Who can stop the plunge? (Updated)

/ March 4, 2015
Chavez posters

You know who to blame. You have him on a poster.

Here is the Economist Intelligence Unit in 2015: Caracas is one of the cheapest cities in the world.

Here is the same source just two years ago, in 2013: Caracas is the most expensive city in the hemisphere.

The reason for the dramatic change? The massive devaluation currently under way in Venezuela.

Now, you may think that going from “expensive” to “cheap” is actually a good thing. What you fail to realize is that when prices – valued at international rates – are plummeting, so are salaries. So are the incomes of entrepreneurs. So is the income of the population at large.

What this drop in the rankings reflects is massive empoverishment on a tragic scale.

Kudos to the EIU for finally acknowledging that using the 6.3 exchange rate for international comparisons is highly misleading. Hopefully, other media outlets will follow suit.

Update: As if on cue, three Venezuelan universities have published a study claiming poverty rates in 2014 climbed back to their 1998 levels. The study is here. I have not read it so I cannot opine, but Luis Pedro España is a serious guy.

Update 2: The featured image on the post courtesy of Alek Boyd.

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60 thoughts on “Who can stop the plunge? (Updated)”

  1. I’d sort of approach this differently. “Cheap” and “expensive” are categories that make sense within the bounds of a working system of relative prices.

    What Venezuela’s been suffering more and more acutely since 2013 is the collapse of prices as a guide to rational economic decision-making. Which is actually a much more insidious thing that, yes, goes hand in hand with mass impoverishment, but also goes beyond it.

    The problem isn’t that prices are very high or very low. The problem is that prices don’t mean anything. They don’t match supply to demand. They don’t give you the information you need about relative scarcity. They’ve stopped working as a system.

    Liked by 2 people

    • Oh, I think they mean a lot. Because, ultimately, prices have stopped meaning anything inside Venezuela, but ours is a country that still participates (quite intensively) in the world economy. Prices inside Venezuela may not mean much, but prices inside Venezuela relative to the outside world – be they prices of goods or wages – matter a whole lot.

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      • Juan,

        Francisco is talking about economics, and you are talking about propaganda value to the regime. Different subjects.

        At this point, I tend to agree with Francisco. You can find the same product in one location at triple the price of another location, depending on when it was bought, under what exchange regimen, and depending on what the owner ate for breakfast this morning. We don’t know what things are worth any longer, because we don’t have a rational market to inform us.

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        • is not just propaganda.

          As long as “fair prices” in Venezuela are set below international prices, they will be traded to our neighboring countries (or smuggled out, in the official jargon), because of the massive profits derived from arbitrage.

          This means the gasoline we import from the US and Trinidad is smuggled out to Colombia, Trinidad, Guyana or Brazil. And that the stuff imported at VEF 6.30 or VEF 12, barely reaches the Venezuelan consumer, as there’s a lot of money to be made for mafias that sell them to foreign consumers.

          The king of distorted prices is the dollar. As long as it’s profitable to buy overpriced stuff and split the difference, our trade is going to be dysfunctional.

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  2. 248 Bs per dollar.
    Almost 32 old millions to cover the basic basket.
    The minimum wage is barely 5,5 old millions.
    One worker might spend almost an old million ONLY on transportation to get to and from his workplace in public transport.
    Ah, and people that dare to dissent from the government are appearing bound, gagged, beaten with several broken bones and with two to six gunshots in their heads.
    Or just a shotgun blast to vaporize half of the skull, that’s reserved for extra dangerous targets (Aka those who dare to even say a peep to a respectable polinazi officer, you know)

    Yep, Venezuela is in free fall, and maybe it forgot to pack the parachute…

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    • That was the price this morning, it jumped to 255 by the afternoon.
      Shit is getting real, a 25% downfall since Friday. What is the real reason for this?
      And please, do not tell me the protest or the new exchange market. Neither should have this huge impact

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      • The “new” eschange market.
        Well, actually, it’s the whole currency exchange control thing, the regime continues to hoard all the dollars, and the same idiots destroyed all the production industries that existed in Venezuela.
        So, there’s now a even bigger demand for dollars, because everything is imported, but the regime refuses to sell any because they just want to steal it all.

