Venezuela's Chavez devalues bolivar currency again

[Zorro]

Source: Reuters

Venezuelan President Hugo Chavez's government devalued its bolivar currency for the second time in 12 months on Thursday, abolishing the lowest exchange rate as the OPEC member fights to revive its economy.

Intended to spur local production in the largely import-dependent nation, the announcement followed a central bank estimate that the economy contracted 1.9 percent during 2010 -- Venezuela's second straight year of recession.

The central bank said it would eliminate the exchange rate of 2.6 bolivars per dollar, which had been available for essential imports such as medicines and some foods, accounting for roughly a third of all forex transactions.

The socialist government hopes the move will attract foreign funds, improve its balance sheet and make the local private sector more competitive.

Read more: http://news.yahoo.com/s/nm/20101230/wl_nm/us_venezuela_currency_2

[Fearless]

1. Oh this is going to be fun...

:popcorn:

[DCKit]

2. Hey Zorro, explain this to the rest of us. What are the implications? nt

[Zorro]

7. Imported goods get more expensive

[DCKit]

8. Thank you. I don't see that as a bad thing for people who are only concerned with...

food and housing security.

[boppers]

11. Already at 26.9% inflation for 2010

Yikes.

[ChangoLoa]

22. Food is imported in Venezuela

At least 3/4 of it.

[Tejas]

23. At least he got a bargain on the 100,000 AK-74's

and a "few" tanks from Russia.



In before the Chavez-apologists!

[UTUSN]

3. K&R #3 for, who woulda thought LBN could be so fun!1 n/t

[Commie Pinko Dirtbag]

4. Chavez? Or the Central Bank of Venezuela?

These headlines make it look like Chavez micromanages every little thing there.

[Zorro]

5. Well, Dirtbag

You think the Central Bank of Venezuela would devalue the currency without Hugo's approval?

[Commie Pinko Dirtbag]

6. Do you know something about their decision-making process that we don't?

[Name removed]

9. Deleted message

Message removed by moderator. Click here to review the message board rules.

[social_critic]

64. Hugo Cesar controls the exchange rate

The Venezuelan central bank follows the President's line. The system was reformed to make the bankers answer directly to the executive.

The annoucement was made by the Minister of Planning, Giordani.

http://english.eluniversal.com/2010/12/30/en_eco_esp_venezuela-announces_30A4912931.shtml

Today's Venezuela is quite different from most democratic nations, because the President has been able to gather unto his office a lot of powers which are usually shared. Here's a brief article discussing this topic

http://english.eluniversal.com/2010/12/30/en_pol_esp_jose-miguel-insulza_30A4913011.shtml

[COLGATE4]

10. No, certainly the Central Bank would make a major monetary

policy move that can have profound effects on the Venezuelan economy without consulting with the President. How silly of us to assume otherwise.

[robcon]

12. The president who rules by decree would have no input into the currency value.

Of course not. :sarcasm:

[sabrina 1]

14. You mean like our president?

[robcon]

36. No, not like the U.S. president; like a president who rules by decree.

Our president presides in the three-branch government: executive, judicial and legislative.

Chavez operates in a one-branch government. Chavez is in charge, and can make up laws, enforce them and hire/fire anyone at will.

[sabrina 1]

40. Our president can rule by decree also. As George Bush did.

And using those new powers, our current president has issued an order to assassinate a U.S. citizen. I wish our presidents would use these powers to do some good for the American people as Chavez is doing though.

Btw, has Chavez issued any assassination orders 'by decree'? Has he named anyone an 'enemy combatant' depriving them of access to any judicial system?

I'll get excited when I see him doing things like that 'by decree' or any other way.

[Rage for Order]

47. "Look! Over there! A subject change!"

Must...change...subject...cognitive...dissonance...too...strong...

:rofl:

[sabrina 1]

48. Well, I see that's what you're trying to do. But I'm pretty

immune to that tactic. So, I'll ask you again. Has Chavez used his presidential powers to order the assassination of Venezuelan citizens without trial?

Has he used his powers to order the years-long detention of human beings without charges and without trial?

Chavez IS the subject of this thread isn't he? :hi:

[Rage for Order]

49. He very well may have

The unvarnished truth usually doesn't emerge until a year or two after an administration has left office and official documents are leaked or released by the new administration.

[sabrina 1]

51. No, actually, he has not.

In fact he did not even take revenge and ordered that others not do so either, on those who joined the CIA backed coup to try to oust him. He was very lenient with them, which was in fact a mistake in at least one case.

I am really sad to see to see how progressives have been indoctrinated against Venezuela since 2004 when you would have to search very hard to find anyone on a democratic board who had fallen for the anti-Venezuela propaganda. But back then we thought Kerry opposed the Bush Administration policies towards Venezuela, one of the reasons he got our support. I remenber a petition going around progressive boards asking Kerry to support Venezuela against Bush's policies.

This is how it works though. The Global Corps, the ones Chavez has stood up to, control our politicians and I can see now that when Progressives were fully supportive of Venezuela and opposed to the U.S.'s policies in that part of the world, all they had to do was to get Democrats elected who would go along with their policies, and the 'base' would follow. It is an excellent system. Now progressive support Bush's policies towards Venezuela and we don't have to go to rightwing boards anymore to see the anti-Chavez propaganda, like we used to have to do.

They've got it all figured out. The only people I used to have these kinds of arguments about Venezuela with until after the 2006 election, were Republicans. They are being fooled also I now realize.

[Rage for Order]

52. Sorry, but "Progressives" don't seek to rule by decree for 18 months

Chavez is no Progressive. He's not evil incarnate, as some seem to believe, but he's certainly exhibited some troubling tendencies. In the end it doesn't matter much to me; I don't live in Venezuela, and I don't plan to live there, so it's simply an interesting case study to me, something I find interesting and watch from afar.

[sabrina 1]

53. What makes someone a 'progressive'?

[Selatius]

63. "Progressive" is an American invention.

As long as the Venezuelan Federal Constitution is in effect, it is dubious at best to apply standards enshrined in the US Constitution or even American morals and mores on top of some other country's constitution, much less their own morals and mores.

