Photo: Proeconomía

Yesterday afternoon, the Venezuelan Central Bank released a statement that sets a new official exchange rate: Bs. 30,897.50 per euro. A little over Bs. 25,000.00 per dollar.

This devaluation, which came just in time for the 15th anniversary of exchange controls, means that each bolivar we have in our pockets lost 86.62% of its value at the Dicom exchange rate in a little over five months. (In de verdad, verdad terms, it lost much more than that.)

It all began in the aftermath of the collapse of the 2002-2003 Paro Petrolero, with Hugo Chávez shouting that there won’t be “a single dollar for golpistas” (as Naky reminds us), establishing the discretionary nature of the now infamous control regime.

And while the government perfected its tongue-twisting game by giving each new official allocation system a weirder name than the one before, the price distortion kept on growing with all its negative incentives, like a cancerous cell birthed and fed by chavismo.

First there was Cadivi;

Then it was Cadivi + Sitme;

Sitme died and Sicad 1 was born;

And little after Cadivi became Cencoex,

Sicad 2 came on board;

Then Sicad 1 and 2 were unified;

Cencoex and the Unified Sicad later had Simadi;

Cencoex became DIPRO;

Simadi became DICOM;

DIPRO + DICOM came next;

And today DIPRO is no more and DICOM survives (for now).

But in the words of Juan Nagel, “while the economics of CADIVI were ghastly, its politics were sheer chavista genius.” Throughout the critical years when chavismo was building a stranglehold on the regime, currency controls took the edge of political opposition, showering consumption goods on a population only too glad to make off with its share of the piñata.

To commemorate the 15th anniversary of this nightmare, we wanted to make a cake but we frankly couldn’t find any of the ingredients. There aren’t enough dollars around to import them.

Instead, let’s take a minute to, for the second year in a row, go through our Cadivi Diaries and remember what 15 years of foreign exchange controls have done to Venezuela.

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  1. “and remember what 15 years of foreign exchange controls have done to Venezuela”

    Well it destroyed Venezuela but made many many chavistas very very rich….. and that was the plan from the get go. Viva Cubazuela because “el bravo pueblo” still does fuck all to get rid of this dictatorship.

  2. “Throughout the critical years when chavismo was building a stranglehold on the regime, currency controls took the edge of political opposition, showering consumption goods on a population only too glad to make off with its share of the piñata.

    To commemorate the 15th anniversary of this nightmare, we wanted to make a cake but we frankly couldn’t find any of the ingredients. There aren’t enough dollars around to import them.”

    I’ve long said that the country’s economy is so distorted, so FUBAR, that one doesn’t even know where to begin to rebuild it, especially considering the condition of the national currency. Would dollarizing the economy be the quickest and least painful way to bring it back in line with its neighbors?

    • No.

      It wouldn’t make a difference. Venezuela’s problem is that it’s broke, looted and pilfered to the last floor board. No economy left. Nothing. Not even a functioning oil company in a country whose only resource is oil. It’s a husk, an empty shell.

      So, it doesn’t matter which currency you use to write 0. 0 Bs = 0 USD = 0 EUR. It’s the same in a every currency.

    • A stable currency is only a medium of exchange. Dollarizing would eliminate the government’s monetary policy from the equation, but would not stop the demand-drive inflation – only increased production would do that.

      There are several additional steps needed to get the economy back on track, and one doesn’t have to be very smart to see them. This isn’t comprehensive, but it’s some of the items on the checklist, and others have covered these same points and included others:
      i) guarantee private property
      ii) end all exchange controls and the restrictions on private imports of raw materials, parts, etc.
      iii) return “expropriated” property where possible, especially productive property in agriculture and industry
      iv) “un-expropriate” PDVSA
      v) recover embezzled funds (alleged three hundred billion), have that money overseen by an agency such as the IMF through a specialized “relief fund” or whatever, and get an international accounting firm, or agents of the IMF, in to audit the government periodically.
      vi) obviously political changes are assumed – reform the military and police, probably re-write or amend the Constitution.
      vii) a transition period from “give away” to earning actual salaries which will buy things like food, and the massive logistics of temporary food and medicine distribution have to be worked out initially
      viii) encourage a return of those who fled.
      ix) The subject of prosecution is overshadowed, IMO, by the need to line the corrupt up against a wall, and give them a choice: live honestly, or die a dishonorable death.

