Fake Figures, Incorrect Theories and Lies about Venezuela

That 500% inflation for Venezuela in the current year is false. That’s the figure that been bandied about the lying US press. That comes from one very controversial IMF report. However, that report’s conclusions have been rejected by most other economists. A panel of 12 economists agreed that the true figure for Venezuela’s economy this year is ~150%. That’s pretty bad, but it’s not 500%.

The figures on exchange rates are wrong. One government dollar does not equal 80 black market dollars. That exchange rate is only for money the government gives to importers to import goods from abroad.

The importers want those dollars cheap like that, that’s why the government gives them out so cheaply. This belies the arguments that the government rate does not begin to even cover costs because the companies will have to buy the goods at the black market rate overseas. That’s just not so. The government gives those dollars out cheaply as an incentive for the importers. If it was such a horrible deal, they would not give the dollars so cheaply.

The official exchange rate is 400 bolivars to the dollar. The black market rate is 1,000 bolivars to the dollar. So the black market rate is only 2.5X the official rate, which is hot nearly as bad as I had thought.

Many products are readily available and have been since the start of the shortages. The shortages are mostly of staples and sanitary necessities. For instance, milk is always in very short supply, but cheese and yogurt have been readily available since the start of the shortages.

Coffee beans are very difficult to buy in the stores. However, on every street corner is a little store or cafe where you can buy a cup of coffee, so coffee itself is obviously not in short supply. It’s just that the beans are not being sold to retail markets for sale on grocery shelves. If businesses can’t recoup their costs on sales of goods, how come they can apparently recoup their costs easily on yogurt and cheese but not on milk? How come they can recoup their costs just fine selling coffee beans to retail coffee shops that sell cups of coffee but they can’t recoup their costs on coffee beans sold to grocery stores. That makes no sense at all.

Studies have shown that food producers are producing just as much food in total numbers as before the shortages. So the argument that producers cannot recoup costs hence they have stopped manufacturing and importing things cannot be true because if it were true, food production would have plummeted. If total food production is as high now as it was before the shortages, surely businesses have no problems recouping their costs. And if production is the same now as before, why would there be shortages of staples. Obviously those shortages are artificially created.

12 Comments

Filed under Economics, Government, Latin America, Regional, South America, Venezuela

12 responses to “Fake Figures, Incorrect Theories and Lies about Venezuela

  1. TJF

    To Rob:

    The official exchange rate is 400 bolivars to the dollar.

    FWIW, multiple sites indicate that it is roughly 10 Bolivars to 1 USD. Is the 400 to 1 an internal exchange..?

    http://www.xe.com/currencyconverter/convert/?Amount=1&From=VEF&To=USD
    http://usd.fxexchangerate.com/vef/1-currency-rates.html

    FWIW, as I stated in my previous post all my knowledge about Venezuela comes from the conventional press and is quite limited. I’ve read published descriptions, in the mainstream press,of foreign countries which I eventually visited (or had already visited) and often my personal experiences did not match the published accounts. Such mismatches between reporting and my own observations decreased when I started gathering information from unaffiliated online forums as they became more widespread in the early 2000s.

    • 400-1 is indeed the internal exchange rate.

      It’s quite all right if you are getting your data from MSM sites. I know your heart is in the right place on this issue. Also it is important to hear the crap that the MSM is saying about this country.

    • AC in NC

      This source suggests there are 4 different Exchange Rates with a difficult process of applying to get USD via anything other than the black market. While I’m not sure the source will be trusted, perhaps it’s a good jumping off point for independent verification.

      https://mises.org/library/venezuelas-bizarre-system-exchange-rates

      • AC in NC

        Sorry … Didn’t see the other source below

      • That’s a very bad source. Are you a free marketeer, AC in NC? Mises is going to lie like crazy about Venezuela.

        There’s no problem getting dollars to import stuff and there’s no problem getting dollars on the official exchange rate. The problem is that the government kept giving the capitalists cheap dollars to import stuff and they would say they were importing stuff but then refuse to do it and just use the money to play the currency markets. So after a while of this endless scamming, the state started getting a bit leery of handing out those cheap dollars.

  2. TJF

    The World Bank affirms your inflation data:

    http://www.worldbank.org/en/country/venezuela

    Population 31.11 million 2015
    GDP $371.3 billion 2013
    GDP growth -5.7% 2015
    Inflation 121% 2015

    An explanation for the different exchange rates:
    http://www.worldbank.org/en/country/venezuela/overview

    In early 2016, the government switched to dual exchange rate system, at the same time devaluing the lowest official rate by 37 percent, from 6.3 BsF per US$ to 10 BsF per US$ and ordering that the other exchange rate would be a floating rate.

    http://venezuelanalysis.com/news/11901

    Caracas, March 23, 2016 (venezuelanalysis.com) – Venezuela’s uppermost SIMADI exchange rate closed at 249.56 bolivars per dollar on Tuesday, amounting to a 42.64 increase since the government instituted a partial float on March 10.