By American standards, he's about as dictatorial as Abraham Lincoln was during the Civil War or Woodrow Wilson during the First Red Scare in the course of World War One. FDR also qualifies, since, like FDR, Chavez also attempted to stack their equivalent of the Supreme Court.

The point is the term changes definition depending on which group of people you talk to. People here think he's a thug. Down there, they see him as their president.

[sabrina 1]

75. I agree with most of what you said.

Generally speaking in the U.S. 'progressive' is understood to be 'democrat'. What is surprising if you accept that people posting on democratic boards are 'progressive democrats' that would mean they subscribe to the 'people's party' platform and that should automatically cause them to approve of a government, like the Venezuelan Government, which has made its poor and working class their priority in terms of who needed the most help, financially, educationally, health care etc.

That WAS the case back in the early Bush years. What I am puzzled about is when did 'progressives' change their attitude towards Latin America, or has the Democratic Party itself changed since then, or is it merely politics. The support for the Chavez Government by progressive democrats was not really about principles after all but about politics? If Republicans were doing it it should be opposed, but when Democrats do it, it's to be supported?

I remember when every democratic board I was posting on opposed U.S. policy towards Latin American countries like Venezuela and the excitement when Carter praised the elections there, as opposed to what was going on here at the time.

The documentary, 'The Revolution Will Not Be Televised' which was all but banned under Bush here, was an award-winning documentary elsewhere in the world. Highly respected jounralists like Robert Fisk wrote often about how the U.S. was a threat to the emerging democracies in Latin America under Bush, and I never came across a progressive democrat who did not agree.

So, what changed? Chavez has been reelected over and over again, he has reduced poverty in his country by a huge % and all but eliminated illiteracy in just ten years. He has given women, formerly illiterate women, the power to vote with understanding of the issues (as many have stated when asked why they support him).

I understand why the right hates him. He is not going to maintain the imbalance of wealth in his country by constantly propping up the rich, but what happened to progressives regarding U.S. policy in Latin America?

[Zorro]

50. The subject of this thread is the devaluation of the bolivar

[SOS]

119. Paul Krugman on currency devaluation:

How about Britain, which saw a strong recovery from its economic doldrums after it devalued the pound against the mark in 1992?

— And Sweden, which recovered from its deep banking crisis in the early 1990s with an export boom, driven by a devalued kronor?

— And South Korea, which roared back from its 1997-1998 economic troubles with a strong export boom, driven by a depreciated won?

— What about Argentina, which also roared back from its 2002 crisis with an export boom, driven by a depreciated peso

Did these currency devaluations cause you consternation?
Or just when Venezuela does it?

[social_critic]

65. Chavez does rule by decree

The amount of power given to Chavez by the outgoing assembly is way beyond the power a US president has ever exercised, as far as I can see. I see you are not very familiar with events in Venezuela, so it's understandable why you look at it through a US lens. But it's clear the recent law which gives Chavez the ability to rule by decree amounts to the elimination of the powers of Congress. An outgoing Congress gives such powers to a President, when it is a few days from the end of its term, and yet you support it? they are delegating the powers of an incoming Assembly which also happens to have a much larger representation by the opposition. So what about the popular vote, which elected the opposition to the Assembly with a majority of the national vote? Do you think the Chavez supporters are playing fair?

[muriel_volestrangler]

19. Decisions about a fixed exchange rate used for a third of transactions aren't 'micromanaging'

Frankly, it'd be more worrying if the bank had that much control over the country's economy without any democratic accountability.

[AlphaCentauri]

79. don't you dare to question the anti-Chavez squad

:sarcasm:

[Dreamer Tatum]

13. Taking a page out of the Bush Admin playbook. I guess Dear Leader was watching.

Funny how he tries to attract foreign dough with his left hand, while seizing private property with his right...

[joshcryer]

15. Anyone know how this helps those harmed by the flooding?

[hack89]

31. It hurts them

by contributing to inflation and increasing costs for food and other basics.

[Ghost Dog]

62. It hurts them

by encouraging and improving returns for those who produce food and other basics in-country, rather than importing via the multinational mega-corps and paying with (not unlimited) oil?

[hack89]

66. It didn't work the first time

why do you believe it will work this time? There are reasons their economy is shrinking while inflation is 30 percent - there is no reason to believe this move will make things better. Just where is all the capital needed to turn Venezuela from a net food importing country going to come from? That whooshing sound is capital flowing overseas.

[Ghost Dog]

71. I don't see why much more than well-organized human capital is required

to sensibly cultivate the land.

Who needs corrupt self-serving bankers for this?

[hack89]

85. Old fashion capital is still needed to prop up the oil industry

oil is the shaky foundation of the Venezuelan economy - without oil revenues everything falls apart. Considering that oil production is steadily falling due to mismanagement and aging infrastructure, all the well-organized human capital in the world is not going to help them.

[Ghost Dog]

89. That's the situation that needs to change,

right?

Edit: I've criticised, in Cuba the unbalanced, as I saw it in the late '90's, Cuban economy, along similar lines.

Too much plastic oil-dependent (in their case imported) industrial food.

[hack89]

91. They have nothing that will generate wealth like the oil industry

and you cannot lift millions out of poverty without generating wealth - it is not enough that they have enough to eat. The oil industry, like any industry, is capital intensive. Infrastructure, technology and expertise is expensive regardless of the industry. Venezuela does not have enough of any of these to grow their economy without outside capital.

[Ghost Dog]

94. If the land cannot sustainably support such a population,

then such a population is unsustainable.

I understand, from reading "History Will Absolve Me", that the population of Cuba was not much more than two million at the time of the revolution.

Now, it is closer to ten million (plus, diaspora).

Human population self-control is absolutely necessary, everywhere.

[hack89]

98. Short of genocide or mass starvation

how do you propose that Venezuela gets their population down to a manageable level?

[Ghost Dog]

101. Birth-control,

of course.

The math works. >It only takes a couple of generations. China knows.

[hack89]

104. China used coercion and forced abortions

I can't imagine you support that. Venezuela is a Catholic nation - I think your solution is a non-starter.

[Ghost Dog]

105. I would prefer to see application of education and intelligence,

rather than "laissez faire",

or, as appears to be the "American way", recently, worse.

