Back to the XIX century

Regular readers may remember that often I wrote that chavismo was a mere reactionary movement, harking back to an ideal time of macho caudillos and independence wars. That violence and poverty ruled over Venezuela from 1805 until Gomez established the first stable regime of our history is apparently not an historical fact that chavistas can be bothered with: all that is wrong in Venezuela comes exclusively from the 1958-98 period and the evil empire up North.

Well, chavismo should be delighted because we are getting back to these halcyon days of robber barons (cheap ones, not rich ones as in the US) and grinding poverty. Four items to frighten you.


No tests

My brother went to get his normal blood work before his annual date with his cardiologue. What was his surprise that this huge private clinic, very well known, could not test for hemoglobin (nor three other items of the 20 that include that test).

My SO, also this week, needs a test for the marker of his disease. I had to spend three hours to find finally a lab that could still perform that test.

I suppose that if there are no tests for diseases then there will be no disease and like in the XIX century we shall rely some herbal stuff for pretty much any ailment. I watched in horror the other day as a show on public TV had a kid vaunting herbal medicine saying it was a way for us to "free ourselves from the negative influence of the traditional scientific capitalist medicine".  There you go: got cancer, get a plaster of gamelote on your ulcer. Traditional science, whatever that moronic oxymoron may mean, is bogus, what our ancestors did more than a century ago is the way to go.

Robbing animal feed

As I have reported before the situation in battery raised livestock, representing 80% of the protein consumed of Venezuela is going down hill because the regime monopole on grain import and distribution is not working. Note: organic food is the privilege of the very, very rich in Venezuela. Well, now this scarcity is made worse by the increasing robberies in animal feed plants. A customer told me that there are gangs now that break in the storage aras of animal feed plants to steal vitamins, amino acids, antiobiotics, etc...  They can steal trucks of stuff and curiously, in spite of the multiple check points held by the Nazional Guard on all Venezuelan rodas, these trucks never seem to be inspected, and even less stopped. Imagine that!?

Thus we are back tot he XIX except that cattle stealing has been replaced by feed stealing, with the same impunity as before when the local caudillo helped himself to whatever it needed and that was that. The caudillos have been replaced by caudillos in military uniform as this type of robbery can only take place with support from the people inside the army, be it drug traffic or feed traffic. Needless to say that such robberies may cause feed plants to be stopped for days.  Too bad for the animals counting on that. And further scarcity on markets.

Squatters rights

Apparently now consejos comunales, that ersatz local power soviet invented by Chavez for political control and patronage, have the right to seize any property that they deem under occupied.

A friend of mine has a small week end farm in Carabobo. For a variety of reasons, insecurity being one, he has stopped visiting it with the frequency he used to. Still, he or a relative or someone goes at least once a month to aerate the house, pick up the garbage, etc so the place does not look abandoned. That is not enough, he has to sell it now because he has been informed that the local consejo comunal has an eye on it even though his neighbors are defending him, that he has all property rights, all taxes paid, etc. never mind that the neighbors are scared about what lumpen would the consejo install there, probably the real reason why they defend my friend against the consejo... Note that the existence of a consejo in an area by itself make property lose up to half its value in the area as a consejo can butt in on anything they want.

We are just back to the XIX century when a torn down village during one of our numerous civil wars was simply occupied by a group of people because, well, it was abandoned. That was no expropriation or agrarian reform, it was just a "look, there is no one there, let's move in" moment.

I would like to note that if the regime was indeed building ALL THE HOUSING it claims to be inaugurating, why would any consejo comunal have the need to steal somebody else property? But I suppose that I am digressing, that I do not understand that such things are done for the good of el pueblo.

Your local pig

When I was a child, and we went on the adventure tourism that Venezuela was then in the 60ies and 70ies, small villages had pigs used as garbage disposal units. That is right, villagers would bring their garbage to a dump at the outskirts and a couple of pigs would come regularly to forage. Eventually those pigs were killed and eaten or sold on the road side surrounded by a significant amount of flies. That was, well, the only source of meat sometimes. Fortunately by the 80ies animal farms and sanitary controls and distribution chains and refrigerated facilites had set and thus Venezuelans could buy fresh or frozen meats prepared with all the desired hygienic standards.

