Yes… but they’re not stupid. So, why is President Hugo Chavez doing something so arguably stupid to Venezuela, and potentially to the stability of his regime?
Chavez’s decision to shut down the parallel exchange market and concentrate all foreign exchange trading, including bonds, at the Central Bank is unsustainable.
The new state-controlled currency trading regime is already off to a terrible start.
Central Bank doesn’t expect to restart foreign currency trading for at least another two weeks, which means the economy is also stalled, particularly in the food sector.
Bear in mind that Venezuela depends on imports for practically everything the “pueblo” eats. We’re not talking just about the food itself, but also packaging, additives, mixes, blends, raw commodities and intermediate components.
The Venezuelan community at home and abroad was twittering ferociously today about ‘implicit’ black market rates of almost BsF 8.50 per $.
The Central Bank’s new system won’t start operating for at least another two weeks, and the ‘implicit’ (i.e. black market) exchange rate is already twittering to new depths. At today’s rate, it could reach new lows of BsF 10 per $ in early June.
In a few months at the outside, the new foreign exchange system will collapse, without a doubt.
The Central Bank does not have the foreign exchange reserves, personnel, systems and financial management capabilities that are essential for the efficient operation of a foreign exchange market.
Jorge Giordani, one of the most determinedly ignorant economic ‘experts’ in Chavez’s Cabinet, says the new Central Bank-controlled system will trade currency (including all dollar-denominated government bonds, now defined legally as currency) inside “bands.”
Some reports put these bands at BsF 5 to BsF 7, but who really knows at this point?
It really doesn’t matter at what levels the regime sets the new currency bands.
Currency markets are like mountain snowmelt in that both always find their own way regardless of the obstacles in their path. Melting snow on mountaintops reaches the rivers and oceans, eventually. And currencies always find their “real” market price, regardless of any state controls.
The Central Bank will have to burn a lot of hard currency to bring down the exchange rate, more than the $60 million to $80 million per day required just to keep the economy operating more or less smoothly.
But the bank doesn’t have enough foreign currency reserves to do this, let alone supply the economy’s normal daily needs.
Remember, also, that this new regime means that Venezuela now has four exchange rates, perhaps five: 2.60, 4.30, Central Bank, and the black market. The “real” rate, as we all know, is ALWAYS the black market rate.
The lower “official” exchange rates are intended by the government to help contain inflation, but in practice they’re always a system that everyone games for gain. And the first gamers in line to play the multi-tiered exchange system for personal profit are the senior satraps of the Bolivarian revolution including the president’s own family.
We said five exchange rates, perhaps: The fifth exchange rate could be another type of black market, described by one seasoned financial broker as a “formal black market offshore” – provided that the compliance departments of large banks outside Venezuela get assurances from their legal departments that this formal black market is legal insofar as the banking laws of their countries mandate.
Meanwhile, the Chavez regime still hasn’t said anything about Cadivi, which is billions of dollars in arrears with companies that already imported and sold the goods for which they originally sought dollars.
Technically, it appears that the new currency trading regime at the Central Bank means that the companies that applied for these Cadivi dollars won’t get them unless they reapply at the Central Bank.
Is everyone screwed? At VenEconomy, the informed guesswork is that large companies will get the foreign exchange they need at the Central Bank, but that small companies and individuals will get the shaft.
Chavez is pounding the drums against the oligarchic speculators. He is threatening to shut down all of the country’s brokerage firms and has threatened implicitly to seize the country’s private banks.
But the regime’s measures are going to hammer everyone, including the regime’s senior figures, its friends and allies.
It’s not just the oligarchy that’s chasing after dollars. Everyone in Venezuela is looking for foreign currency all the time, from the poorest to the richest and regardless of ideological leanings.
Chavistas, after all, are not autarkic, especially the gangsters at the top of the Bolivarian cesspool.
Crazy? Yes. Stupid? Perhaps Giordani and the other red jackasses defending this insanely destructive action are insanely stupid and Chavez’s obvious rage at the economic implosion of his revolution is provoking irrational responses.
But we don’t think that’s the case, though we concede that Giordani is about as close to self-made stupid as they come in this world.
Caracas Gringo believes that we are seeing the acceleration of a deliberate, purposeful strategy conceived and orchestrated with very substantial input from Havana to foster economic collapse and social chaos, in order to justify more aggressive political interventions by the regime including possibly the suspension of the 26 September elections.
Chavez and his Habanero owners are seeking to provoke violence, particularly within the armed forces, to justify unleashing brutal crackdowns against any groups – poor or opposition – that oppose the revolution.
The Castro regime has its fangs sunk deep into Venezuela’s jugular, and intends to stay there at any cost.
An important goal of this strategy, we think, is to “persuade” more Venezuelans to leave the country. Up to one million have already departed, by some estimates; most probably will not return even if Chavez gets smoked tonight.
The Chavez regime is moving inexorably towards a Cuban-style model with very rigid centralized state control over everything, including access to food and employment, and the elimination of all private property rights.
The ultimate goal: Cow the populace, suppress all dissent, and jail or force into exile all dissenters who refuse to kowtow. This is what happened in Cuba, and it appears that Chavez/Havana think this model can be replicated in Bolivarian Venezuela.