I'm not at all familiar with Venezuela (most folks who migrate to around here (Canary Island of Fuerteventura) are Columbians), but I'm fairly sure that Bolivarian Venezuela is not under the thumb of the Catholic Church, precisely.

[hack89]

106. The Catholic Church is big in Venezula

Chavez professes to be a practicing Catholic.


http://en.wikipedia.org/wiki/Roman_Catholicism_in_Venezuela

[ChangoLoa]

115. Nah, not really. I'd say religion is more important in the US. nt

[ChangoLoa]

116. China is already regretting its past policies

They'll soon have a European style demographic tree, with a low proportion of actives/dependents. They'll have to manage that problem as an under-developed economy. It will be the first case in economics.

Venezuela is in the middle of its bonus period (lowest possible % of dependents). Demographically speaking, it is the most favorable moment of the country's history.

[joshcryer]

83. Regarding agriculture, for the longest time they were just cattle producers.

http://www.fas.usda.gov/pecad/highlights/2005/07/july2005/venezuela_jul05.htm

This is out of date though.

http://monthlyreview.org/090824shiavoni-camacaro.php

That is more updated, they changed their agriculture dramatically already.

They need to be able to manufacture electronics and other things locally.

[social_critic]

97. Venezuelan agriculture is in decay

Those of us who see the real results can confirm all of this propaganda you post is vapor ware. State owned combines and comunes don't produce much. They have a few showcase enterprises they put on TV adds. They take leftist actors and celebrities to visit these places, but the overwhelming majority of these communal and state owned agricultural units are a shambles. Most of them don't produce anything at all.

They don't need to manufacture electronics. Before they get to it, they could use simpler things, such as making quality furniture. But most furniture worth buying is brought in from Colombia - local made furniture is rough, ugly, and low quality.

Furniture is just an example, there are lots of basic things they need to do, but government policy is contrary to the development of local industry. As a matter of fact, they have been destroying local production capacity. For example, they nationalized cement plants, and today cement production is a lot lower. The same applies to steel, oil, glass containers, or any other industries taken over by the chavistas.

I don't think you understand the extent of the decay we are seeing. This is reflected in the high inflation rate for food and other basic household goods. And this, coupled to the crime rate and increasing unemployment, is what has turned the poor against the Chavistas.

[joshcryer]

110. I tried to find updated statistics, if it is propaganda that may be why it is hard to find.

I cannot find anything past 2005 about the state of their agriculture. If they're still growing cattle then I can see that it is terrible.

[ChangoLoa]

90. That old neoliberal adage 'devalue for competitiveness' is clearly a failure in Venezuela

Venezuela has devalued its currency by 600% in the last 10 years. From 700 u/$ to 4,300 u/$ (4.3 new units, 'bolivar fuerte' replaced old bolivar in 2007). Devaluation doesn't work because the basic consumption products and the capital goods are almost all imported. The inflation is constant and prices/costs catch up too damn fast (following the price of imports) for any activity to develop.

What Venezuela needs, IMO, is to protect (quotas, tariffs) some strategic sectors of its industry and agriculture.

The devaluation is useless for productive development in Venezuela. Its goal is only to decrease the fiscal pressure on the budget. Remember the Venezuelan State obtains around half of its income from oil, in dollars. Therefore, when the fiscal dynamic is not supported by the oil income anymore, the govt needs to devalue in order to obtain more bolivares for its $ and pay the budget.

[social_critic]

96. A weak currency helps but inflation has to be tamed

The neo liberal solution, to weaken the currency, works if done right. But Venezuela suffers from hyper inflation, therefore the devaluations don't keep up with inflation.

Venezuela also has to deal with the oil income stream, which distorts the bolivar exchange rate - makes it stronger than it would be otherwise. This is called "Dutch Disease" because it happened to the Netherlands after the discovery of the super giant Groningen gas field in the 1960's. They were exporting so much natural gas, the guilder became too strong and industry began to suffer.

In Venezuela's case, the obvious answer is to decrease the cash inflows from oil by parking the cash in an offshore stabilization fund. But a populist government which relies on cash handouts and is run by people who don't really understand economics would never consider such a move. Thus the B will stay strong, and local producers will continue to be stressed. If we add the irrational and overly complex labor laws, the lack of stability, the nationalization and theft of businesses and lands, the result is obvious, the country isn't about to resume economic growth, period.

I predict increasing lack of spare parts, spot food shortages, definitely imported good shortages as the government blocks currency flows for imports, and decreasing economic activity in the private sector, which is the one creating wealth - government owned enterprises are all suffering from lower productivity if not outright collapse, as we have seen in the cement plants, oil production, and food production.

The increasing malaise, and lack of economic future, will lead to increasing middle class flight. They are leaving in large numbers, and flight will increase this year to much higher proportions as the government implements more repressive measures and behaves more erratically. The flight of the middle class will then lead to more decay in infrastructure - those who know how to get things done and fixed will be elsewhere. To this we can couple the mounting unrest in the labor ranks as inflation erodes their earnings, and unrest on the part of the poor as they become desperate due to high food prices, crime, and lack of housing. The end result, a nearly ungovernable country which will be subjected to severe repressive measures to keep the people under control. Not a pretty picture.

[Ghost Dog]

107. Yup. 'Fraid so. Maybe Brazil we be able to help sort it out.

Certainly, USA should stay far away.

[joshcryer]

111. Thanks for your insights. Where is the middle class fleeing to?

Which neighboring country?

[ChangoLoa]

114. To Europe and the US/Canada mostly.

Spain is one of the favorites.

[ChangoLoa]

113. Not automatically, it depends on the context

In the case of Venezuela where investment (capital goods) has a very high proportion of imports, the devaluation is clearly not a solution. It's just a very pro-cyclical restrictive budgetary policy.

What you say would work for a country with a functioning productive capacity already competing with foreign producers. In Venezuela, we need to (re)create that capacity first.

Concerning Dutch disease, I can assure you Venezuela has never suffered from it. There have been 5 major exogenous positive shocks in the oil sector with huge current account inflows (20-29; 43-48; 54-57; 73-80; 03-08) and, when study them seriously, you notice that (i) the effective real exchange rate hasn't generally appreciated, (ii) the tradables sector has grown more than during normal times, (iii) the non oil exports have increased more than avg during the positive shock periods.

