Venezuela's "strong bolivar" swamped by inflation

Source: Reuters

CARACAS, Aug 31 (Reuters) - Coffee and a pastry: $8.14. School supplies: $164. A middle-class weekly family shopping trip: $830. With prices like these it is no surprise Venezuela's capital, Caracas, was rated in July one of the world's priciest cities.

Oil-rich Venezuela imports much of its food, clothing and other goods, and while consumers have been long used to double-digit inflation, the recent spurt of price increases is hitting hard after five years of economic growth ended in the second quarter.

While other Latin American countries have seen inflation moderate with the global economic slowdown, the rate of inflation in Venezuela has barely slowed as lower oil revenue forces the government of President Hugo Chavez to restrict foreign currency to the private sector.

The surging cost of living put Caracas as the second most costly city in the Americas behind New York, according to a July study published by human resources consultancy Mercer.

In line with Chavez's anti-capitalist policies, Venezuela severely restricts currency flows and has a rigid exchange rate, policies many economists say are feeding inflation.

Importers unable to get permits to buy currency at the official exchange rate of 2.15 to the U.S. dollar turn to the tolerated black market, where the greenback recently traded as high as 6.7 bolivars, nearly double the level of a year ago...


Read more: http://www.reuters.com/article/bondsNews/idUSN3139619020090831

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So much for my plans to retire to Caracas.

However - given that the majority of Venezuela's population are not middle class and probably don't buy such things I can only paraphrase what they'd probably say "whatever - just deal with it"

Caracas was actually listed as being 15th : http://www.guardian.co.uk/news/datablog/2009/jul/07/global-economy-economics

Inflation unfortunately affects everyone.

s

I had dinner with a friend at an ok restaurant and paid over $50. Venezuelas done stick a fork in it.

Just curious.

Chavez is too busy helping out the FARC and foisting his Bolivarian Revolution on the rest of Spanish-speaking South America to worry about such mundane economic concerns.

Well, it´s odd. I live in Bs As, and the press here (unlike the US press) covered every minute of the recent Unasur Summit in Bariloche, Argentina in protest of supposed US bases in Colombia. Uribe of Colombia used the occasion to criticize Chavez´s helping the FARC, and spent much time demouncing terrorism and narcotraffickers. Yesterday, when Chavez got back to Caracas, he spoke in public to publicly denounce terrorism; not the FARC´s terrorism, but rather ´media terrorism.´ He´s already closed all of Venezuela´s newspapers (including his party´s own newspaper yesterday), but still finds a way to turn the conversation to fit his own agenda. It´s all about him. I believe he does care about poverty, but public programs do little when 30% inflation is constantly adding more poor to the ranks than his programs can eliminate.

lol

I don´t know who he is in the States, but I gather he´s not to popular on DU.

Fess up brother, you know it's true.

It's obvious.

are you denying the inflationary pressures on the Bolivar? or are you just arguing about other things people bring up?

long live chavez

I guess all those people who keep voting for him aren't as smart as you, huh?

Clamp down on the big owners and investors. They are sowing problems on purpose to disorganize the economy. Things are still way better than in the 90s however. Let the parasites flee to Miami, but not with their wealth.

So can you explain your post? It makes no sense whatsover.

Can you explain how choking off investment helps the Venezuelan economy in ANY way? To keep interest rates low enough to encourage private consumption with no capital investment, Chavez would have to print even more Bolivars, and therefore cause even higher inflation!

Chavez supporters, there is NO SHAME WHATSOEVER in admitting that you have no idea how economics works, but you still support the guy.

Russia, Argentina, Brazil, the US, etc.

There is no shame in admitting you have no idea what you're talking about and yet continue to make absurd assertions.

http://english.eluniversal.com/2009/08/28/en_ing_esp_investment-in-venezu_28A2672529.shtml

The capital is unlikely to come from foreign countries. In the second quarter of 2009, foreign investment in Venezuela downsized by USD 2.47 billion; in 2004-2008, it lagged far behind the average in South America.

No one said that NO foreign investment is allowed in Venezuela.

At issue is the rate at which (legal) foreign investment is allowed there, which is choked off due to the
unrealistic exchange rate mandated by the government. These are matters of fact. The black market exchange rate
is about 3x the official government rate, but unfortunately you can't open production plants and such on the black
market.