    That was in March so I would guess they have adjusted the rate higher subsequently.

    • Wow they did float their currency! Or partially float it. One would think that that would begin to take care of some of the economic issues right there. It’s my opinion that a lot of the economic mess is flowing directly out of these exchange rates and in particular that black market in currency.

      Also I would think that 150% inflation could be workable. Crazy but workable. You must understand that 20-30% inflation is pretty much normal for Venezuela and has been normal for decades now. If you want to know why Venezuela has such high inflation, look into something called the Dutch Disease.

      500% inflation is just insane. That’s not a workable situation at all. Total chaos.

    • AC in NC

      Reviewing those sources, it seems like the revenue and profits from “Essentials” acquired based on the lower 10-bolivar “protected” rate would be sufficient but only insofar as the proceeds are used to purchase other “Essentials”. If there are import-related supplies, replacement parts, non-essential staples, or luxuries and to the extent that wages in these business need to accommodate import-related non-essentials, then the 7% of the governments SIMADI transactions and the black-market rate effectively serves as a very steep tax (96% SIMADI; and higher for the black market) on non-esseential expenses and profits.

      That establishes a very significant incentive to avoid selling goods based on SIMADI prices. Moreso with the floating rate if it keeps trending toward more inflation.

      Do we know what’s on the list of “Essentials”?

      • Milk, coffee beans, rice, stuff like that.

        Thing is, all the import are those non-essentials. Rice is price controlled, so they import Rice R Roni. Chicken is price controlled, so they sell rotisserie chicken. Most stuff on the shelves is in good supply. There’s only shortages of staples and some personal hygiene stuff like toilet paper, tampons, condoms, toothpaste, stuff like that.

        Coffee is price controlled, but if it’s so hard to get your money back selling coffee, then why is there a coffee shop on every corner.

      • According to you and the rest of he Opposition, the price controls are horrible. But then you go on about inflation. You realize the price controls were put it as an anti-inflation measure? So you are complaining about inflation and then complaining about the things being done to fight the inflation.

        Similarly, you guys were going on and on about how terrible the gas subsidies were. Ok now the gas subsidies were reduced in a big way, and now you are complaining about how much inflation that caused. You guys were going on about how there needs to be a devaluation the currency, and then the currency does a partial float and you guys are complaining that this caused lots of inflation.

        You can’t win with you guys.

      • AC in NC

        Robert:

        I am somewhat a free market support but I recognize the need for significant regulation. It just must be done carefully or people can circumvent it and bad side-effects occur. I seek to understand human nature and its relationship to policy.

        Coffee? I’m assuming based on the chicken/rotisserie chicken example that the price control is only for the beans, not the value add product. The guy running the business isn’t running a business to make a fair market of the beans and then have to turn around and pay non-price controlled prices for non-essentials he needs. As I said, the two-tiered valuation is like a 97% tax when selling price controlled goods.

        The World Bank source was talking about Venezuela monetizing its debt. Monetizing debt (state-sponsored counterfeiting) will cause inflation. Classically, inflation is an increase in money or in this case currency. The price increases are a side-effect of the increase in monetary base. The price control isn’t going to counter inflation, it’s simply going to ameliorate the effects to the extent that the actors in the system behave as the government wants them to. The private market simply won’t do that. It’s human nature. I assume they can do it with gas because they are running the show. If they want it to work with rice and staples, they’ll have to do it that way as well, but then they’ll have to ration as well as otherwise people would convert Bolivars to hard goods in order to protect against inflation.

        The devaluation in the two-tiered system doesn’t do a whole lot of good. If they keep going the way they are going, they are going to keep driving inflation until the system collapses and they reset.

        There is a device I use to evaluate regulation. Regulation is like trying to move water with one hand. The hand being the regulation and the water being the desired behavior. Most government regulates in a way that is like trying to desparately grab a fist-full of water. The water squirts out of this fist and nothing is accomplished. The water squirting out is like the raw chicken vs. rotisserie chicken. To move water, you have to gently cup your hand, carefully get what can fit, move it deftly, and try not to let it drip out between your fingers.

        It’s not that you let the market be completely free. You ring-fence the market and let it otherwise be free within the constraints. If the price of something goes high, then someone will find it’s worth producing that or the consumers will shift to other goods (elasticity of demand).

        Reality and Human Nature will always do what they do regardless of our attempts to wish it otherwise.

  3. Stary Wylk

    Perhaps cheese and yoghurt are available and milk less so because they are preserved milk that doesn’t need as much refrigeration.

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