This blog has been trying to follow the ongoing debate about where economic policy is headed under Rafael Ramírez. Today, for example, we eagerly awaited a presidential address where – we hoped – new measures would be announced.
We were fools. Nothing of substance was announced.
All Maduro said was that every company that had gotten dollars this year would be audited, that new fiscal measures would be coming, and that he would start bombing the clouds because he was worried about the drought. But in between announcing money for agriculture, and repeating the canard that inflation was caused by the opposition, the most telling thing about this address was its utter lack of meaning.
The void in content means there is a struggle inside the Maduro cabinet. The radical wing that opposes Rafael Ramírez’s dismantling of much of the Chavista economic model is not going to go away quietly into the red, very red night.
Just a few days ago, Aristóbulo Istúriz, the governor of the (large) state of Anzoátegui, candidly admitted that currency exchange controls would never be lifted. “If we lift them,” he told the opposition, “you would overthrow us because you would take all the nation’s dollars overseas… The exchange controls are not an economic measure, they are a political one.”
So, if exchange controls are not going to be lifted, what exactly do pragmatists propose? A new Cadivi? How is this going to solve the country’s problems if this practically ensures long life for the black market?
The government is dithering, and in the meantime, it is cranking up the bill-printing machines to pay the cost of its indecision. That is why inflation in the last month soared to 5.5%, according to unofficial reports. (The Central Bank is not even pretending to be professional anymore)
The burden of proof continues to be on the side of those arguing that reasonable economic policies are just around the corner. It’s time for the “pragmatists” to give us proof of their existence, and show us what they’re made of. Until that happens, we remain deeply skeptical about any major shift in chavista economic policy.
In the meantime, Venezuela will continue to muddle through, deeply enmeshed in an economic crisis while the government blames the opposition for causing the inflation that is being fueled by its indecision.
Caracas Chronicles 
I betcha the $’s for Maria Gabriela’s rice guiso were approved in 2013. http://latino.foxnews.com/latino/politics/2014/07/11/hugo-chavez-favorite-daughter-implicated-in-argentinian-rice-corruption-scandal/
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Juan,
Istúriz has repeated the same mantra for many years: “si quitamos el control, nos tumban”.
The currency control is something very dear to him.
Of course: he knows the military and the Boligarchs would earn less from the whole corruption generated by this system. He is right, to an extent,although the ones to “tumbarlos” would come from their own rows.
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diablodiado is one of the many corrupts that got most of his fortune via the dollar monopoly.
Basically he could say “if you lift it, I’ll kill everything here, period.”
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Juan, I think the mkt and economists (specially Bofa) give far too much credit to Ramirez as a pragmatist, let alone of having some competency, his only resume as PDVSA chief has been one of utter mismanagement and corruption, one that is almost hard to fathom possible given the income received (at a minimum production should be stable not declining). Structural reforms/adjustment requires someone actually wanting and being capable (technically) to do the right things, when has that been the case in the last 16 years of Chavismo?
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Amen.
My stomach hurts everytime i read that. Pragmatist…pff… coñuesumadres todos y cada uno.
None of them deserve the smallest amount of doubt,credit or trust.
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juan, i think it is high time to recognize that the only policy that is being pursued is the consolidation of political power. There is no economic plan besides the obvious devaluation. They just want to be strong enough to survive it and remain in power.
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Whatever his past sins and misdeeds I tend to think Ramirez knows that something must be done if only to roll over the coming bond payments and perhaps allow pdvsa a cash life line to continue its operations , he has a sort of game plan in the works with foreign help but he does not control the economy nor the regimes decisions , he is just one of the regime bosses battling with other regime bosses for enough leverage to get his points thru , he is NOT one of Maduros favourites , he is needed but there are others who dont necessarily follow his views and who may be hankering for his job either for themselves or some accolyte !! .
The regime is facing some hard desperate choices and they appear to be stuck , unable to get their act together while the whole country situation gets worse and worse . Dont think they are thinking long term at all , only of gaining more time and meantime to strenghten their hold on power using any means at their disposal . All of the above of course is conjecture !!
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chacalito must keep a whole warehouse crammed full of proof of every single corrupt chavista ever, that being his bargaining chip (or his bargaining shotgun) to keep doing whatever the hell he wants in the regime while being so idiotically inept at it.
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“So, if exchange controls are not going to be lifted, what exactly do pragmatists propose?”
You’re not paying attention.
The argument is actually very clear. What’s coming – probably in QIV – is the end of multiple tiered dollar pricing and devaluation to a single, highly depreciated, close-to-market-clearing official rate.
That’s doesn’t mean lifting exchange controls.
Nobody’s talking about lifting exchange controls.
We’re talking about devaluation-within-controls. That’s what “unification” is code for.
It’s a muddled enough debate without needless further water-muddling, Juan.
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Right, Ramirez speaks in code few people understand, and the government thinks economic policy announcements are a good time to show their newlywed videos, and yet I am the one confusing things.