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          • The market was waiting to see if they could really buy dollars at the Simadi rate. When they discovered they couldn’t, they turned to the black market with a lot of pent-up demand. As that demand gets filled, I would expect the black market rate to fall back and find some new temporary equilibrium. About 235 would be my guess, but then it will continue to creep up again.

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      • And this evening, it’s 264.

        Impressive. The bolivar has lost 6% of its value in the course of a single day, from dawn to dusk, and 10% overnight from its previous close at 237.35.

        As they say, look out below!

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  3. The problem is that prices don’t mean anything. They don’t match supply to demand.

    Excellent point. The distortions in the price system, such as ten cent gasoline- or whatever the price is- result in a cloud-cuckoo-land rendition of economics.

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    • At the current black market rate (if I could find someone willing to change at that rate) an entire tank of gasoline costs slightly more than one cent. If we say that we tossed the attendant and a Bs. 5 note and said, “keep the change” that would make it 2 cents. Actually, I usually hand over a Bs. 10 note and say “Thanks.” That would make my tank of gas cost me 4 cents. Which is to say, for all intents and purposes, “free”.

      Fortunately for Venezuela, except for locations near near to a border where smuggling is possible, the demand for gasoline is not infinitely elastic. No matter how cheap it is, I can’t hoard it, since I have no way to store it or resell it to others. However, it does impact my driving habits. The cost of gasoline has no impact whatsoever on my decisions about whether to consolidate my errands and reduce the number of trips I make.

      But, there are other factors besides smuggling that contribute to uncontrolled domestic consumption:

      1. The shortages of goods means that we make multiple trips to stores and markets looking for scarce items. In a normal place, I would probably do my grocery shopping once a week. Now, I probably go to a market 3 or 4 times a week, just to see if they have something that I am missing.

      2. The inefficiencies of the bureaucracy are so out of control that we typically ordinary “tramites” can require many trips to accomplish. My recently renewed cedula required 10 trips of approximately 50 kilometers. Multiply the shear inefficiency with the massive proliferation of bureaucratic requirements and this accounts for another massive amount of gasoline consumption.

      3. The shortage of spare parts means that many cars and trucks on the roads are operating at far below optimum fuel efficiency.

      4. The shortage of new cars and trucks means that there are many older models on the roads that are much less fuel efficient.

      5. The poor conditions of the roads result in increased fuel consumption.

      6. The excess traffic from (1) and (2) are creating heavier traffic that result in higher fuel consumption from time spent idling and from excess breaking and accelerating.

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      • 7. Mass transport is a steaming pile of useless shit in all Venezuela, public or private, people prefer to starve before abandoning their car.

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  4. The upside is that medicines are really quite cheap in Venezuela, due to the enlightened policies of Hugo Chavez. The downside is that you can’t buy medicines in Venezuela, due to scarcity. I blame the imperio.

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    • If the medicines are cheap they cannot be found , if they are more expensive then they are not easy to find but they can sometimes be found .!! Problem is with the kind of medical products or articles that need to be imported for use by clinics and hospitals , they are either impossble to find or are very scarce , Dentistry products are also very scarce .

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  5. An example of how meaningless prices are. As of today, with $1 USD exchanged at the unmentionable rate I can drive about 28,000 kilometers in our Toyota Corolla which is considered a luxury car in Caracas but basic transport almost anywhere else in the world.
    And, if I could smuggle that gas that I can buy for $1 USD in Caracas to Toronto, I could sell it for about $ 2100 USD

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    • Don’t forget, and this is something I always point out as being indicative of how messed up the economy is…

      In any other country, said Corolla is a depreciating asset.

      In Venezuela, it actually appreciates in the local currency and holds its value in relative currency. Where else could you, in theory, take a loan out on a car and after the loan has fully amortized, sell said car for a tidy profit over P&I?