You can attack me all you like, but all I've done is respond to the facts that are in the article. If you have actual
facts that can be part of an educated discussion of economics, then please post them.

Without resorting to attacks that only reveal your lack of thinking skills in this arena, can you tell me why Chavez
is pegging exchange rates so low, to the detriment of total investment in Venezuela? With oil prices so low, Chavez
has to issue debt just to keep interest down and people spending.

This is called a currency tax. It's a way of transferring wealth from the private sector to the government sector. Transferring
wealth of ALL Venezuelans, that is.

Can you explain that policy?

Suffice it to say not all economist are neo-liberal free market fundamentalists. I know my economics - summa here lol...

Please be specific.

If supply and demand are suddenly part of a shady conspiracy, then please enlighten me as to how Chavez can control inflation
by shutting off investment. Without killing half his population, that is.

From the article it is clear that they already have very stringent capital controls which are worsening the problem. Access to foreign exchange is severely restricted at the official rate, forcing people to turn to the black market, which the government tolerates. If regulations are unreasonable, the rich can afford to skirt them while the poor are hurt more.

We don't need no stinking middle class!

Take from the rich, give to the poor, middle class gets owned.

when Chavez will provide

inflation--if it doesn't go too far--is far better for the "little guy" than depression.

Here's a better analysis, which points out Venezuela's high international cash reserves--solid backing for bolivars that are afloat. (In other words, it's not worthless money, even though inflation is on the high side). This analysis comes with charts. Go to the url for the charts.

http://incakolanews.blogspot.com/2009/08/venezuela-parallel-exchange-rate-update.html

Venezuela Parallel Exchange Rate Update

The driving force of the weakness in the VEF (as we've explained many a time) isn't inflation. The cause of inflation is the problem, and that's a monetary thing known as M2, which measures the amount of currency in circulation inside the country. Here's how M2 stands right now..

..with the VEF equivalent of U$101.79Bn sloshing round inside Venezuela. This amount of money is up from under U$90Bn (equivalent) at the beginning of April and explains why Venezuela's inflation rate stays stubbornly in the high 20s to 30% range. Put in the most basic terms, if you add 30% more money to a country there are 30% more pieces of folding paper trying to buy the same amount of goods, which means you'll find you're using 30% more of those folding pieces of paper to buy that thing you want to buy. Just good ol' fashioned supply and demand stuff, ask Adam Smith.

However, the Central Bank keeps a store of wealth that backs up the money in circulation. Called International Currency Reserves, it provides backbone to the fiat system. So if we look at the amount of reserves in Venezuela right now....


....we see they've tucked away U$31.45Bn. This means (and the calculation is pretty straightforward), for every single dollar the Central Bank keeps in reserve, there are 6.96VEF circulating in the country. This gives us our theoretical equilibrium point for the VEF/USD exchange rate.

So right now the rate is lower than the theoretical rate by about half a Bolivar Fuerte. This indicates that the financial brains out there in Venezuela expect good things from the government and its plans to tame the permuta. What IKN can say right now is that if the Vz gov't does devalue (or stealth devalue by adding different exchange bands...it's the same thing, really) the parallel rate will drop further as people see arbitrage value in buying dollars at a lower price and selling them higher. However if the Vz Econ team make a SNAFU of plans and the new devaluation system brings no extra flexibility to the exchange rate, the VEF parallel rate will certainly float back up to 7:1 and probably go higher still.

-----------------------

Incakola News is a much more reliable analyst of Venezuela's economy than Rotters or the economists they consult, who have an agenda that is quite hostile to leftist governments and to the vast poor majorities that they represent. It was news (um, propaganda) organizations like Rotters and the Economist who rah-rahed the Bushwhack economy all the way to the cliff and over the edge, all the while spitting their bile at Venezuela, one of the few countries that landed on its feet after the Bushwhack Financial 9/11 in September 2008, and this was due to the Chavez government's excellent management of the economy, especially their having put away $40 billion in international cash reserves. Now they have to figure out how to manage an economy that has done much better than most over the last five years, and is doing better than most now, in this post-Bushwhack looted world. We should be so lucky as to have inflation as the problem! What we have is a DEAD economy--catastrophic levels of unemployment, housing foreclosures, business foreclosures, bank failures, homelessness, plus high and rising costs for the poor and middle class on everything from medical bills to parking tickets. All indicators are bad. We are in Great Depression II. Venezuela is not. And that is amazing, with credit entirely due to the Chavez goverment.

