Tuesday, January 01, 2008

The mafia did it? 

A few days ago the Venezuelan government announced that it was cutting the allotment for people to make Internet purchases in dollars with their credit cards from $3,000 annually to $400. As I pointed out previously, Venezuela is wasting way to much money funding a middle class consumption boom when that money could be better directed towards necessary social programs and industrial development.

In so much as this measure is a recognition of that problem and will cut down on at least some of this waste it is welcome.

However, because it is a half measure, doesn't get to the heart of the problem, and possibly worst of all, has been incorrectly explained it is possible this could wind up doing more harm than good.

First, here is Finance Minister Rodrigo Cabezas's explanation phoned into a TV talk show:

Haz click en cualquier video para verlo
Puedes ver otros en radiomundial.com.ve

Now, Cabezas's did say at least one thing right - that the interests of the country as a whole are more important than any particular interests and that it is the government's job to look out for the good of the entire nation. He also pointed out that the country needed to prioritize its social programs, the importation of food, and industrial development over other consumption (Bravo!!). But unfortunately everything else he said was either wrong , undercut those points or simply served to confuse.

For example, in justifying the reduction in credit card dollar purchases he said that they had climbed to unacceptably high levels (absolutely true) because some mafiosos had been abusing them (silly, stupid, wrong and VERY, VERY scary if he really believes that). The use of credit cards to purchase things in dollars has skyrocketed for the same reason all other ways of spending dollars have skyrocketed - the dollar has been pegged at a fixed level even though inflation is high in Venezuela so dollars have become very cheap relative to everything else.

Bolivares spent on taking a vacation to Margarita Island don't buy nearly as much as they did three years ago. But Bolivares used to buy dollars (and in turn spent on buying things from abroad) get the same amount that they did 3 years ago. Consequently, people are spending more money getting dollars and buying imports than they are on buying Venezuelan made products or vacations to Margarita. This has absolutely nothing to do with any Mafia and everything to do with people acting completely rationally based on incentives the government is giving them. The only reason that silly and stupid "mafia" reason is given is Cabezas and his boss are probably afraid to tell the Venezuelan public the truth - that they are simply consuming too many imported consumer goods and they all need to cut back.

By giving such an absurd and false explanation of what the problem was Cabezas's has simply created confusion and anger where what the government really needs (and would get if it explained things properly) is understanding and support. When people are told that a few criminals are causing the problem the thought that pops into their mind is "why am I being punished and prevented from buying what I want because of a few criminals, why not just catch the criminals?"

Of course, the real problem isn't criminals but just average Venezuelans who are buying too many imported consumer goods and that consumption needs to be cut back if the country is to progress. If that were properly explained, the people like Luigino Bracci would understand it and support it. But because of Rodriguez's silly statements they think they are being treated unfairly.

And if the explanation of this measure weren't bad enough it is also being done as a half measure which will only impact some, mainly middle class, while leaving the more affluent unaffected. The reason is that it is only Internet purchases that are being reduced. If you are lucky enough to get a visa to the U.S. and can afford it the government will still give you up to $5,600 dollars to travel abroad. So those folks will still make out like bandits as they snap up what are for them inexpensive consumer goods in malls in Miami while people who can't leave Venezuela are now cut off from those same goods.

That of course creates bitterness and resentment among middle class Venezuelans as they are in effect asked to make more sacrifices than the rich. And it doesn't help that pro-Chavez National Assembly Deputy Calixto Ortega was photographed just the other day shopping for gifts in the MCM Grand Casino in Las Vegas.

No $400 spending limit for this "revolutionary"!!

So much for leading by example.

Finally, Cabezas was emphatic that there will be no devaluation of the Bolivar in 2008. That is certainly not good, given that a overvalued currency is what is at the heart of this problem to begin with.

To defend THAT bad decision he simply stated that Venezuela had enough revenue to keep the current exchange rate. And that is true, if they are only interested in "sowing the oil" in shopping centers. But if they actually wanted to have the resources to develop the country....

Needless to say he also never mentioned the impact that such an overvalued currency has on any potential Venezuelan exports and even on local industry.

So when seeing the anger and confusion surrounding these measures among the Venezuelan public you can't blame them. It's not their fault. It is the fault of the government because it hasn't properly explained what is happening and why.


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