A notable moment. After issuing fawning praise for a convicted terrorist and murderer, he steps from the podium at the Mandela memorial and shakes hands with the first available, Latin American communist. | Submit your comments on this article |
| Caribbean-Latin America |
| Venezuela's Shortages: 15 years in the making |
| 2014-03-09 |
| [NewRepublic] A recent New York Times article about the protests in Venezuela reported that "demonstrators condemn a wide range of perennial problems, including... shortages of basic goods like sugar and toilet paper." This has become a meme in coverage of the unrest, as just about every story mentions these "shortages" as a reason for the student demonstrations. The word has become a kind of shorthand for the chaos and decay of the Venezuelan economy, driven by bolivarian socialism's uniquely self-destructive mix of economic policies. But how, you might wonder, does government policy cause a toilet-paper crisis? Any journey down the rabbit hole of chavista economic management has to start with Venezuela's deliriously dysfunctional currency exchange control system. Unlike a normal country, where you can trade U.S. dollars with local currency at whatever price the market will bear, the Venezuelan bolivar is fixed at 6.30 per dollar, and sold discretionally, only to those the government deems worthy. This worthiness is established on the basis of an enormously cumbersome and corruption-prone administrative process. The real problem isn't the red tape, though. The real problem is that 6 bolivars and 30 cents is an insanely low price for a U.S. dollar. Venezuelans will gladly pay 85 bolivars for a dollar, even though doing so is technically a crime punishable by up to 6 years in prison. Having two prices for the dollar makes figuring out what things cost in Caracas something of a philosophical imponderable. The Economist Intelligence Unit's 2014 Worldwide Cost of Living survey, released Tuesday, ranked Caracas the sixth-most expensive city in the world--tied with Geneva, Melbourne, and Tokyo. Of course, that's only if you figure it at the official exchange rate. At the more realistic black market rate, as EIU itself notes, Caracas is one the cheapest big cities on earth. Government propaganda has long blamed the escalating shortages on an "economic war" launched by the CIA, alongside the economic elite, to topple a brave but embattled revolutionary people's government. But importers--many with close links with the regime--skirt currency controls not to destabilize the government, but because government policy makes skirting controls fantastically profitable. For this, President Nicolas Maduro's administration, like Hugo Chavez's before it, has no one to blame but itself: the way arbitrary price controls--and especially price controls on foreign currency--multiply perverse incentives, punish honest work, and channel outsized profits to people doing work of no value to society is one of the best understood phenomena in all of economics. |
| Posted by:Pappy |
| #3 The Venezulan monetary split with an official exchange rate and a black-market one side by side leads where it normally leads, e.g. to anyone with an import license actually engaging in currency arbitrage, with imports a side market excuse. So, basically, real imports stop, while the importers play money games to keep their heads above water, because they have to deal with the real world outside the restricted zone. (You have to bear in mind, importers work both sides of the fence as part of the job; they have to be on both sides at once.) |
| Posted by: ed in texas 2014-03-09 15:07 |
| #2 A notable moment. After issuing fawning praise for a convicted terrorist and murderer, he steps from the podium at the Mandela memorial and shakes hands with the first available, Latin American communist. |
| Posted by: Besoeker 2014-03-09 14:33 |
| #1 Unlike a normal country, where you can trade U.S. dollars with local currency at whatever price the market will bear, the Venezuelan bolivar is fixed at 6.30 per dollar, and sold discretionally, only to those the government deems worthy. This worthiness is established on the basis of an enormously cumbersome and corruption-prone administrative process. Not to be confused with the Fed's management of 'quantitative easing' which induces inflation on common goods, like food and gas, while raising the value of paper and mortgages held by money and lending institutions (caught with such over priced speculative holdings in 2008/9). The same institutions that members of the Fed and Treasury will return to work at/with upon their completion of their tour with government. |
| Posted by: Procopius2k 2014-03-09 09:04 |