Our "oil syndrome" is very different and highly related to our institutions, especially because all the oil related productive resources and income are allocated by the State.

I suggest you to read:

Gregory, 1976, "Some Implications of the Growth of the Mineral Sector", The Australian Journal of Agricultural Economics, Vol. 20, No. 2.

Corden W. and J. Neary, 1983, "Booming Sector and De-industrialisation in a Small Open Economy", The Economic Journal, Vol. 92, No. 368.

Corden, W., 1984, "Booming Sector and Dutch Disease: Economics Surveys and Consolidation", Oxford Economic Papers, Vol. 36, No. 3.

To get a better understanding of the Dutch disease stricto sensu in economic theory.


And, concerning the suitability of the DD theory to the Venezuelan case:

Hausmann, R., 2003, "Venezuela’s Growth Implosion : A Neoclassical Story ?", in In Search of Prosperity : Analytic Narratives in Economic Growth, Princetown University Press.

Hausmann, R. and R. Rigobón, 2003, "An Alternative Interpretation of the 'Resource Curse': Theory and Political Implications", in Fiscal Policy Formulation and Implementation in Oil-Producing Countries, Jeffrey, E., Davis, M., Ossowski, O. et A. Fedelino. IMF.

Manzano, o. and R. Rigobón, 2001, "Resource Curse or Debt Overhang?", NBER Working Paper 8390.

[SnakeEyes]

16. Can someone that better understands this explain

how it's different than what happened in other countries like Zimbabwe?

[bitchkitty]

21. Der, I kin tell ya

Its cuz that Chavez is a dicktater. Geddit?

[Warren Stupidity]

25. Hesadiktato! Zactly-rite!

See up thread - he BOUGHT AK-74s (sic) from RUSSIA! WhAT MORE PRUF U WANT!?

[SnakeEyes]

29. the point of this post was?

[SnakeEyes]

28. well this was informative.

what was the point of this?

[hack89]

27. That's the problem - it is not much different

Zimbabwe was caught in a death spiral of negative economic growth and high inflation - much the same as Venezuela is now. Chavez did not do this because he wanted to - he had no real choice. This will negatively impact the poor - Venezuela has one of the highest inflation rates in the world and it will undoubtedly go higher. Every Venezuelan just became poorer.

From the OP:

"While the rest of the nations of Latin America show vigorous growth and low inflation, Venezuela will close this year with negative growth and inflation nearing 30 percent," said opposition politician Gustavo Rojas.

"All the countries advance, except for Venezuela, whose income per capita this year will be the same as in 1986. We have tossed 24 years into the waste basket," he said.

The Venezuelan economy is becoming is becoming a basket case - they can't feed their people without importing food, oil revenues are steadily declining due to mismanagement and lack of investment and the population is getting poorer as their purchasing power erodes daily.

[muriel_volestrangler]

35. It's completely different

If you want a decent comparison, it's Britain devaluing the pound in the late 60s:

http://news.bbc.co.uk/onthisday/hi/dates/stories/november/19/newsid_3208000/3208396.stm

or, perhaps, Britain exiting the European Exchange Rate Mechanism in 1992:

http://news.bbc.co.uk/onthisday/hi/dates/stories/september/16/newsid_2519000/2519013.stm

Both were instance of a fixed or semi-fixed exchange rate in comparison to major currencies that was unsustainable. The result is the increase in the prices of some imports (only some for Venezuela, because there are apparently multiple exchange rates, and this is only one; no, I don't understand that).

Note that many economists say this is a good move, overall. Which may not help the average Venezuelan; it may indicate that Chavez has been too ambitious for what can be achieved with the economy.

[hack89]

41. In every case in response to severe economic problems

Venezuela has had to devalue their currency twice in three years. Yet they are still spiraling downwards - primarily due to the mismanagement of the economy. Just like Zimbabwe.

[muriel_volestrangler]

44. No, Zimbabwe's inflation was worse in one month than Venezuela in one year

And Venezuela has a valuable export - oil. It's ridiculous to say this situation is anything like Zimbabwe.

Venezuela's inflation is not as bad as it was 15 years ago - before Chavez was in charge.

[hack89]

92. The revenue from that oil is falling

as oil production continues to fall due to mismanagement and aging infrastructure. Chavez has built his socialist empire on a shaky foundation - he is slowly killing the goose that lays the golden eggs.

[Name removed]

108. Deleted message

Message removed by moderator. Click here to review the message board rules.

[ronnie624]

33. Before anyone can do that, you'll need to elaborate a bit on your own thesis.

How does the devaluation of Venezuelan currency make the duly elected and meticulously constitutional leader of Venezuela, the same as the dictator, Robert Mugabe? There doesn't seem to be any strong logic or evidence supporting that claim.

[hack89]

42. The economies are mismanaged in a similar manner. nt

[social_critic]

73. Economic Mismanagement and Autocracy

Venezuela's case is very different, but indeed Venezuela's economy has been badly mismanaged. Both are autocracies, even if Chavez is "meticulously elected". Elected presidents can become autocrats, and this is the case in Venezuela, where Chavez has managed to amass power to such a degree, the head of the Supreme Court argued that separation of powers was a bad thing, and the National Assembly voted to give him the power to legislate for 18 months - when its term was about to end and the newly elected assembly was about to take over. One could argue, what's constitutional about a President assuming the right to rule by decree, when the newly elected assembly isn't given the ability to decide whether IT wants to give up its right to legislate on all matters? What gives? It's called autocracy, and badly managed at that.

[Cerridwen]

45. It's from the bush memoirs...

Unfortunately, (Chávez) squandered the money of Venezuelans and is bringing his country to ruin," he said.

Chávez "has become the Robert Mugabe of South America," Bush wrote. He regretted that other regional leaders, particularly those of Nicaragua, Bolivia and Ecuador, "are following suit with Chávez." (emphasis added)

a bit more at link

Having not actually read shrub's memoirs, I have no idea if he expands and expounds on this particular concept.

I was rather surprised to see shrub's ideas used as valid concepts.

