Clever use of puns aside (“Venezuela hopes to wipe out toilet paper shortage by importing 50m rolls,” chuckle chuckle), I have a small beef to raise about this AP story, reprinted by The Guardian and, most likely, hundreds of other newspapers and websites all over the world.
The piece says that “[m]any factories operate at half capacity because the currency controls make it hard for them to pay for imported parts and materials. Business leaders say some companies verge on bankruptcy because they cannot extend lines of credit with foreign suppliers.”
Some factories may be operating at half capacity because of currency restrictions, but there are other big issues that are, perhaps, more important – mainly electricity blackouts, skyrocketing absenteeism, and basically, no incentive to produce given how prices for their goods are set below cost. The piece makes it sound like if the government could just get the flow of dollars going, everything would be hunky-dory.
It’s not the case. One big problem the government (and Venezuelans) face is that the higher the gap between the official and the black market rate, the greater the incentive for companies with access to cheap dollars to sell them in the black market for a quick buck.
Say you get approval for $1 million to import toilet paper. Do you really think any clear-headed empresario will use all of it to import toilet paper? Any rational businessman would use some to sell in the black market, another portion to store in case the next batch is not approved, another part to pay off the cost of credit stemming from the delays in getting this batch approved, and then, only then, would they import a bit of toilet paper.
Obviously, this doesn’t fit neatly in a single paragraph, but something better, more comprehensive was required. Something along the lines of “extensive currency controls, labor regulations, price controls and other forms of State intervention.” Something like that…
You might think I’m nit-picking, and you may be right. Still – I really feel we need to get the story on the tragedies that have befallen Venezuelan companies. Saying it’s just about currency controls is kind of like reporting that “the Egyptian Pharaoh decided to let enslaved Jews leave the country because of a plague of locusts.” It’s simply not the whole story.
I think the piece short-changes the numerous constraints companies face. I also think the idea that they are operating at half capacity is not factually correct. Many companies are operating at full capacity – but their capacity is so small due to lack of investment, they can’t possibly fulfill the country’s demand.
Oh, and one last note: get some Venezuelan economists to opine on the country -there are plenty of them. There are even some in hoity-toity universities in the US. Let me know if you’d like some names. La patria se los agradece.
HT: Dr. Faustus.