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  6. Two centuries ago , when Venezuela was undergoing its ruinous war of indepence , money ceased to mean anything , the story is told of the time in which Bolivars expeditionary army (mostly llaneros) arrived at Peru following on San Martins withdrawal , they were line up and told they would be paid their wages already in arrears , the pursers started to hand out paper currency to the llaneros and these mutinied and refused to accept the money .they angrily shouted , What is this ?? We are being defrauded !! we want to be paid real wages ! we want our yuca , we want our plantain !! do you take us for fools .!!

    Bolivar inmmediately understood what was happening and rushed to quiet the connmotion explaining to the surprised Peruvians to quickly fetch yuca and plantains to give to the soldiers , that was the only pay they understood !!

    Two centuries latter we are about to go back to the ways of our ancestors , money is rapidly losing value as a means of payment and soon we will want to be paid in pañales and toilet paper and sugar , things that have real value in our lives.!!!

    Funny to think how Chavez policies are bringing us back to the glorious days of our independence war !!

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  7. Which “prices” are you speaking about needs to be considered in any evaluation of “Cheap” or “Expensive” in Relationship to Venezuela. Since the majority of products consumed in Venezuela are source from the Global markets the price Venezuela “pays” for goods in no different than the rest of the world. They pay the current market price as determined by Supply and Demand economics. The issue is who actually does the “Paying”.

    Under the current Venezuelan System (whatever that is). “Venezuela” pay Global market prices and “Venezuelans” pay whatever some warped political determines will keep him in office for ever. Unfortunately, the reality is that the “Venezuelans” are paying global market prices. I would argue that the Venezuelan Government is using oil dollars to subsidize prices. Covering the difference between the Global Market Prices and the “political keep me in office dictated” price on the streets.
    So if you consider all of the Oil in Venezuela belongs to the Citizens’ of Venezuela and that they should derive the benefits from that Oil. Then they are in reality paying Global market supply and demand prices for the products. So in Venezuela things are neither Cheaper nor more expensive that the rest of the world.

    If one were to extend the argument, you could say that things are much more expensive in Venezuela then elsewhere in the world as the “Venezuelan’s” are subsidize the greed of the very leaders they to for leadership.

    Liked by 1 person

    • All very true–the subsidized basic Mercal foodstuff staples are really being paid for by the Govt. at higher than global market prices, if you factor in widespread corruption costs, and the non-subsidized goods such as automobile tires-parts/non-essential imports of all types/etc., essentially being imported at parallel market rates (if at all), similarly suffer the same higher-than-global-market pricing.

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      • The cost of living in Venezuela cannot be measured only by the cost of things which are imported through the use of its USD oil income , there are also associated so called ‘transaction costs’ which the average venezuelan must also pay for , the mismanagement and neglect in the maintenance and provision of infrastructure , health and education services has a cost , the corruption and mismanagement of Pdvsa has a cost , the way the oil has been given away to allied regimes has a cost , the mismanagement of the counrtrys finances has a cost , the inefficiency of govt controlled businesses has a cost . If you add these special transaction costs to the tab then the living costs of Venezuelans go up tremendously . Also there are costs which payment is being posponed but which we have to pay for in indirect ways sooner or later . the calculation is not simple.!!

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        • “health and education services has a cost , the corruption and mismanagement of Pdvsa has a cost , the way the oil has been given away to allied regimes has a cost , the mismanagement of the counrtrys finances has a cost , the inefficiency of govt controlled businesses has a cost […]”

          We refuse to endure long lines under the Caribbean sun.

          For in Venezuela, crime takes it’s toll; for in Venezuela, poverty takes it’s toll; for in Venezuela, vulgarity also takes it’s toll.

          In a world where injustice prevails, only one man can save us.

          And that man is the Norwegian Homosexual.

          We will reclaim our American values, one dirty toilet at a time.

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  8. Regarding the update on poverty, of course Telesur claims exactly the opposite: http://www.telesurtv.net/english/news/Extreme-Poverty-in-Venezuela-Drops-to-Record-Low-20150302-0034.html

    The article doesn’t cite any sources other than statements by Social Development Minister Hector Rodriguez. However, I am sure that using the “official” exchange rate of 6.3, it is possible to claim that. So long as statistics are compiled using such different and widely disparate exchange rates we will continue to get completely contradictory and opposing results.