It was by consulting Incakola News over the last few years that I knew that all the "doom and gloom" about Venezuela was way off the mark. Amidst this "doom and gloom," Venezuela's economy was exploding with a nearly 10% growth rate over a five year period (2003-2008), with the most growth in the private sector (not including oil). IKN also takes into consideration whether people are eating or starving (something Rotters couldn't give a fuck about) and general quality of life issues, as well as quality of government issues. I prefer their analysis to the savage losers at Rotters or other corpo/fascist publications. And IKN has been right about Venezuela every time--because their analysis is more objective. Here, IKN hedges its bets. It says that what happens next, with Venezuela's economy, depends on whether the government gauges things just right, in a devaluation of the bolivar to tame inflation, and produces greater flexibility and more growth. A slowdown in growth was inevitable. The Bushwhacks' Financial 9/11 was not predicted by anyone--a sudden failure of so many banks and financial institutions due to US government deregulation and massive looting. Venezuela did well, considering all this. Will it continue to do well? If the past is prologue, it will.

http://www.bloomberg.com/apps/news?pid=20601086&sid=aOrLBeErIro0

Aug. 27 (Bloomberg) -- Venezuelan bonds, the second-highest yielding emerging-market government debt, were raised to “overweight” from “neutral” at Deutsche Bank AG because returns have become more attractive. Argentina, Brazil, South Africa, Colombia and Ukraine bonds were downgraded.

Investors should buy Venezuela’s dollar-denominated bonds due in 2020, 2025 and 2039 because they offer better value than Argentine debt, which carries a “high risk of disappointment,” Deutsche Bank analysts Marc Balston in London and Hongtao Jiang in New York wrote in a strategy note today.

Venezuelan bloggers get a kick out of watching the anti-Venezuelan doom and gloomer predictors of the collapse of its economy:

http://incakolanews.blogspot.com/2009/08/venezuela-breaking-news-subversive.html

Those pesky so-and-sos at Deutsche Bank have only gone and upgraded their recommendation on Venezuelan dollar bonds.

Dammit guys, how the hell is the constant propaganda campaign about the imminent demise of Venezuela's economy supposed to work if you people start "investigating" and coming up with "facts"? You're going to have Moises Naim and Ricardo Hausmann phoning you up and giving you a mouthful today, I'd bet.

Oh, and they love Simon Romero ~ :rofl:

And anyone who loves Simon Romero ought to be imprisoned with him and Judith Miller on a desert island and together they can all make up evidence of ships on the horizon, planes spotting them and dropping water bottles, and little indios canoeing out from distant shores bringing them pineapples and cocoanuts. They'll die with pleasant dreams anyway, unlike their victims--since these "ace journalists" are so good at inventing things out of thin air.

Now there would be a "reality show."

Maybe that's the answer for punishing Bushwhacks. I'd thought about it a long time, and finally decided that I wanted to see Bush, Cheney and Rumsfeld sentenced to cleaning bedpans in Veterans' hospital for the rest of their unnatural lives, with GPS anklets on, so we always know where they are, and a webcam on them, to teach children not to make war and torture people.

But now I'm liking the desert island idea. And they can have Simon Romero, Judith Miller, Mary Anastasia O'Grady and a few others to entertain them.

Sorry, should have used the snark symbol. I meant the Venezuelan bloggers. They laugh at him and call him the 'worst reporter in S.A'.

He's due for another piece of propaganda any day now.

I think the only way to counter this attempt to demonize Venezuela is to write, as you just did, the facts and demand fair and truthful reporting from the NYT eg, which has already lost so much credibility.

It would be a good idea to submit editorials to newspapers and magazines around the country with some real news about what's happening in S. A. You would think we would, as a country, be supporting the good guys, but I am so disappointed to see that this administration appears to be sticking with the old, criminal policies towards S. A. undermining as we always did, democratically elected leaders. I hope those countries have gained enough strength to fight off any interference on the part of the US.

As for your fantasy about Simon Romero and his 'colleagues' along with Bush, Cheney et al, I like the Island idea also. I'd love to see them have to struggle to survive for the rest of their miserable lives.

Maybe somebody paid $8.00 for coffee and a roll at some fancy tourist place in Caracas, but an entire week's supply of coffee costs me just about 50 cents. A kilo (2.4 pounds) of powdered milk costs me $2.00 and my breakfast and lunch costs $1.50 or so. Yes, there is inflation here, but it is grossly exaggerated in the prices reported in this story.