      This all sounds impossible, but post Nazi Germany was much worse than Venezuela. Japan was totally dominated by its military. Free Europe was in bad shape, bomb craters everywhere, dead and wounded, all kinds of troubles.

      Hopefully, the time will soon come for “manos a la obra” time in Venezuela. It CAN be done. “La Reconstruccion de Venezuela”.

      One thing I see that must be done is to reestablish the agricultural sector to the point where Venezuela can at least feed itself, and shed its reliance on oil. The difference between a country and a mining town.

      • That is a good start. However, good luck getting any of the opposition to lay out a plan like this. That is why there is still no light at the end of the tunnel.

          • Who was that Gringo and what did he propose? The only thing I’ve seen lately was LL’s proposals and it struck me as mostly another give-away scheme that encouraged people to do nothing.

            Again, I’m biased about the subject, but if I was in charge of restoring a functioning economy to the country I’d throw everything possible at agricultural production. A thriving agricultural industry would cure a shit-load of ills.

          • MRubio – Jose Guerra came out with several points a few months ago. I bookmarked the article on TalCual, but they apparently took it down to save server space. He said essentially what I tried to say above, just economic common sense, but with more details to it, some involving specifics of the BCV, for example. I added an emphasis on agriculture (posted below here) to the points. I’ve forgotten the exact numbers, but Venezuela in the early 1900’s had something like 600,000 head of cattle, many out in your neck of the woods, not fat and worry-free, given soggy ground there part of the year, and today only some 20,000 – a big difference especially considering the population. But as I recall, he included induced expansion of industrial sectors (not centrally planned, but encouraged by policies). I’ve read not dissimilar points elsewhere. Next time I see something, I’ll copy and paste instead of just bookmarking (and I’ll brazenly insert it, off-topic).

          • MRubio – Correction. I had agriculture in mind, below, but didn’t get into it. There are plenty of engineers in Venezuela who can work easily with numbers and relatively unpredictable values. I wish someone of them would look into agriculture in Venezuela, what grows best, and where, what crop yields are, how the revenues and expenses stack up, and come up with a potential land use map. I read an article about an English family that had some 30,000 head “expropriated” in Bolivar and sued Venezuela, and won something like $1.6 million (probably not even close to their real loss. No doubt some posters here will turn up their noses, but goat stew done well is fabulously delicious – Hecho en Venezuela! – goats grow just about anywhere, and eat just about anything, including your laundry. They also give milk. The rabbits thing was actually not a bad idea – rabbit stew has been eaten in the U.S. (I’m not sure you raise them as “pets”, but they are an edible source of protein, and they aren’t huge, so you don’t have refrigerated storage problems you have with cattle).

    • Venezuela is already dollarized thx to that “evil” website dolartoday. Every single soul looks at that rate several times a day. All prices are directly related to that exchange rate. Hence Venezuela IS dollarized.

  3. 15th Anniversary of the worst economical tragedy seen so far in the XXI Century. I remember how the Comandante Integaláctico used to brag on why FX was going to shield Venezuela against “every imperial aggresion” and “wouldn’t be lifted”, in several of his public speeches. Guess it will take a bit more of time before bolívares start to be used as a true substitute for toilet paper.

    • They don’t work as toilet paper, too slick. I know, we were without toilet paper for over a month until just recently.

      The 2, 5, 10, and 20 bs notes have been out of circulation for probably a year now. The 50 bs notes are not accepted here in town by a number of merchants, though we still accept them. I prefer using them as bedding material for the dogs, they love ’em.

      • Dutch investigative television showed about 9 months ago a toilet at a gas station. The floor was littered with banknotes used as toiletpaper.

  4. “Economist Manuel Sutherland: Exchange control caused a loss of $ 700 billion”

    “For the expert, the overvaluation of the exchange rate has been the most negative for the economy. ‘It creates a stimulus for imports, depresses exports and discourages industrial and agricultural production, that exchange control made a transfer of oil income from PDVSA to inefficient national companies that do not generate foreign exchange and can not compete in the world market[.]’ A large part of the currencies escaped, they left the country financially and through export fraud. Between capital flight and export fraud we could be talking about almost $ 700 billion that were lost and sold very cheaply, he said.”

    (google translation).

    • The guy sounds like a capitalist. The thing about “precio justo” (controlled prices) is that you can’t just let essential goods (like food, clothes, toiletries, gasoline) float at world prices, overnight. Even on a parity with neighboring countries they’d be unaffordable to probably half of the population now. There has to be, that I can see, a transition period that will allow real wages to recover. That means that as wages gravitate towards parity, so will prices. You probably would get the individually depressing effect of earning more but not gaining much purchasing power – until an equilibrium is reached. Still, that’s much better than earning ten times as much and being able to buy one-tenth what you could before.

