2015: the lost year

It has been three weeks without posting. But in all truth what should have I written about?


That the regime has decided to become outright cruel, be it Leopoldo Lopez jail or the Colombian border disgraceful human rights abuses?

That new electoral cheating is performed?

That now criminal gangs are using grenades against police quarters, when grenades are supposedly exclusive property of the military?

That even Putin tries to explain to Maduro that the price of oil ain't going back up any time soon?

That Obama and the Pope and the West are only too happy to let Venezuela sink as long as it keeps financing a Cuban transition and an assortment of ungrateful shitty islands of the Caribbean?

That the Syrian refugee crisis is to be blamed squarely on the West for not assuming its full responsibility when it started applauding the Arab spring?

That Santos seem to have been defeated by the FARC and Cuba and chavismo when the battle was nearly won when he assumed power first, a victory where his participation was stellar?

You already get the hint that 2015 will be a lost year for a lot of people even though we are only on October 4.

That realization came to me a couple of days ago, that the regime had stolen from me 2015, that it has not allowed me to even try to achieve any modest goal. The year has been a constant reaction to try to deal with negative events in increasingly desperate situations.

I have been looking back and there is no joy, nothing positive for me.

The year has been spent in lines trying to find food and toiletries items and medicines, not even for me, but for my cancer stricken life partner (and other people when I can help). See, he cannot stand in lines for the hours required to acquire food. He cannot go to half a dozen of pharmacies in a row to try to find one that has the pain killer or the anti inflammatory, or the anti-whatever the doctors prescribe. Even nutritional supplements are hard to find and too expensive for his budget. That and other stuff I have had to start paying for, never minding that I have had to go to the black market prices because I also need to work and I cannot spend 2-3 days a week looking for stuff.

As if this ordeal was not bad enough, it has made me face to incredible cruelty of the regime, its immense stupidity to boot. See, those long lines under the sun are equal for all, a true socialist victory. Pregnant women, sick people, elderly with mobility problem, etc...  all have to stand in that same line, no consideration whatsoever for any one, starting with the people in the line that have lost any decency in their search for basic items. Eat shit and die is the message.

But there is insult to injury, true injury from what you can get above. I have seen or heard from reliable witnesses how the Nazional Guards or other forms of "authority" help themselves first, or let go ahead of the line their friends or take payment to allow you to do so. The abuse of power is more obvious, more cruel when such situations arise.

And more insult to the intelligence as the system is a mess of confusion and inefficacy.  Some items are by ID card end number, some items are "once a week", more and more stores demand finger prints from BOTH your thumbs, even if you buy, say, a bag of chips. That finger printing is ominous because it seems to be working better than anticipated even though lines to pay are twice as long as the process to pay is twice as long. The implications is clear: at any time through these machines the regime can restrict access to whatever it wants to restrict. And to whomever. Food apartheid in the making.

You may think that perhaps I can find solace elsewhere, like at work. But the situation is getting worse by the day. I have already detailed on occasion how difficult it is to manufacture things in Venezuela, to produce anything. The two main causes are the lack of raw material and the labor laws that not only make it hard to organize efficiency at work but are now creating havoc as you cannot fire the constantly missing workers that have to leave work to stand in food lines. Not that you would fire them anyway as you understand the situation but the "food shortage absenteeism" has become a source of new abuses.

There is also insult to injury. As your business is having a hard time to survive, you observe newcomers that seem to be quite prosperous. For example the Polar group is closing its detergent and soap plants due to lack of raw material. But there is a newcomer, "Clic", that is flooding supermarkets with pricey house cleaning items.  They even run expensive TV ads! How do they manage to get the raw materials to assemble their concoctions? Why are they the only brand with such a complete and well packaged line of products? Because the packaging of other products trying to replace Polar products is dismal, for low quality products to begin with.

And yet that is not all. There is a new plague on business. Once upon a time corruption was expensive but some forms were preserved. For example to get money out of you they would use catch phrases like "the dockets are loaded, but maybe we could find ways to speed up processing your application to X". Now they ask you money upfront, without any shame. Usually assorted with threats that are not based on anything legal, just because they can threaten you as there is nowhere you can go for redress. The reason for this new bluntness that we have observed in recent months is very simple: bureaucrats know that their fate is sealed no matter what happens with December elections. See, even if chavismo were to win, there is not enough money to spread around anymore and many of them will be shown the door if they are on the wrong side of post December chavismo reshuffled leadership. So the time is now for a last push for corruption money. It is that simple.

How can you score any success in front of such a negative environment? Unless survival on the edge of bankruptcy is considered a success. Note that the latest business climate studies put Venezuela dead last, even behind Syria.