This is over. With food scarcity and creeping poverty not only backyard chickens are back but your foraging pig is making a return. Well, not quite as the pig can now be stolen so you better lock it up....  So in the country side some are now having a pig or two in their back yards.

Why would that be wrong, you may ask? Well, the veterinarian and health official support for such activity does not exist anymore in Venezuela. That is, the pigs raised this way will have no veterinary supervision even if the owner could afford it anyway. And there is very little medicine available for livestock, by the way.

That new backyard livestock activity increases dramatically the probability to revive parasitic diseases due to the proximity of animals, without counting on well known plagues like the flu associated with apartment raising chickens in China.

There also we are enjoying a return of the halcyon unsanitary days of yesteryear.

That is chavista progress for you.

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Maduro's economic measures get a D- ; but the objective is elsewhere

Finally, after nearly three years in office, Nicolas Maduro decided (or was it decided for him?) to take some economic measures. Too little, too late. He does not get an F because he dares to increase the price of gas. I suppose that gives him a C for effort, and the rest is F. Before I get into the details it is noteworthy that the measures are announced barely hours after he fired his economic minister (Salas) and failed to put in jail Polar's CEO Mendoza and expropriate the group as radicals wanted. Combine that with the creation of a new monster controlled by the military, CAMIMPEG, and you know that the military are behind the whole thing (but more on that in a future post).

Thus, even if I have other things in my mind these days I need to summarize what happened today to give you guys the real meaning of the whole thing. In no particular order.

Gas price increase. C for effort. F for method. D- for benefits.

In Venezuela we have nearly free gas in two grades. Now we will have the same two categories, not quite free, but with a 5 fold difference in price. Consequence number 1 expect shortages of the lowest grade immediately. Consequence number two, people are stupid enough that they rushed to gas station tonight to fill up with free gas to avoid paying almost free gas in a couple of days so there may not be gas this week end in Caracas. But if people were smart and knew how to count and manage, surely chavismo would be by now a long forgotten bad memory.

Will it help? No. We still have the cheapest gas in the world (at the black market rate which is the one that matters). It is quite possible that gas will still be sold below production cost. And smuggling of gas will continue to be a brisk business at the borders as long as it is less than a quarter the price of gas in Colombia or Brazil or T&T. And when your tip to a valet parking attendant is already higher than what it will take you to fill your tank of gas at the new price, then there is no incentive to save on gas by driving less.

Devaluation of currency. D for effort. D+ for simplification. F for benefits.

We had three exchange rates (Cencoex, Sicad and Simadi) plus the black market. Now Sicad disappears (ir was invisible anyway) and we are left with a new Cencoex that goes down from 6.3 to 10, or a 37% depreciation against the USD. Simadi which was kept through mysterious ways at 200 for one USD will start to float. How? No details but if it is not in a transparent way and if the regime does not supply a steady, even if small, supply of dollars the black market rate of 1000 to a USD will keep going up.

We can expect that the floating new Simadi, or whatever the name will be, to be a tad more supplied because apparently we may be getting travel money through its value (right now we are getting nothing). But otherwise I see no improvement on economic conditions. The Cencoex rate should have gone down, in my opinion, to at least 50 to make any difference. After all with an inflation somewhere between 200 and 300% that depreciation hike of 87% would have been already factored in. But the real problem here is that the same people who had access to the 6,3 rate are the ones that will retain access at 10, and will resell it on the black market through "arbitration". This is where the big business of the military and bolibourgeoisie resides and it remains untouched. In other words the economic system of privileges remains untouched and thus the crisis will remain as it is.

Minimum wage increase. F. Period

With a minimum wage increase of 20% and a current inflation of at the very least 200%, you do the math.

New system for price control and food distribution. D for simplification. D- for benefits.

Too early to pass a definitive judgment here. Anything that wants to perpetuate price control is doomed from the start. However the way things are announced it would seem that the regime is willing to let a significant portion of the economy out of price control, keeping a "100" list of essentials only which will be sold/controlled at their true production costs, whatever that may mean. The other possible good news is that the complex system of food fairs, MERCAL, PDVAL and whatever will be fused in, well, basically food fairs in critical areas. Apparently too much corruption and black market....  Gee...  They found out.....

Electronic ration card. C for practicality. D- for possible corruption. F for ethics and admission of economic failure.