At any rate, I seriously doubt unificacion cambiaria or any of this stuff will happen.
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C’mon, Juan. You’re misrepresenting the argument you’re setting out to refute.
Your post muddles an already highly muddled issue. One is not amused.
(I’m going to stay this bitchy until the challenge is over, you realize…)
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So you think Aristobulo and Ramirez are on the same page?
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” We’re talking about devaluation-within-controls. That’s what “unification” is code for. ”
Correct me if I’m wrong, but wasn’t that the same thing the cyst doll did when he devaluated from 1,25 to 2,15 and then from 2,15 to 4,3?
Just raising the dollar price while holding the useless limitations to aquire it? Which will in turn make the black market dollar be as high as it always was (Like 7,5 times the cadivi value)
Damn, and I thought I was joking when I said the black market dollar would skyrocket above 250 Bs/$ by the end of this year…
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OK, Quico, I have a bone to pick with you. You’ve left me wondering if I’m misinterpreting all that isn’t going on in terms of economic policy. You say that nobody is talking about lifting exchange controls, and yet, Rafael Ramirez a few days ago said this
http://www.el-nacional.com/economia/Rafael-Ramirez-anuncia-sistema-bandas_0_440956000.html
Bandas, Quico, bandas. Can you actually *have* bandas and a currency exchange control at the same time? I mean, if you have a control de cambios, you just set the price and leave it at that. But bandas implies some sort of market mechanism at play, one in which there might be a few controls, but that relies mostly on supply and demand. Flotacion sucia, pues. That is much different than what you are suggesting is coming down the pipe.
So yes, Ramirez himself is talking about lifting the exchange controls. Cause when you unify, and you implement a bandas mechanism, wwell … that’s not a fixed exchange rate regime anymore. That’s a sacudon.
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Sicad 2 was supposed to be something of that sort. I think they want to do it but can’t gather political capital or will to do it. Even though they have defaulted to many already…
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Exactly. If the unificacion cambiaria means shifting everything to Sicad2, its a massive change from what we have now. Basically, it’s the end of the control de cambios as we know it, something that gives Aristobulo the heebie-jeebies.
Why else, if not for internal conflict, do we think Sicad 2 has not been fed enough dollars?
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The thing is that SICAD 2 is today what SITME was on its beginning. Also announced as a band system but it was really.
SICAD 2 is just pegged at 49.98 or something like that and they are limiting the sales quite a bit.
Until I see something that allows me to walk into a back with BsF in cash and leave with US$ in cash with no limits, I am not buying it.
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When he says “nos tumban” I wonder if he refers to the people (in which case I think he errs) or the rotten power circles within chavismo (which I think is what he worries about).
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The people = military men who’ve overrun all trade channels.
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Also, you close saying that *in*the*absence* of a decision the economy “will continue to muddle through.”
This gets it exactly backward. The argument is that *in*order*to*muddle*through* they will unify-and-devalue the official exchange rates in the context of controls.
Because *in*the*absence* of unification the economy won’t muddle through, it will collapse.
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Economies don’t collapse when the price of oil is 100 per barrel. They muddle through like they are doing now, cutting off imports while continuing to ask the Chinese for money. I simply dont think anything is going to change this year or next.
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juan that is a strange statement to make. Economies can collapse with oil at any price. This government has been spending more than its revenue for years and can no longer carry the subsidies. Credit has dried up. . Do you really think that $60 billion in oil revenue is enough to keep this economy going with no other investment and the debt they have accumulated?
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I do not agree with the argument that the economy will collapse. Chavistas do whatever the heck they want. Why not send every dollar to the Sitme II rate and keep the charade of the official? It’s a fair scenario.
And say they unify the rate, what difference does it make besides improving Pdvsa’s and the government’s revenues? You will still have a rigid fx control, corruption will continue and the economy will remain in shambles.
Venezuela needs new governors and a serious economic facelift, not fx unity.
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Because Math.
Until they unify, they’ll be facing a 10-15% of GDP deficit. There’s zero chance anybody will lend that to them, and zero chance they can raise taxes by that much. Unless they unify, they *must* continue to make up the shortfall by creating new money – monetization. Monetization on a crazy, kamikaze scale that even people as incompetent as them can see puts them on the verge of hyperinflation and macro-collapse.
They’re not going to devalue-and-unify because they’re responsible. They’re going to devalue-and-unify because the alternative is *more* of a threat to their hold on power.
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I fully agree with the ‘collapse theory.’ This is insanity. Three Stooges economics. What is taking place in Venezuela in purely economic terms will indeed bring about economic collapse. All lines of credit with the outside world have been suspended until Venezuela pays its debts, in Euro’s or dollars. It’s that simple. By its non-action Venezuela is indicating to the world that foreign reserves have all but dried-up. They’re broke, period. There is no ‘muddling along’ with this kind of scenario. All modern economies function on credit lines. Venezuela is no exception. A collapse will surely take place shortly….
