Reply #11: Nothing obvious to me aqs you see it [View All]

And I'm a professional in the field. Let me try to explain to you the way it works here:

The government has two official rates, the 2,6 and the 4,3 bolivares per dollar. The ability to get dollars at those rates depends on the organization/individual's ability to deal with the CADIVI bureaucracy. CADIVI has the dollars to assign to the buyers. There are two types of buyers, one is the bona fide importer trying to bring goods, and two there are what we call Boligarchs who are people tied into the ongoing government corruption chains.

But the key issue is that CADIVI doesn't issue dollars to all those who ask for them. So the "parallel market" emerged. The government declared this market illegal, so it became a black market. Because the demand for dollars was intense, the parallel market shot up (I can't quote the rate because I can be jailed for doing so). As the rate shot up, businessmen trying to import goods who could not get dollars from Cadivi went to the black market, paid whatever they had to, and got dollars to bring materials in. This amounted to anything from a refrigerator to spare parts for motorcycles, to shirts and books.

When the government realized the black market rate was getting out of hand (that was about two years ago), they started selling US deniminated bonds which could be paid for with Bolivars. And PDVSA itself started selling blocks of US dollars it got from oil sales straight into the black market. This kept the black market rate at a "decent" level.

However, the economy has been doing very poorly, PDVSA has been running low on cash, and the government has been borrowing a lot (and those bonds are junk, so they fetch very high interest rates). So the result has been a lack of dollars going into the market, which has driven the bolivar down. And since a lot of what is spent in that market is meant to buy imports, then those imports cost more in Bolivars. Which means inflation kicks up even more.

So as you can see, the inflation we see, the bolivar crash in the black or open market, are a result of the government's inability to provide dollars to fit the demand. Their new policies are going to make matters worse, because if people can't find the dollars to buy imports, then there's going to be enormous scarcity.

Why scarcity? Because under Chavez the nation's productive capacity has withered - he either nationalized industries which go on to perform poorly, or he scares the private sector, so they don't invest (why invest if the government is going to steal what you bought?). So we are in a perfect storm, a real mess - inflation raging at over 30 % per year, the economy dropping, a government with stupid policies which are about to choke off trade and production, a middle class in panic, many of them refusing to act because they're afraid they will be taken to jail as "profiteers", and many trying to flee with whatever they can. The brain drain is horrific, the universities have whole classes in the post graduate side deserted, doctors are leaving in large numbers, so are engineers, anybody who speaks english and can get a visa or a job is gone or planning to leave. And those red-clad fat guys you see surrounding Chavez are mostly a bunch of incompetents. Many of them had mediocre college careers, some of them are known criminals, and they are completely unable to even grasp how to pull themselves out of the hole. And this is why soon you won't see me posting from Venezuela anymore. I'll be elsewhere, and good riddance, the country is gone.