That is why I can write already that 2015 has been a lost. That no matter what happens in the last quarter the negativity of the first three quarters cannot be overcome anymore. I feel exactly in the same mood as I felt in October 2014: a sad mood with the certitude that next year will be worse.

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Economic electoral planning: institutional bachaqueo and printing money

The election date approaches. Whether these will be held is irrelevant, the regime needs to prepare for it no matter what.  From my sources I get the following tidbits as to how the regime is planning to distribute goodies to try to buy votes.

The "bachaqueo" is bringing some political dividends to the regime, at least from those who can actually profit from it. Bachaqueo for those late in the game is a Venezuelan variety of black market (1). Those that can stand in long lines because they are out of a job buy they share and resell part of it at significant markups. It becomes particularity lucrative when: 1) you belong to an information network from cashiers to truck drivers and storage personnel who can warn you that X will arrive at Z before the neighborhood hoi polloi knows about it, thus the bachaqueros are first in line before supplies disappear; 2) you know someone high ranked in the store or the Nazional Guards on duty to avoid riots and they let you get out with more than your share; 3) you belong to a network well organized with bus and motorbike drivers that can carry you fast from one line to another line so in one day you may be able to stand in line at 2 or 3 locations, and rack it in; and of course 4) you belong to a narco-military-mafia organization that do not even own a store and gives you a certain amount at mark up for you to mark it up further. (2)


The beauty of it all is that the Labor Law "reform" of Chavez to get reelected before he croaked is a major incentive for that line of business.  See, you cannot fire someone for multiple absences. If you try to, it is a long and tortuous process that in 95% of the time ends up with an expensive settlement. In fact today's practice is to call into the office to ask point blank the worker how much he wants to resign from his job. Certainly, you can discount from paycheck the missing day and the meal tickets, but what would a worker mind if s/he can make more in that day through bachaqueo? Which thus has become today the main cause of absenteeism, far above any epidemiological consideration.

Some of my clients, those with a significant payroll of say, more than 50, have observed an interesting arithmetic pattern. Say, you have 200 employees, of which 150 are workers whose paycheck is no more than twice the minimum wage.  In recent months you have discovered that absenteeism is at a steady 15%, EVERYDAY.  And never the same folks, of course. That is, e.g., you have in a single week missing, 26, 22, 38, 23 and 29. Everyday you have at least 22 folks missing, that is 15% of your labor force. Why?

Very simple. Workers have organized a network of absentee turns. No worker will be absent more than what the law "forgives". Sometimes you may even find out that, say, X worker is absent systematically every other Wednesday. And you may find out that the peak at 38 (25%) coincided with a food fair or a major arrival of goods at the market store next door. If it does not get worse than that it is because finger printing and stuff limit the number of people that can shop on a given day (never mind that the bachaquero needs to be able to pay for what s/he gets). Also, many business to ensure a minimum labor force for basic processes have established generous attendance bonus (I kid you not), so that workers will miss only when it is worth their while. Thus a fragile equilibrium exists which will break down anytime as scarcity becomes worse.

I trust the reader can figure out on its own how this affect productivity and costs in Venezuela.....

You may think that this is a conspiracy theory. Think again. Go to any ministry and the systematic absenteeism there is worse. Sometimes it is organized outright by the bosses who may even have shipped in some goods, in particular if linked with the military. From there to spread the habit more or less efficiently to private business is not far fetched. And the regime has gone out of its way to spread in time deliveries of scarce goods to create the illusion that things still arrive somewhat to the the shelves, you were just unlucky that day.

In other words the regime thinks it stands to gain something by promoting a bachaqueo network, not enough perhaps to compensate for the voters lost to the long lines, but a gain nevertheless where open and naked scarcity would cost more politically.

The other thing that I want to mention in passing is that from reliable sources I have learned that the regime is bringing in banknotes. Lots of freshly printed notes of 100, more than what is normally needed to replace the physically deteriorated bills. Those bills may actually be delivered in diverse areas of the country to avoid, I suppose, shipping and the like.

My guess is that they will be used to pay for the campaign and for direct cash payments wherever it is needed. Expect a tremendous surge of inflation next year as a consequence.

It also seems that the regime is trying to open, albeit, some partially made public works, such as a couple of metro stations in Caracas. That has happened in the past in Chavez campaigns, but this time after three years of nothing it is hoped for that opening even a single subway station, even if incomplete, may have a big impact. I doubt it, but that is not the point of this post, the point is that the regime is going to apply skinny populism but populism nevertheless. In the past they could raid, say, electronic stores. But all is empty. Thus fake income from bachaqueo, or a direct worthless cash advance, or a huge ceremony to open shit facilities is all that is at hand.