    If you actually believed that one Bolivar was worth USD 0.159 the logical conclusion would be to tell Maduro & Co., “You are doing a good job guys. Keep up the good work!”

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    • There are lies, damned lies, and statistics, as someone once said. Rodríguez is referring to the government’s preferred means of measuring poverty .. the index of unsatisfied basic needs. If you measure it by income, the reverse is true.

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    • From the above Telesur link:

      The level of extreme poverty in Venezuela dropped to a record low of 5.4 percent in 2015, Social Development Minister Hector Rodriguez said Monday. The index dropped from 5.5 percent last year, the official said, falling despite an economic slowdown caused by economic sabotage and falling oil price

      From Caracas Chronicles January 26 this year.UN confirms poverty on the rise in Venezuela.

      The UN’s Economic Commission for Latin America is finally catching on to what we wrote about months ago: poverty is on a quick ascendancy in Venezuela. The worst part of all of this? The trend is only going to get worse, seeing, as though we’re talking about 2013 figures so far.

      Here are two graphs with the data. The full report can be downloaded here.

      The UN graph from the CC posting shows an increase in extreme poverty from 7.1% in 2012 to 9.8% in 2013.
      CC commenter Rodrigo Linares writes that the UN figures from extreme poverty come from INE.

      From a May 28, 2014 article of the Panamerican Post is confirmation that the 9.8% extreme poverty figure for 2013 came from INE. The article links to Ultimas Noticias, which is the source for the INE attribution.
      From INE/UN, extreme poverty:
      2012 7.1
      2013 9.8

      From the Telesur link. extreme poverty:
      2014 5.5
      2015 5.4

      Doesn’t pass the sniff test. As things get worse, Chavista lying becomes more blatant.

      http://www.thepanamericanpost.com/2014/05/poverty-extreme-poverty-increase-in.html

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      • Thanks for on expanding my comment Boludo. Anyone want to claim that Telesur is an independent and non-partisan news outlet?

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        • Anyone who claims Telesur is NOT an independent, non-partisan news outlet is sabotaging the truth.
          Social Development Minister Hector Rodriguez’s claim of “economic sabotage” was straight out of the Stalinist playbook,

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  9. This thing about “most expensive” and “cheapest” is a moot discussion. For 99% of Venezuelans Venezuela was already expensive for many years.

    It is easy to see how purchasing levels are now as bad or worse than in 1998.
    I did this little calculation about 10 months ago:
    http://venezuela-europa.blogspot.be/2014/05/the-tomatindex-onionindex-and.html
    Things are much worse now when it comes to renting a flat. Few people can afford that in Venezuela now, even in a crappy building in a low income neighbourhood.

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  10. Those that can stop the plunge are those with the most guns–and, there is an increasing realization there that, “No hay real.”

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  12. As long as Venezuelan incomes are tied to the price of oil, not much can be done to remedy the downward spiral. And downward we will be apparently: exxon’s ceo predicts low prices for the coming 2 years.

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    • There are two things that the article excluded that have some bearing:

      The minor one is that there are some refineries on strike. It is having a minor impact on supplies of crude derivatives.

      The big one, and something that made sense in 1975, but not so much now, is that the US bans export of crude oil. Not products or anything else, just crude.

      So the issue becomes one of expanded refinery capacity, which has been extremely limited in its growth and which makes the environmentalists howl louder than a Keystone rally.

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  16. Re the beef barter deal with Uruguay, perhaps the Chavistas are preparing to buy the next election with low cost food.

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    • You figure that after six months of rice and beans, el pueblo will be so grateful for some beef that they will vote for Chavismo again?

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  18. “Update 2: The featured image on the post courtesy of Alek Boyd.”

    Nevermind crying for independent media inside Venezuela. Start with a humble goal. Start with the HRF or one of the countless private-owned venue owned by overly eager immigrants. We could call it Operation Money Quote in honour of the greatest gipsy journo.

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