So the regime revived an old Rosales proposal of 2006, the "tarjeta mi negra" which was intended to give a pre loaded credit card to the poor so they could use it for only some specific services. Now it is a card from the Banco Venezuela, with chip and all, that will be given to social Mision holders. And probably will be used first as a ration card...  But in front of the black market crisis and the huge lines that the poor suffer the most and the impossibility that the country produces enough in the near future I suppose that we should look at it as the lesser evil. The real problem here is through which political hoops will people have to jump to get it............

Conclusion. D- (and I am generous)

I think that Maduro was forced into a plan that he did not want. His first intention (and Cabello probably) was to make a last stand, to take down Polar and see what happened (suffer a coup and leave as martyrs of the revolution?). The military knowing full well the unrest that massive shortages will result from Polar demise put a stop to it and had Salas fired (the point man of the PODEMOS wacko school from Spain). After all they would be blamed for the repression.

The creation of CAMIMPEG was immediately seen by all observers, and yours truly, as a way to hide assets from a likely bankruptcy of the state oil company PDVSA (amen of creating a gigantic military cartel, Sino-Korean style circa early years of their capitalism, or what has been done in Cuba already for its army). Expect more creations like that to shield whatever assets the regime can hide, and to bolster the army fortunes.

What happened today was the beginning of the exit of Maduro. The measures taken are woefully inadequate if they are not accompanied by less controls, some fiscal restraint, a loosening of labor market, quick investment in basic health care so workers can show up for work, etc. Yet they are anti chavista in nature, in particular the hike in gas price that Chavez promised that it would never happen while he was president (perhaps the only promise he ever kept, to our great disgrace). This is the unavoidable turn in economic policies and Maduro cannot take the helm. He pronounced them but he cannot run them, he will sabotage them if he must. So he is planing to leave (or some devious scheme to backtrack at some point, it is possible).

However the real benefit here is that the regime can now go to the IMF with part of its homework done and claim that the austerity measures were taken out of its own seriousness and not because they were imposed. Appearance of independence is preserved. Utter hypocrisy but in the end who cares if it helps us avoid starvation.  Too bad for them that what the IMF (or any lender) really wants is fiscal restraint and realistic exchange rate.

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Weimar or Harare?

Or was that a suicidal note from the regime?

I wrote earlier about the recent "economic policies" of the regime. But I need to add the latest from today, the de facto privatization of the Central Bank of Venezuela, BCV, to Nicolas Maduro and his camarilla.


In what is a gross constitutional violation Maduro modified through law decree the rules over the BCV. His enabling law did not allow him to do so, and the constitution either. Period.

Which are the modifications?

First, the National Assembly, NA, cannot name representatives to the BCV board of directors, they are now named all by the executive branch. That is right, the executive decides on its own on monetary and fiscal policies. No outside input or supervision needed.

Second, the new BCV is under no obligation to make its statistics public, that is, it will send them to the NA if the executive power allows for it. And apparently even then the NA cannot comment on them. One wonders how can the NA legislate if the most important statistics of the country remain hidden from view.

Third, the BCV can now lend to the regime whatever money it needs, and the conditions of such lending may remain confidential if the regime justifies of any crisis. That is, the banknote printing machine depends on whatever petty cash Maduro needs at any given day.

I need not insult the intelligence of the reader that if such a measure is not immediately overturned by the new NA we are going straight ahead into the wall of hyperinflation. Our currency is as of today is, well, worthless (today 847 to 1 USD, I bet you 1,500 by early February). Hello Weimar! Greetings Harare! We may just beat your records!

This suicidal action of the regime, because when hyperinflation comes in I have no idea how they will stop the people from Catia and 23 de Enero to come and burn down Miraflores Palace, has three clear intentions.

One is to avoid asking the new NA for budgets and their extension. Electoral needs will be covered directly through borrowing at the BCV, for example.

The second intention is to delay as much as possible the publication of the catastrophic economic news of 2015 which may well speed up the downfall of the regime.

The third intention, last but not least, principal in my eyes, is to hide the corruption, looting and mismanagement of the country under Maduro. When the numbers come in, when the NA is able to open hearings on some ministers like Rodriguez Torres, Osorio or the BCV director Merentes, these people will be unable to hide their responsibilities and penal measures will have to be required on the spot. Or these people will have to do a coup which would be hard to succeed considering the reasons why they will ask el pueblo for support. Henceforth the neutralization and privatization of the BCV.