In addition of jailing opposition leaders; but that is another story.

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1) bachaco is the large tropical ant that eats everything on its wake and that laboriously carries huge loads on its back.

2) all courtesy, of course, from crazy price control schemes and currency arbitration (official 6.3, black market 700 to 1 USD; do the math).

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Recovering Venezuela is going to be more difficult than what most people think

There are reckless souls in the opposition that claim that a mere change in the National Assembly and a couple of years of decent public administration are enough to turn around the Venezuelan Economic crisis.

I think such talk is simply reckless even if its intentions are merely electoral. At this point stirring false hopes is a deadly undertaking for whichever side. At least chavismo being in full denial mode is pretending that there are only minor problems that are the fault of foreign interests, period. It does not help them much but it cannot hurt them much either compared to its other problems.

Maybe two-three years ago we could have still entertained the thought that a Venezuelan recovery was not too difficult a task. But the damage done to the economic fabric and the collapse of oil prices which are not going to recover in the foreseeable future to a necessary 100 per barrel have made this impossible. A Venezuelan recovery is now going to be a Greek tragedy where even raising sales taxes on tourism activities cannot help a bit.

This blog has covered in details from ground zero where its editor lives how the damage to the productive sector has been perpetrated, from destroying contractual relationships between employer and employee, to a collapsed infrastructure. It is my conviction that even if all economic repressive controls were lifted tomorrow the economy will not be able to regain a sustained growth for at least a couple of years. And a weak one at that. And with significant protectionist measures for at least half a decade, or at least until we produce enough food for 80% of our balance needs.

I am not going into this again today, I will merely mention two powerful articles published today that spell disaster for Venezuela even though it was not necessarily the intention of the journalists writing them. But when you are a foreign correspondent you may not necessarily realize the implications of what you write when you try to stick to facts.

The first one is a piece from Reuters written by Alexandra Ulmer: Pirates and hold-ups: crime strikes Venezuela's oil industry. Ms. Ulmer details here how crime has put under siege Venezuelan oil industry, be it state or privately managed. The extent of robbery of supplies for scrap facilities to robbery of employees inside facilities in spite of the presence of guards is seriously affecting the potential of the industry. What's terrible about it is that oil industry is our only source of income today and apparently the regime is unable to protect it. Or worse, I suspect, unwilling to do so for reasons that I better do not think about. Whatever it is, the money quote will say it better:

in Monagas state, around 26,000 potential barrels were lost in March during a shutdown after state oil company employees and contractors stole copper cables and caused a tank to overflow {my emphasis} 

The other piece comes from The Economist: Learning the lessons of stagnation. Per se it is not about Venezuela. In fact, Venezuela is barely mentioned, it doesn't count anymore in LatAm economy. The article tries to explain how countries are dealing with the end of the commodities boom that fueled Latin America economic growth of the preceding decade. Thus there is an extensive list of do and don't according to the different economies fails and wins, ranking from care to the infrastructure to maintaining sound fiscal policies. It is a very interesting summary with interesting graphs (where Venezuela figures as the worst, of course). But the reason why it is so damning for Venezuela is that almost EVERY mistake made by X or Y country has ALSO been made by Venezuela. By ourselves we are a conpendium of all that is wrong in Latin America failure to rise to the modern world. Or as I have written, chavismo is a reactionary movement that has made Venezuela go back in past.

The money quote: To return to faster growth, Latin America must address its chronic structural weaknesses. Put simply, it exports, saves and invests too little, its economies are not diversified enough and too many of its firms and workers are unproductive. Needless to remind the wise reader that Venezuela exports only one thing, and badly now, saves nothing and cannot invest anymore. And productivity is now nil. It is not a matter of "too little", it is a matter of we cannot anymore.

Read both articles and then when any opposition Pangloss comes your way, you will know better.

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The money is mine and I'll do what I want to do with it (and, by the way, there is none left)

When I wrote this morning post I did not realize that tonight I would be writing the same one but from a different angle. That is, materially not the same at all, but philosophically, so to speak, they are like two drops.

He is taking away your credit card

My point this morning was that the presence of CNE's head Tibisay at a political event Wednesday to "validate" 10 million signatures obtained though coercion meant that the opposition could dream on winning future legislative elections, the regime could not care less. There are alternative ways to legislate or annul newly elected representatives through, say, popular will expression through "certified" signatures of the "El Pueblo". After all, if Obama and the OAS have nothing to object of the signatures this week end, why should they object to future signatures?