My gas, electric and water bill is less, total, less than $15.00 a month. Gas for the car is 14 cents a gallon. All told, I am spending less than $200 a month on food and utilities here. But I don't go to expensive tourist restaurants or stay in fancy hotels. Neither do most Venezuelans. It is only the very rich who go to such places, and then complain about the fact that the Chavez government is subsidizing food, and providing free medical, dental and optical care for all citizens, along with free education and low cost mortgages for housing for the poor and lower middle class, the vast majority here.

There are many more newspapers publishing here than in the U.S., but, as in the U.S. most are owned by the rich, who are opposed to Chavez's push to democratize the government and improve the standard of living for the majority. Thus, as in the U.S. the newspapers freely demonize Chavez and print all sorts of misinformation about his government. This article is a prime example of skewed reporting.


The right-wing newspapers here, and that is the majority of them, would have readers believe that Chavez is undemocratic and shutting down the press. The opposite is true. The press here freely and consistently publishes criticism of Chavez and his government, some even to the point of calling for his assassination.

Indeed, it is because Chavez is bringing real decision-making and democratic control to the local communities that the rich oppositionists attack him. Thus, his new education law provides that all the students and the workers in the universities have a vote in its policies. Local community councils are given a policy vote as well.

The new law changes University admission policies to open them to poor, who used to be foreclosed from the universities because to gain entrance they had to pay big bribes to university admissions officers. Chavez is democratizing the school system, and the wealthy, and especially the Catholic Church, opposes that. How will the Catholic schools comply with the law prohibiting discriminating against women? That will be interesting to watch!

For factual news about Venezuela, see www.venezuelanalysis.com

the latest number I have is BsF 0.071 per liter, 91 octane.
Also, what exchange rate do you pay?
thanks.

living there. That link is a good one, I've been reading their reports and have bookmarked it.

I laughed too when I saw this latest piece of trash 'reporting'. The last one was lying about Venezuela's Education law. Not one fact about the law itself has been reported in the MSM here.

So, I researched it myself and as a teacher, I have to say it is so exciting to see such a progressive law. It leaves out no-one, the disabled, women, the poor every ethnic group. Venezuela is lucky to have a leader who cares so much about those who elected him. I really wish them well as they had so much to overcome and still do.

Chavez also seems to have surrounded himself with some very smart people, both men and women.

I laughed when I read this latest diatribe. I am from the East End of LI and in the Hamptons, you can pay nearly $20.00 for a bowl of spaghetti in some places. But no one in their right mind, and certainly no one honest, would ever use those numbers as standard prices for the rest of the country.

It was obvious that those prices, from the wealthiest areas, were being deceptively used for the sole purpose of trying to make Venezuela look bad. I am sorry to hear about the press in Venezuela and I hope there will be more independent journalism there as time goes by.

Glad you are here. How are their immigration laws, btw? Sounds like Venezuela might be a good place to go, at least for a visit.

to spot these stupid pieces of trash and recognize them for what they are.

I'll bet quite a few of us have bookmarked your other posts here, as well, from the first. It's always a breath of CLEAN air when you give us the benefit of your own personal experience and observation.

Very important details. I have seen the price of gasoline reported elsewhere and it was most definitely in line with your statement. The other prices you've included are very worth noting, as well as the reminder which is HUGE, of the vital services being offered now to Venezuelans by their elected government for the first time in history.

common sense information.

:hi:

that you're actually living there?

Do you have any reaction to the information posted by this person?

Have you checked out their journal to see what their previous posts reveal about their expertise and perspective?

I can understand how disappointed you might be to have your thread discredited because it is such obvious, blatant propaganda, biased and baseless.

We cannot ask for verification?

Is Rotters' reporter really in Caracas?

Seems to me there have been some scandals about corpo/fascist reporters not being where they say they are.

I kind of think he IS in Caracas (but I wouldn't bet money on it). His problem is that he eats at expensive restaurants, far from the rabble, and selects his factoids from the point of view of a rich tourist.

Look at this example he uses:

"The sky-high cost of living in Caracas, where the minimum monthly wage will be $450 from Sept. 1, is partly mitigated by price controls and subsidies on basic foods and home supplies. // However, imported luxuries that wealthier Venezuelans have long been used to, such as salmon flown in from Norway, push the cost of weekly shopping to eye-watering levels. Middle class consumers say they have been able to keep up spending through pay increases and by cutting out other expenses."