[SnakeEyes]

60. No I really don't

Who is in charge and how they obtained or retained power is irrelevant. I don't care if the leader was elected by popular vote, electoral college, or military dictatorship. I am talking about the actions of government or entities that in essence the government has say over(and also not how they are able to take such actions). The devaluing of the currency that has been done in other countries, causing massive hyper inflation, and disastrous results in other countries such as Zimbabwe. So as someone that doesn't understand things much, I am asking someone that does to explain the difference in actions.

[CJvR]

17. I doubt it will work.

The main problem of the Chavez regime isn't any one thing it has done but rather the continous state of cleptocracy it has introduced in Venezuela. This is what drives the cash flow out of the country as private citizens save their movable money and businesses reduce their risk exposure, now that the goverment gives up the defence of the first exchange rate the second rate will come under attack. A devaluation will not change the situation as long as goverment policy remains the same, it will just lower the pressure a little.

[Name removed]

18. Deleted message

Message removed by moderator. Click here to review the message board rules.

[Demeter]

20. He took a leaf out of Uncle Ben Bernanke's Book

Uncle Ben is devaluing the dollar, one Quantitative Easing at a time...the rest of the world is struggling to keep up.

[hack89]

32. The huge difference is our economy is not shrinking

and we don't have 30 percent inflation eating away at our earning power.

[Demeter]

55. I beg to differ

Our economy IS shrinking. With the actual (as opposed to "official") unemployment running at 22% or so, it could hardly do otherwise.

As for inflation, "officially" there is none. Unless you are buying food, energy, medical care, or other frivolities.

You want proof? Why are so many state governments on the verge of bankruptcy? Because their tax revenues are down. Why are their revenues down? Because their local economies have shrunk for the past 3 to 10 years. And why is the IRS taking in less money? It's not just the giveaways to the Obscenely Rich and the multinational corporations...

We are in worse shape than Venezuela, just less honest about it. After all, supporting all the bank criminals in Europe costs lots of money; throw in the two or more wars of choice, and we are so underwater, we have to grow gills.

[hack89]

67. You can't make up your own facts

every objective measure of the US economy disagrees with you. Sorry, but it will take a lot more than your belief that Obama is lying to the American public to convince me.

[social_critic]

118. Bond Ratings tell a different story - Venezuela is a basket case

The market votes by rating bond returns, and Venezuela is heavily penalized with VERY high interest rates - in other words, bond traders think it has a very high default risk.

If you are so keen on Venezuela, then I suggest you do invest in Venezuelan bonds.

[roamer65]

43. At least Chavez is honest about devaluation...unlike Benny Bernanke.

"We support a strong dollar"...just another lie.

Spot on, demeter.

[FLPanhandle]

24. Why would foreign capital move to Venezuela?

No one is going to invest in any business in Venezuela when, if successful, Chavez will just nationalize it.

[COLGATE4]

26. Venezuela doesn't need 'no stinkin' foreign capital'

:sarcasm:

[Cerridwen]

30. "...Two-Tiered Exchange Rate"

Venezuela’s Chavez Announces Currency Devaluation, Two-Tiered Exchange Rate

Caracas, January 8, 2009 (venezuelanalysis.com) – Venezuelan President Hugo Chavez announced a devaluation of the official exchange rate of the bolivar currency and the creation of a second rate denominated the “oil bolivar” for non-essential imports, in a nationally televised address on Friday.

The bolivar would be devalued from 2.15 per dollar to 2.6 per dollar, Chavez said, while the “oil bolivar” will be pegged at 4.3 per dollar. The measure represents a 17 percent and 100 percent devaluation respectively.

<snip>

The devaluation will boost the government’s spending power, as it will receive double the amount of bolivars per dollar from oil exports. However, it will also affect the general population by increasing the cost of imported goods in the country where inflation reached 25.1 percent in 2009.

In order to offset the impacts of inflation the government maintains price controls on a range basic food items including meat, bread, milk and coffee among other things, as well as a network of subsidised supermarkets, and free health and education services. However, a heavily subsidised petrol (gasoline) price of approximately five cents per litre is viewed as unsustainable by many analysts.

<snip; much more at link in title>

[Imajika]

34. Venzuela is becoming the basketcase economy...

...Zimbabwe is.

Private investment is fleeing Venezuela as fast as it can. At this point it is very clear, if you've got cash to invest you definitely don't want to put it in Chavezland.

People that haven't been here on DU a long time probably don't realize that Zimbabwe's Robert Mugabe, once upon a time, had quite a few supporters here too. He talked the socialist talk, nationalized this, that and the other, and bashed the UK/US which was enough to win the hearts and minds of plenty of our resident DU revolutionaries. These tend to be the same people who laughably claim Cuba is a democracy. And who is one of the people Chavez finds common cause with and declares as a brother - yes, the very same Robert Mugabe.

Venezuela is in an economic death spiral. Chavez will try to distract attention away from the mess he has made, but in the end the result will be the same - a badly under performing economy that continues down the road to utter failure. One day even the heartiest of DU revolutionaries will likely go silent or otherwise pretend they never backed Chavez in much the same way Mugabe support vanished. No apologies from them, no admitting that perhaps their fantasy world just doesn't work in reality, no confessing that they screwed up in supporting these vicious strongmen - no, they will probably just go on to support the next leftist thug who promises a workers paradise and slams the US "empire" from time to time.

[Broderick]

37. Good post

When has it ever worked, the peasant society of government controlled equality? We saw the boogie-man creation here in the US, and it appears to be an enticing method of control and power - albeit perhaps for a different vision. Seems deflection is a great way of putting it. Honestly, I don't understand the allure of a "workers paradise", but I do believe in fairness in some regards - but proportional. Two sayings of equal appropriateness come to mind: "Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men.", Lord Acton, and "Unlimited power is apt to corrupt the minds of those who possess it", The Earl of Chatham.

[robcon]

38. Venezuela: domestic production: plummeting; prices: skyrocketing

Gee... where have we seen this in socialist states before?

Venezuela has an advantage over most states: they have oil to sell, and the price of oil has increased lately. But, despite this, the country is being brought to its knees, and the strong-man government (government by decree) will make things worse, IMO.

[ronnie624]

57. Venezuela has a disadvantage as well:

It exists in the form of a powerful, hostile state to its north, that seeks "full spectrum dominance" in its "backyard", South America.