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“Mientras nosotros gobernemos habrá control de cambio”
Mientras?
Nosotros?
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Ya ves que el pobrecito siempre fué un loco.
Es el problema de que un resentido llegue a tener algo de poder…
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The chinese only lend money if the income from future oil supplies is put in their banks and then fractionally doled out to Pdvsa once they are sure of having enough deposited to be paid their loans . That deeply cuts into the countrys actual oil revenues , so that isnt the solution .
Getting new loans thru the financial markets is extremely onerous and even now there isnt enough to pay those loans when they become due , they might take some measures to make the bankers agree on a roll over but thats only a temporary fix , so new financial borrowings arent a solution . the only solution is going the straight path of taking those measures as a rational economist would take , raise gas prices , cut subsidies , attempt to raise production with the help of foreign investors , unify the exchange rate at a more rational level (keeping control) , raise taxes and lower the supplies to petrocaribe under specially generous terms etc etc .
BUT those measures are very difficult to take for four reasons . first they have a heavy political cost such that if taken straight they may lose them whatever popularity they depend on to hold on to power , second : ideologically it means abandoning those fantasy utopian dreams of a society where the state provides for everything without having people produce anything worth producing, third it would invove an enormous loss of face which would lethally hurt their vanity and fourht its nos easy for them to work together as each pursues its own ambitions and fears the rest will due them in.
RESULT : the decisions that need to be taken are always posponed or discussed to death or trashed into futile pieces to please everyone . Not certain even an oppo regime would be able to dismantle controls even if it wanted. to , ( although long term it might try to ) . SO THEY ARE STUCK !!.AND WE ARE STUCK WITH THEM !!
Will that result in an economic collapse , probably , will that collapse lead to a regime change , also likely , unless …….the regime becomes a no holds barred cuban style police state which will also take some doing. So no safe predictions …..any thing goes and only time will tell .!!.
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Nice analysis. I would appreciate it more, if I wasn’t living right in middle of it.
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Any chance of a Venezuelan or PDVSA default? They have paid interests religiously in the last 15 years, but the situation is more extreme than in 1981-82…
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Legally speaking Pdvsa is a company so even if state owned it can go broke if it becomes unable to pay its debts just as any other company . The Republic is a State , there the rules may be more complicated , financially of course it can go broke if it doenst have the means to pay its debts . The problem is collecting on that debt because there are all kind of legal rules protecting states from the seizure of their assets . Still if they go broke then all external financing stops and you have situations like that of Argentina with the so called Vulture funds.
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Is Maduro hoping for the Chinese to give them new credits in this New Development Bank of the BRICS? It seems like Chavistas want to become the foster child of BRICS. Would China accept to do so if Maduro offers them more “apertura” (revolutionary, that is)?
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I very much doubt that will happen. In the past the Chinese have doled-out a billion here and a billion there when a sufficient quantity of oil from Venezuela is in Chinese ports or floating on the Pacific. Now that the disaster that is Venezuela’s economy is open for all the world to see, the Chinese are likely to become even more stingy with their ‘loans.’ The New Development Bank will be located in Shanghai, and whose major financial contributor is slated to be the Chinese government themselves. Give these clowns more money? Really? T’aint gonna happen. You’d have more luck trying to convince the Chinese to replace Won Ton soup with haggis as their national dish…..
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For the record, I called it first (if it ever happens).
http://caracaschronicles.com/2013/03/13/maduro-wants-to-go-brics/
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Excellent reminder of past discussions on this topic. One might further add that the possibilities of any future loans from the ‘New Development Bank’ to Venezuela have dramatically decreased since Gustavo’s (Nostradamus of Venezuela..?) original posting back in March of 2013. The berserk Colombian bus driver is now a known entity to the world. Passengers are already panicking to get off that bus as it hurdles toward the approaching cliff….
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When a country goes bust,
the pain is felt on very deep levels.
The most basic systems and institutions
that people have depended on
SIMPLY DISAPPEAR.
Power companies stop operating [X],
the police stop working [?],
gas stations close [?],
buhoneros, grocery stores run out of food [?],
postal workers stop delivering mail [x],
food stamps stop coming [?], and
banks close their doors
with rojos fleeing the country,
taking people’s life savings with them.
[Cribbed off google]
Can dollarization be far behind?
…why control the currencies,
why worry about the dollar.
Aristóbulo Istúriz can have his $$$$
and gorge on his cake as well.
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May the Bolivar_Fuerte peacefully join its creator.
[ 1 dollar = 79,68 Bs? ]
Whose face will be on the new 1000 BsF [12.50] bill?
Who will authorize the new 10000 BsF [=$125] note?
who will be the first to wallpaper their home with
the 5 BsF [= 6.28 cents] ?
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the Chavista economic model is not going to go away quietly into the red, very red night.
Very good phrasing. I imagine that you were referring to Dylan Thomas’s “Do not go gently into that good night.
Rage, rage, rage
Against the dying of the light.”
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