      The incentive to earn must be there, or you get a welfare state syndrome – or rely solely on moral character and understanding of the situation. One possible “out” is to keep subsidized goods at bare minimum quality, so that free-market goods are consistently better, and/or gradually remove items from the list of subsidized goods, and try to engineer it all so that prices of subsidized goods do not increase faster than wages.

      It is still a transition, a transition from a failed command economy to a successful free-market one. The command economy element remains until it is phased out entirely, and all that is left are charities for the temporarily down-and-out.

  5. Assuming each of the Bundles shown in the picture above has 50 notes. There would be 500 total. Multiply by 100 BSF, that totals 50,000 or about a 25¢ US.

    For a country that idolized Bolivar, they sure have bastardized his name.

    CC Chronicles should have a CONTEST on what to call the next VZ Note.

    El Ponzi Fuerte

    El Chapo Narco

    Place your entries !!!

  6. Yes, why not read Juan’s piece again. It was just spot on.

    The Svarovski in Maiquetia…it was an upside down world but not exactly the one Eduardo Galeano was talking about, and then we stumbled on this blog -Quico, Juan and Gustavo from time to time- and clung to it for our sanity….

  7. Dear readers, no transition is posible BEFORE you take the coroto. This is what is mission in all our well intentioned posts. The official Opposition (a.k.a. Rep. Dominicana Negotiators) seems to think that the regime will give them a go after they have finished looting and bankrupting the nation.

    I do not see this happening. The looting was a means to the end of total social control. They have it and now they will continue to excercise it as it was planned.

    The nation needs to become aware of this reality and organize to resist and challenge and defeat the regime to start the said reconstruction.

    In The examples of Germany, Japan and other free European countries and societies after WWII, an outside player has broken the deadlock, and also provided funds (Marshall Plan) to get things going. Also, the state of moral and psychological destruction in the societies was much less to the 40+ 30 years of populism, socialist and later communism, experienced in Venezuela.

    IMO is wishful thinking to continue to downplay the costs and tribulations ahead.

    • Right. First the political (virtually total elimination of the Castro-Cuban cancer); then the civil (real submission of the military/para-military/guerrillas); then, the economic, if it is to have even a fair chance of success. Post-war Germany/Japan/et. al. had all of these, PLUS massive external aid, both financial, and industrial.

    • LuiF –

      Not to single you out as the only one – you’re just a target of opportunity that wandered into my sights.

      The first thing, before “taking the coroto”, is a positive attitude. Many posters here say it is useless to try to plan when all plans rely on taking down the regime, which is what must come first. Then in the next breath, the same guys say that voting is useless to bring down the regime. Then in the next aliento (gathering steam), the same guys say that Venezuelans need to stand up and fight, but they won’t because they’re useless internally corrupt lazy uneducated, etc.. Y sigue … que, with the next breath, the same guys say that it is impossible to do anything to take down the regime because there is no leadership, because Oscar Perez might be a ploy by the regime, and Allup is corrupt, and the MUD is corrupt, and Luisa Ortega Diaz is guilty … and the only option is to leave the country. It goes on and on in a circle of “cannot do / will not do / should not do”.

      Then some wonder why most Americans say that it’s Venezuela’s problem, let them fix it.

      I can understand that you may be in Venezuela, that it’s hell, that you’re not just hungry and tired for the day, but from years and years of watching and waiting. But I don’t see what is to be gained by slamming every decent idea that comes your way out of a reflex reaction.

      I said a while back that a plan gives hope, gives something to aim for – it gives a positive attitude, in short, and a future to look forward to. And the reply was that it’s useless to think about a plan because the regime will defeat all plans. And you wonder why you have the regime?

      Here: watch it.

      Send the Marines? Housemann’s joke, no doubt.

      • Good read Gringo. I like many of his ideas and have suggested this one often.

        “In fact, most henchmen have sent their families abroad, saving them from the mayhem they have created. Placing the spouses and children of henchmen on the list would make ostracism particularly effective.”

        Though I’d take it further by not just ostracising them, but seizing their assets too. If daddy’s a chavista henchman, is there really any doubt where the money, houses, cars, boats, and airplanes came from? Seize everything, auction it off and send the funds back to the new Venezuelan government once it’s functioning.


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