[hack89]

68. The same state that buys all the oil they can at market rates? nt

[ronnie624]

86. No.

I assume oil that is imported from Venezuela is purchased primarily by U.S. consumers, not the 'state', and they aren't motivated by altruism. Most of them could scarcely find Venezuela on a clearly labeled globe, and most of them don't care much for "aliens" anyway. They buy Venezuela's oil because they need it, and they would squeal like stuck pigs at the price of gasoline and heating oil if it suddenly became unavailable.

Your only response is to imply that I'm anti-American, but I do not think in such terms. I neither love countries nor hate them. I consider my birth in the United States to be nothing more than a fortunate occurrence of happenstance. The fact that I have it good here doesn't prevent me from understanding that our relative largess is often at the expense of others in the world. Neither will it prevent me from realizing that my government has been corrupted to its core by corporate money, and that a desire for profit is the prime mover for its policies, especially when it comes to resources and markets in places like South America.

[hack89]

88. Then please show me any US actions

that have negatively effected the Venezuelan economy. Show me that their problems are not entirely of their own doing. And please provide actual details - not another diatribe on the evils of the US.

[social_critic]

76. There you go again, blaming the USA for Venezuela's mistakes?

Venezuela's problems are caused by Venezuelans. The USA isn't making hostile moves against Venezuela's economy, it sells food and whatever it can (except weapons and nuclear materials which may end up in Iran), and it buys whatever the Venezuelans are willing to sell which happens to be priced adequately.

What's wrong with the Venezuelan economy? Negative growth, lousy bond ratings, increasing government debt, too much money chasing too little goods which lead to the highest inflation in the Americas (I suspect in may be in the world), low productivity, lack of investment, gross mismanagement of state owned enterprises, expropriations of private property, lack of maintenance of infrastructure, lack of construccion, currency controls which lead to corruption and irrational economic behavior, subsidized fuel, give aways to Cuba and other nations, a crime rate that's completely out of control, and an oil industry that's slowly losing production capacity and its ability to operate the existing refining and oil production system. I could pile it on, but I think it should be evident the country is governed in such a lousy fashion, it has only one way to go - down.

[COLGATE4]

39. K&R. Excellent, well reasoned post.

[Throd]

46. I remember the Mugabe clique

When I first came to DU in 2004 I could find a few people who would still defend him.

Personalities like Chavez don't just gracefully retire. I hope I am wrong, but I doubt I am. Oftentimes the enemy of my enemy is also my enemy.

[Prometheus Bound]

54. LOL! Yes, yes. Comparing a 30% inflation rate (Venezuela) with a 12,000% inflation rate (Zimbabwe).

Another classic from the Venezuelan opposition groupies.

[social_critic]

78. Zimbabwe's Inflation Rate

First of all, I would say calling those who criticize the Venezuelan government "opposition groupies" is uncalled for. Now that the opposition has shown it has the majority - as per the result of the September 26th National Assembly elections, it's difficult to sustain a position that Venezuela's government is either that popular within Venezuela or deserves the loyalty given to it by some here in DU.

Second, I'd like to post some references for Zimbabwe's inflation in 2010, which I'm hope you'll read so you can get the point - indeed, Venezuela can be designated as 2010's and 2011's "Zimbabwe".

http://allafrica.com/stories/201008240654.html

http://www.indexmundi.com/zimbabwe/inflation_rate_(consumer_prices).html

http://www.thezimbabwean.co.uk/index.php?option=com_content&view=article&id=34226:zimbabwes-year-on-year-rate-of-inflation&catid=42&Itemid=38

http://www.businessweek.com/news/2010-11-16/zimbabwe-s-inflation-rate-fell-to-3-6-in-october.html

[Prometheus Bound]

82. Uncalled for, you say. Look at this google search to see where I got it.

http://demopedia.democraticunderground.com/discuss/duboard.php?az=view_all&address=364x2370007#2370300
(Chavez-Can-Do-No-Wrong groupies arriving in 3-2-1...)
http://demopedia.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x8791940

Don't be fooled by the Chavez groupies that are going to flock to this post.
http://demopedia.democraticunderground.com/discuss/duboard.php?az=view_all&address=364x2370007#2370300

If it had been about Hugo CHAVEZ, the Huguito groupies here at DU would say,
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x3781129

Hugo groupies in 3-2-1.
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x4581772#4581829

I have found the Chavez groupies on DU to be, quite frankly, the most consistent collection of closed minded demagogues on this entire board
http://demopedia.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x3062855

Yes, not licking the jam from between che hugo's toes annoys some folks here. I have a standing bet with his groupies, if he leaves office alive
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x4192851

It's absolutely hilarious watching this asshat deteriorate into the dictatorial thug that most intelligent people suspected he was all along and his groupies keep clinging to the life raft.
http://demopedia.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x1024022#1028329

If it had been about Hugo CHAVEZ, the Huguito groupies here at DU would say
http://demopedia.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x3781129#3782685

[social_critic]

87. That's also uncalled for

There's no reason for either side to insult each other. Maybe you guys could try to reason and debate. I am used to being insulted, but I do try to bring up the point that it brings down the discussion level.

I am Cuban, and I lived in Venezuela, which gives me an insight many of you lack about these places. I can't discuss everything I know because governments tend to go a little ape when it comes to people like me, and I can't even post some of the things I know because DU would probably deny me posting privileges - some of what I know gets repressed by everybody on all sides. But I can assure you, it's never simple, what we think we know we seldom know for sure, and we never know what we don't know. Therefore insulting the other side can make one look a little goofy.

[Prometheus Bound]

99. Fair enough.

Your evidently honest intention to engage in reason and debate is appreciated, and I will respect your wishes.

[Demeter]

56. Don't count your crashes before they happen

Venezuela is lucky to cut the bonds of outside hot money and grow from within. They protect themselves. And with oil in the ground, Venezuela is much better off than most places, like the US.

[sabrina 1]

59. You're absolutely right. Roubini predicts that Ven. will

begin its recovery in 2011 as do many other economists. Their bonds are producing high yields, as you point out. And the recovery predicted by economists like Roubini, will happen without any 'austerity' programs for the elderly, the disabled, dependent children, education and medical care or for the working class in general. Venezuela may turn out to be a model for other countries as to how to get through tough times without cutting much needed social programs.