Strong with that success, the regime forged ahead and announced today that travel money would be reduced to almost nothing, and that in addition it would be reserved only to those that are already in agreement with the regime.  It may not look quite like it on the surface but that is the way it is heading. Again, as is the case this morning, the point is not whether there are elections. Today is not whether there is money in the coffers: whatever is there is for the regime. Period.


Let's rewind a little. In what is perhaps the second worst aspect of Chavez populism (the top being, of course, gas subsidies) travel has been heavily subsidized by the regime since currency control was established in 2003. I suppose that it was not the intention at first. I suppose that for a while the regime thought it was a way it could win the good graces of enough middle class voters to make a difference, It probably became a way to quiet down the middle class, away from street protest. Eventually the regime became hostage of its own system when its own bureaucratically created middle class got used to travel and trade currency for profit, the infamous "raspa cupos". What was the amount of the subsidy? No way to tell for sure, but it started to go down three years ago. Subsidized airline tickets were the first to go. The regime defaulted on the money owed the airlines and now we have less than half of the offering of two years ago, and tickets have to be bought in foreign currency, your Venezuelan Bs. are not good, even for Venezuelan airlines.

The current subsidy? A tweet exchange I had with my colleague Miguel is as good as anything you can find: 20 billion for gas, 4 billion for travel expense.

@danielduquenal Subsidio gasolina 20 millardos, subsidio viajes 4, al ojo por ciento
— Miguel Octavio (@moctavio) April 11, 2015

Today by reducing the allocated travel expenses (3000 USD a year to travel to Europe to 2000, much less to the Americas) and making it more difficult to get the regime may save an extra 2-3 billion dollars. At what cost?

With that amount the regime does not solve anything, it gains maybe a month or two before default. The regime would solve more problems by increasing gas price just enough so that demands decreases enough to stop expensive imports (note: just forcing people to tune up their engines and drive in more useful ways could lower import gas bills by 10% just like that).

People that need to travel more than once a year have long ago organized themselves to travel in foreign currency. The middle class that cannot travel anymore had long ago stopped voting for chavismo if they ever did. The political cost here comes from the chavista bureaucratic middle class that was led to believe that foreign travel had become a right. Note: this particular aspect had always irked me a lot and got me very nasty looks when I reminded folks that before Chavez, as it is still the case in other countries around the world, if you wanted to travel you needed to save for a few years, that few were those that could afford yearly travels and fewer were those who could afford yearly shopping sprees in a foreign country. But I suppose that the Venezuelan middle class got the government it deserved...

But all of these in the ends are mere details. What really matters today is not whether you get 300 or 700 bahts to travel to Podunk.

What matters here is the brashness of the whole thing.

First, the announcement was rather unexpected. No rumors, for once, occurred. Which proves you that most rumors are deliberately seeded by the regime....

Second, the brutality of the measure, even for someone like me who had advocated for years that if travel control expenses should exist it should not be on the quantity but on the exchange rate. That is, it makes more sense for business people to have 20,000 travel money at 190 than 2,000 at 15. From my last business trip in Europe last fall, I know that you cannot travel for business in Germany for less than 200 USD a day. You just cannot. Unless you do not even treat your customer to a cup of coffee, you stay in flea bag hotels, eat german sausages from seedy street carts, hitch hike to the banhoff stations, and the like. In other words, unless you look like a pauper and then no one will want to do business with you. In short, the extremity of the measure is so ridiculous that we would actually be better off by eliminating it and legalizing black market. Because that is what is going to happen, we are all going to have to go to the black market for all our serious travel needs. By the way, this one has already digested it all, SIMADI and whatever, thus basically unmoved today.

Third the cynicism of the agent. The minister,  Marco Torres, that announces that 30% of our meager travel allotment is taken away is none other than the one that presided the bank that deposited 12 billion dollars in a Switzerland account of the HSBC in 2007. Maybe there was no wrongdoing but to date I am not aware of the publication of any statement account justifying when were these funds deposited and where did they go before these accounts were closed a year later. The guy goes as far as saying that these new measures ensure "the correct use" of currency. So, the regime was not able to ensure correct use before? Orwell...

And fourth, and the worst, is the added brutality that if you want to have access to the remaining 2000 dollars you have left to go to Europe you will need to open an account in a state bank and ask for the state to grant you a credit card. That is, the credit card that you earned with your good name, your good credit habits, your prompt payments, in real bank of the private sector, is worthless outside of Venezuela. Now your credit is worthy only of a state bank, a bank owned and directed by the regime, decides that you are worthy of it. And what about if the Tascon list is used? What about if the sales representative decides to ask you whether you signed against Obama?

