NO tiene ningún poder para provocar un cambio NO se merece esto.

      De verdad qué cretinada tan estúpida y recalcitrante esa grosería de “¡JAJAJAJA! ¡Venezuela se lo merece! ¡Que bueno! ¡JAJAJAJA!”

      • Si te regalan un cachorro de oso gris lo tienes de mascota y es muy chevere al principio pero un dia crece y te come.

        El Chavismo fue igual. El pueblo acogio a Hugo Rafael Chavez Frias, un criminal convicto como lider de su pais en MUCHAS elecciones. El Chavismo duro compuestos de tarifados y fanaticos siempre fue algo como 30%. De ahi, el boom petrolero permitio algo como 20% de cretinos, y asi pues, adoptamos un monstrico muy cuchi de lider.

        Nadie se merece el Chavismo, pero el Chavismo es culpa de Venezuela.

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