[hack89]

69. Do you understand why their bond produce high yields?

it is because investing in the Venezuelan economy is so risky that investors have to be enticed with higher yields. High yields are an indictment of the economy.

[sabrina 1]

72. Yes, I do know. I also know that they are poised for

a recovery in the coming year. Can we say the same thing about this country or the rest of the world? A 'tepid' recovery, yes, but definitely a recovery. This is contrary to the lies being told by the western media and is important that people know where to get their facts on these matters. It is not the U.S. media.

[social_critic]

95. Venezuela versus other Latin American Economies

According to the Economist, the Venezuelan economy is slated to shrink for the third year in a row in 2011. This isn't the case for other Latin American countries, where GDP growth is projected to range from 2.5 % in Ecuador to 5.7 % in Chile.

Economic growth around the world will be the norm, this includes the USA, Canada, and the European Union as a whole. Unemployment will be a different matter, but it should be coming down by the end of the year, giving President Obama and other leaders a fairly easy chance at re-election.

Your "knowledge" about economic recovery in Venezuela is baseless. The country has too much going against it, high inflation, corrupt government, extremely inefficient state enterprises, and growing debt (which of course is making the bond market very jittery and leads to very high bond yields). Private businesses are unwilling to re-invest due to erratic and illegal nationalizations and expropriations, some of which can be qualified as robbery by party chieftains interested in suppressing dissent. And to this we must add the forthcoming university unrest as the student population gears up for massive protests against the new university law. This law is so controversial, it was passed by the outgoing assembly but we haven't seen it published in the national gazette. It's possible the government sees so much opposition, they'll back off the same way the Morales government backed off the gasoline price increases as protests mounted.

[hack89]

70. Falling oil production will hurt them

mismanagement plus a failing infrastructure due to no foreign investment will steadily undermine the economy. Look to Iran - they have plenty of oil and a failing economy. Self sufficiency is harder than you can imagine in a global economy.

[sabrina 1]

58. You mean like France and Greece and Britain and Ireland

and Iceland and the U.S. and just about every other country in the world whose economies are on 'on death spirals'? But Venezuela's economy is not on a death spiral, in fact it is predicted to begin a recovery in 2011.

The corruption that brought down the world economy has affected Venezuela too. But the difference between Venezuela and all these other 'capitalist' societies is, the Chavez government is not putting its poor and working class on 'austerity' programs. It's not raising the retirement age, or cutting benefits for the poor and the elderly or the sick. And it's not raising tuition for students making it impossible for them to get an education.

Nor is it giving windfalls to the rich while forcing the working class to pay for their corruption which crashed economies world-wide. Which is why there are no riots in Venezuela as there are all across Europe and in India and soon to be here where our economy shows no sign of improving even after giving the wealthy trillions of dollars which shows no sign of 'trickling down' to anyone else.

As for the doom and gloom forecast for Venezuela, that has been the theme from the western press even throughout the huge expansion period of Venezuela's economy. It boggles the mind how wrong the western media is when it comes to Venezuela's economy.

Now for some facts after all the hyperbole in this thread:

The Venezuelan Economy: Media Sources Get It Wrong, Again

Now it looks like Venezuela may have emerged from its recession in the second quarter of this year. On a seasonally adjusted annualized basis, the economy grew by 5.2 percent in the second quarter. In June, Morgan Stanley projected that the economy would shrink by 6.2 percent this year and by 1.2 percent next year. The International Monetary Fund (IMF) is projecting long-term gloom and doom for Venezuela: negative per capita GDP growth over the next five years. It is worth noting that the IMF gave the authors of Dow 36,000 some competition for creative forecasting, with their repeated, wildly off-the-mark underestimates of the Venezuelan economy during the expansion.

.......

Of course Venezuela's continued growth is not assured - it will depend on the government making a commitment to maintaining high levels of aggregate demand, and keeping it. In that sense its immediate situation is similar to that of the United States, the Eurozone, and many other more developed economies whose economic recovery is sluggish and uncertain right now.

Venezuela has adequate foreign exchange reserves, is running a trade and current account surplus, has low levels of foreign public debt and quite a bit of foreign borrowing capacity if needed. This was demonstrated most recently in April with a $20 billion (about 6 percent of Venezuela's GDP) credit from China. As such, it is extremely unlikely to run up against a foreign exchange shortage. It can therefore use public spending and investment as much as necessary to make sure that the economy grows sufficiently to increase employment and living standards, as it did before the 2009 recession. (Our government in the United States could do the same, even more easily - but that does not appear to be in the cards right now.) This can go on for many years.

Whatever happens, we can expect complete coverage of one side of the story from the media. So keep it in mind: when you are reading the New York Times or listening to NPR on Venezuela, you are getting Fox News. If you want something more balanced, you will have to look for it on the Internet.

Even Rupert Murdoch's Wall St. Journal, no friend to Venezuela or any other country that takes care of its poor and working class rather than its wealthy class, admits that Venezuela's bonds eg, are yielding 14-16%. Not to mention that Venezuela paid off its debt to the World Bank in record time.

We should be so lucky as to have a government that provides for the people rather than Wall St. even in hard economic times.

Roubini also agrees that the western media gets Venezuela's economy totally wrong. Chile, eg, which also relies primarily on one major export, copper, gets little coverage here despite the problems it has had with its economy as Roubini has pointed out in the past. But then they are not one of the world's largest oil producers.

And Roubini's forecast for Venezuela in 2011, whose opinion I think I'll take over Fox regarding Venezuela's economy. He predicts a recovery in Venezuela's economy in 2011:

Venezuela 2011: Growth Dynamics: Back to Positive, but Weak Fundamentals Remain

Venezuela: 2011 Outlook

The latest Q3 2010 GDP numbers showed still-poor economic dynamics but better than those of H1 2010. Consumption was still depressed (-2.1% y/y) due to crippling inflation (29.8% y/y average in Q3). Oil exports continued on a free fall driven by declining output (-17.6% y/y), and private sector activity remained subdued as shown by the construction (-7.9% y/y), retail (-4.4% y/y) and manufacturing (0.1% y/y) sectors. Meanwhile, the public sector increased its debt levels in order to continue financing spending and investment plans.