This is what today's announcement really means. Now, you only get to travel if you play nice, if you cozy tot he regime. That is that. Forget about elections, Forget about Human Rights, If you want anything you better join fast the ranks of Maduro,

Oh, and by the way, we are broke, we had to do that. So from now on whatever little bit of money becomes available here and there is only for corrupt military who are going to take turns in front of Marco Torres office. You know, fascism style, the state money is my money.

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PS: written while I was listening over and over to Faure's Requiem and drinking from my one before last bottle of Creme de Cassis.

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Why the regime has/has-not "devaluated" the currency

WARNING! entry plagued with "quotation marks" for reasons that will become apparent.

One of the surprising things that this blog has been wondering out loud for the last year and a half is "how come that the regime knowing full well that disaster looms imminent is apparently unable to take any, ANY corrective measures"? The very latest entry on this was "the fiscal problem" last January. And yet, the change in currency rules over a week ago was, well, a mountain birthing a mouse.

Yes, there was a devaluation of the currency.


The visible one was the disappearance of SICAD2 and the creation of the SIMAD. For those late into this game allow me to remind you that Venezuela has possibly the most complex system of currency control in the world with 4 exchange rates, for a dollar, depending how you are connected: you may pay 6.3, 12, 51, or 180. The first three were "legal" the last one the black market one and thus the one closest to the truth.

Thus "technically" the true devaluation was the elimination of SICAD 2 which became a "free" convertibility system called SEMADI which started its first day at 170 and when right there to 174 dollars US. That is a depreciation of (170-51)/170=70%, give or take.

In theory this rather hefty devaluation (I "temper" my words) would only touch 20% of the currency of Venezuela since in "theory" 6.3 and 12 remain for the bulk as the black market rate is supposedly nonexistent.

There is a problem here: unless you are well connected with people inside the regime, or you do import stuff that is related to food and medicine (and some of us only!) you have no access to those dollars. In short, it is expected that within months the bulk of foreign currency exchange will be SIMAD, assuming that the regime can scour somewhere enough billions to offer through SIMADI, something yet to happen.

In other words what is happening, "in theory", is a dollarization of the economy as little by little all imports will shift to a "convertible" currency. The other problem here is that the SIMADI is a fake "free convertible currency". Loaded with many regulations and controls there is only so much that you can exchange in a calendar year (Miguel explains this here).

No, there was no devaluation (just a blackmarket "legalization").

What happened with SIMADI is of a very different nature, something for the record books of mafia "financial" engineering.

Fortunes, colossal ones even, have been built on arbitration which meant that if you are well connected you can get dollars at 6.3 to resell them at the black market. It has been years that the black market is more then twice the official value (today it is way over 20 fold more). Thus with any amount you bought and resold at once not only you paid off the initial purchase but you got enough to buy again in a way that, well, it was all free to you.

This business was of course in the hands of "connected" people who either served as front-men for military and politicians, until they accumulated enough on their own that they could go solo (the Derwick boys for example who apparently were helped by Diosdado at first until now when they can buy castles in Spain).

Now that the military are the ones directing the country it is to be supposed that they are the main beneficiaries of this arbitration system and it is certainly not the drop in oil prices and the economic crisis that is going to make then give up such a rag to riches scheme. However there is a problem: the obscene amounts of money gained that way need to be laundered now. Many foreign agencies are in the know that arbitration is also used, in addition to speculation and robbery, to launder really dirty stuff. By creating SIMADI the regime is merely offering a tool to launder some of that cash. See, black-market prices were not recognized by the regime tax accounting procedures. In fact when you buy at 170 to resell in your shop the tax office only recognizes 6.3 and thus considers the difference as profit. But now people desperate enough for dollars and willing to pay 170 will get receipts that will protect them against Venezuelan tax collectors but that will also give an official receipt to money launderers.

So that is why I say there is no "immediate" devaluation, just a legalization of the black market through SIMADI. The devaluation will come later and be progressive as importers will slowly be forced to shift their import cost from 6.3 or 12 to 170. With the hyperinflation that looms behind.

The problem is that this "devaluation" is done for political purposes, for the army to protect itself from foreign observers that have tried to arrest Carvajal, that are now after Cabello. What they seek is a way to retain their stolen dollars by returning part of it in bolivares so that they can buy lot's of real estate here, away from the inquiries of European or American tax officers. In addition of major potential economic problems that this may cause it is also part of a theory of economic final control that will be the subject of a coming post.

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