I should add a fourth ancillary reason. Funding for Cuba will be very difficult through the NA. There will be a need to hide the looting that needs to maintain alive the Castro criminals. Blocking access to the BCV not only hides what was already given to Cuba but will allow for a year or two more of partial financing of Cuba. Then again since the country is all but bankrupt I wonder how much money can Cuba get anyway.

This, for me, is the worst possible thing the regime could do to itself. It is simply unthinkable and betrays the desperation of the regime and its willingness to disregard any rule, any constitutional obligation. But it also may show that the army is abandoning it. If they need to resort to packing courts and hiding the money it is because they cannot do a coup. Or so I hope for the sake of all of us.

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Meanwhile, let's check back at the ranch

While Caracas gets ready for tomorrow's hoe down let's check out what are the wheat and cattle yields at the ranch. The picture is grim.


It is certainly near impossible these days to get reliable figures of anything. So the devoted reader will have to take me at face value.

I can tell you that the animal protein production of the country is spiraling down, fast, as the regime is not allowing for the importation of what is required for animal feed. And since the Venezuelan crops are not too good, and must be used first for human feed (deficient amounts per se), you get the picture. For example poultry production stands at 50% of its potential and going down. Well, that is what I was told late November. I see nothing to improve that number and I suspect it is lower today.

If you want more subjective pictures hang around a supermarket. There are less lines. But because there is nothing coming in. If you are into luxury items like fresh produce, yogurt, milk, you can still sort of find. Yes, I include milk in the luxury items. The latest case of UHT milk I bought, "Mi Vaca" brand, cost me 3500 for 12 liters. That is 291 VEB per liter. In dollar it is nothing but in minimum wage percentile it is ruinous: 290/9500*100= 3.1% (rounding numbers).

That is right, the only milk available for the last three months represents 3% of the MONTHLY minimum wage for a single liter. I do not remember the last time I bought fresh milk; and powder milk at controlled price arrives, if ever, at some governmental store. For all practical purposes the regime has yielded and allows production of UHT skim milk with limited controls as the only occasional source of milk.

I can still manage because I do not eat either meat or arepas and I can afford milk, but I wonder how the hoi polloi makes it.

If you want even more subjective....  Tradition had that at midnight on Christmas eve and New Year's eve there were all sorts of private fireworks, some spectacular (people literally love to blow their money). In Caracas the smoke cloud used to be thick enough to dim the city lights. This is over. And poor pets went crazy days before as at anytime some jerk would blast out something somewhere. This is over too. Pets are happy. Christmas fireworks were sparse and lasted a few minutes. New Year's works did last a little bit longer than the ones on the 24 but the air remained clean and 15 minutes after midnight it was all over. The crisis has struck everyone, no money for fireworks this year.

And presents were scarce also. Not only the offerings were limited but the prices were out of reach. People offered food. A jar of imported marmalade was considered a nice present.

The real problem is unfortunately elsewhere. The regime is doing nothing. NOTHING structural. And the very few initiatives taken these past few weeks consisted in increasing taxes, put new controls and approve today, on the very last day of the outgoing assembly, huge special lame duck credits that basically leave the coffers empty for a while without Maduro needing to request money tot he incoming Assembly.

It is not idle to state that a lot of the last minute desperate maneuvers of the regime may be illegal since supposedly the Maduro cabinet was asked to resign a few days after 6D election. To this writing Maduro has yet to name a new cabinet and I doubt that a caretaker administration can request the funds demanded to an outgoing assembly that did not even bother to gather in full, letting such a momentous vote go to a "comision delegada", a substitute of congress strictly for control and emergency measures until the assembly can be called back out of its normal sessions.

All the recent measures, to give them a name, could have been easily accomplished through a feeble gas hike instead of increasing taxes and pushing further into the nation (the measures are special credits out of budget). The only rational explanation I can come up with is that the regime is planning an election in the next few months and is refusing to deal with the mess in the vain hope to pin it on the opposition.

Now I must stop, time to see if anything arrived at the grocery store nearby today.

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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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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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