Tuesday, October 09, 2007

...like there's no tomorrow... 

Of late debate has been raging in the comment section on whether Venezuela is handling its economy properly of late, and more specifically is it investing to ensure future growth on less dependence on oil, or has it simply engaged in a massive consumption boom fueled by windfall oil revenues.

Over the last few days Chavez sure seems to have given some hints:

First he gives teachers a 40% salary increase. Of course, teachers the world over tend to be underpaid so maybe this is justified.

Second, yesterday he gave doctors a 60% increase. Remember, these are the same doctors who fought Mission Barrio Adentro every step of the way.

Finally, to top it all off yesterday he decided to give the most highly paid workforce in Venezuela, the oil workers, up to 130 million bolivares ($60,000) in loans to purchase new homes (as if they couldn't afford to buy homes on their own given their salaries).

This last measure is particularly ironic after Chavez fought to get PDVSA out of its country club culture now maybe he has decided it isn't such a bad thing to put them back in it?!?!?!?! Why oil workers who makes many multiples of what most other Venezuelans earn can't go to a bank and get their own loans for their houses is completely beyond me.

In any event, the direction of all this is very clear - spend, spend, and spend some more - tomorrow be damned. The link to the doctor's increase is particularly illustrative of this mentality. Chavez apparently realized that the price of oil has gone up $4 more per barrel, he did a back of the envelope calculation, and he decided he could afford to give the doctors a big raise. Of course, that this money had potential alternative uses such as maybe building some industry or paying down debt seems to have been overlooked and was not considered a good use for the money.

People often argue that there is something "inevitable" to inflated currencies, spending binges, and inflation during oil booms. That is simply not true. No one forced Chavez to spend the money like this - he DECIDED to do it. He could alternatively have put the money in the macro-economic stability fund to save for some day when oil revenues are not so plentiful, but he CHOSE not to.

And lets note, these are huge salary increases. The doctors will get 60% more bolivares every month. Yes, but inflation is 15 or 20% you say so they won't really get the fully 60% increase you say. Yeah, that is partly true. But they can get damn close to the full 60% as long as they don't do anything stupid, like buy something actually made in Venezuela. As long as they buy things coming from the good old U.S.A. they get the full 60% increase because every single dollar still buys 2,150 bolivares and that hasn't changed - there is no inflation with respect to dollars and hence no inflation on imports.

Yes,in Venezuela, there is a consumption boom. Yes, inflation is high. Yes, the bolivar is overvalued. Yes, imports are crowing out Venezuelan production. But none of that has to be, none of that is inevitable. It all results from conscious decisions like the ones listed above.

You want different results? Make different decisions. It really is that simple.


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