Venezuela will exit recession in 2011 with a tepid recovery. Higher government spending and hybrid investment— investments for oil projects by joint ventures of PDVSA and private oil companies—coupled with a low base should drive the economy out of the doldrums. Private consumption will see some recovery, benefiting from public spending and marginally lower inflation, while nonoil private investment should stay constrained by unfriendly government policies: nationalizations, FX policy and price controls, among others. Net exports, however, will continue to cripple growth, as imports remain strong and exports stay in the negative.

No death spiral of the economy. I'm sure you are glad to learn this for the sake of the people of Venezuela.

If only the forecast for our economy was even close to that good, while still maintaining all its social programs. What we are being prepared for is cuts for the poor and working class in essential benefits while there is no sign of even a tepid recovery.

If only Chavez would stop taking care of the people of Venezuela and start giving all that money to the wealthy. Then the U.S. would love him! :eyes:

[friendly_iconoclast]

102. I lurked here back when there were still Mugabe supporters at DU.

Now, you'd sooner see an ivory-billed woodpecker than someone supporting Mugabe openly.

It will be fascinating to revisit this thread on January 1, 2012.

[Name removed]

109. Deleted message

Message removed by moderator. Click here to review the message board rules.

[friendly_iconoclast]

117. Some of the Mugabe supporters are still here, some on this very thread

Careful use of the search function will show show some familiar names.

As you point out, they tend to suffer from "Waldheimer's Disease"- they seem to have 'forgotten' their support...

[Selatius]

61. Chavez should've dump more money into expanding its industrial sector.

Simply devaluing its currency isn't going to help them do anything if they are a nation that depends on imports. Chavez did the right thing by passing their equivalent of the American-style Homestead Act, and he's doing the right thing by encouraging the start-up of employee-owned businesses such as labor co-ops and farming co-ops, but he should seriously look at expanding his nation's industrial capacity to the point where it is self-sufficient or near self-sufficient. Autarky isn't a universally bad play, but the trick is finding situations where autarky is appropriate.

[FLPanhandle]

74. Hard to encourage businesses when they are at the risk of being nationalized at any time

Industrial capacity requires a lot of capital investment. That capital isn't ever going to be invested as long as Chavez continues down his current path. Too much risk which is why all foreign investment has dried up and local money is moving out of the country.

[social_critic]

80. Labor co-ops and farming co-ops?

The Venezuelan government is doing its best to destroy the country's productive capacity by making a series of parallel bad moves. Exchange rate controls distort trade and competitiveness, but this is only a small part of the story. In addition to forcing the exchange rate to encourage imports over national production, the government also makes it very difficult for private business to expand production or hire workers.

The threat of nationalization (which is arbitrary, and not compensated for in most cases) means nobody in their right mind invests in Venezuela today unless they see a very fast payout or they are using stranded currency (meaning they are foreign corps unable to repatriate earnings due to currency controls).

The idea of labor co-ops and farming co-ops must sound very romantic to an outsider, but Venezuela's reality is that such co-ops are a failure thus far. And I don't see a reason why, given the culture, currency exchange rates, Venezuela's labor law, and Venezuela's government behavior, co-ops of any sort would have much of a chance to compete effectively with foreign producers.

[Prometheus Bound]

77. Chavez Devaluation Too `Timid' as Bolivar Remains Overvalued, Goldman Says

Chavez Devaluation Too `Timid' as Bolivar Remains Overvalued, Goldman Says
By Jose Orozco and Charlie Devereux - Jan 1, 2011

Venezuelan President Hugo Chavez’s currency devaluation yesterday was too “timid” to shore up government revenue and narrow the budget deficit because the bolivar remains overvalued, Goldman Sachs Group Inc. said.

....The devaluation “is not deep enough” and will not “correct for the real overvaluation of the currency,” Ramos said in a telephone interview. “Unifying the two cash rates is a good development, but I think it’s a relatively timid move,” he said.

http://www.bloomberg.com/news/2010-12-31/chavez-devaluation-too-timid-to-narrow-venezuela-s-deficit-goldman-says.html

[social_critic]

81. It is too timid indeed

The current free (black market rate) is a lot higher than the official rate. It is illegal to quote the black market rate in Venezuela, so I'll refrain from quoting it to avoid breaking the law. But it's easy to see the imbalance - Venezuelan green lettuce is a lot more expensive than green lettuce imported from Colombia.

[joshcryer]

84. You're in Venezuela? Any other insights you might have?

[social_critic]

93. Insights on Venezuela

Badly run government and economy. No respect for the rule of law. Very high crime. Corruption. Very high inflation. No economic growth in 2009, 2010 and 2011. Crumbling infrastructure.

Government seems to be evolving towards fascism mixed with clientilist populism (meaning they dish out cash to buy support). However in recent elections about 52 % of the voters did so for candidates lined up in the opposition, some of them belong to small socialist parties. The opposition failed to gain an outright majority in the National Assembly because the government had carried out some of the grossest gerrymandering in history. To make matters worse, even though they did have a majority in the Assembly, the Chavez party decided to use the final days of the outgoing National Assembly to pass a law allowing the president to rule by decree - and extended it for 18 months, thus delegating the powers of the incoming assembly. This is eminently unconstitutional, but the Supreme Court has been packed with Chavez supporters, so there's no relief on that side.

As popular opposition to the regime has increased, the government has moved to pass laws to muzzle the media, control the internet, and take control of the universities - some of these laws were passed in recent days, so the ink is fresh and we'll have to see if/how they are implemented. The university law includes a clause which allows the government to "manage emigration of professionals", I see it as code word for closing off the escape route for middle class professionals, which are leaving the country en masse. The country is experiencing a serious case of brain drain, similar to what happened to Uganda under Idi Amin, or the Soviet Union when it expelled the Jews.

[FLPanhandle]

100. Thanks for posting

I'll weight your posts being on the ground much more than those who just sit behind their keyboards making up excuses for Chavez's actions.

[CJvR]

103. Like the DDR?

"manage emigration of professionals" - the only successful campaign against that was the old Iron curtain.

[joshcryer]

112. Thanks for that. I'll be sure to look out for your posts in Chavez threads, you give some moderation