The idiots who are buying salmon flown in from Norway are "suffering" inflation. And sensible people eat local fish. They don't waste their pay increases trying to live like sultans--as Venezuela's rich elite is so used to doing.

Can't afford salmon flown in from Norway! Boo-hoo!

We have no reason whatever to doubt justinaforjustice's report from Venezuela. Why would she lie about where she is, or what she pays for coffee or gasoline? There is nothing in her writing that sounds false, or unreal, or "bought and paid for."

Rotters, on the other hand, has always had an agenda favoring the rich and the corporate--and their selective facts in this article, when compared to other information, begin to look screwy as hell. If their numbers are correct, why aren't Venezuelans rioting in the streets? Oh, hey, the rich ARE rioting in the streets! But not about 'inflation'--about the Education Law, which encourages SECULAR education--civics classes, no religious indoctrination--and extends education rights to all people. Funny what the rich riot about in Venezuela.

Why don't you respond to the Inkacola News analysis that I posted, or to the facts that justinaforjustice provides? Or to the url she provides? Why don't you question Rotters' assertions too? Clearly, you have an agenda--with your snippy little demand, questioning justinforjustice's integrity--implying that she's lying, she's not really in Venezuela, she's making it all up.

That's all you can do in the face of facts that contradict your agenda--hurl insults.

The rest of us would really like to understand Venezuela's economy, and economics--so we get our information from varied sources. You seem to want us to bow down to Rotters' corporate agenda as if they were an "authority," as if they were reliable and truthful--when their "economists say" bullshit has led us straight into Great Depression II. They LIE! They twist. They distort. They promote deregulation and "dog eat dog" economics. And they serve rich European investors who have screwed over South America almost as badly as US global corporate predators and the World Bank have. And they and their cronies at the Wall Street Journal, the New York Times, the Washington Post and the Associated Pukes helped destroy our economy--not to mention our Constitution and our reputation in the world.

Well, you can trust them if you want to be an idiot. But don't expect Rotters' bullshit to go unchallenged at DU. And please refrain from insulting comments like this one.

When are you commencing your fact finding trip down there?

who lives and works in Venezuela, and you just insult her and ignore everything she says.

I don't have to go to Ireland to know quite a bit about Ireland, and have an informed opinion about their politics and their economic system. I don't have to go Japan to dig their culture, read up on them, appreciate their art, and have an informed opinion about their politics and their economic system. That is a ridiculous assertion. We might as well all be stupid hicks who know nothing about nothing. Maybe you'd prefer it that way, hm? Keeping people stupid? I can't afford to travel to foreign countries. That doesn't mean I can't know a lot about them, especially when my government has a hostile policy and our corpo/fascist press is deeply tainted with psyops and disinformation about the countries in question and their leaders. I have an obligation as a US citizen, voter and taxpayer to know everything I can possibly learn about countries that my own government and its toady press are constantly bad-mouthing, if not actively seeking to disrupt. But you prefer to keep making your stupid point that I can't possibly know anything about Venezuela without traveling there.

I ask again: Why don't you address the points I raised by posting the Inkacola article, and that justinaforjustice raised from her personal experience in Venezuela?

It's in interesting topic--for the curious, the flexible mind, the objective mind. Why is her economic sector not suffering from inflation? Is inflation in Venezuela only a matter of people who can't afford to have their salmon flown in from Norway? What, if anything, is true in the Rotters article? Why is Inkacola more positive? What is their relative expertise? (--a bit hard, that one, since Rotters mostly uses "economists say" for its assertions, without names or quotations--another reason to distrust them). What is their success rate in predicting developments in Venezuela? How to judge these differing analyses?

You don't seem interested in addressing facts and analysis I've provided, personal experience and a url that justinaforjustice provided, or anything useful that anyone contributes to this discussion. You seem only interesting in dissing people who ARE interested and people who know something about it.

For someone with such a vested interest that just seems downright strange.

I may have to take another trip down there myself one of these days.

You want to pay my way?

And STILL you don't respond to anything I've said about the OP, or info I've provided, or questions I've posed, and to anyone else's comments. Just this same theme over and over and over again. You are a "broken record," WriteDown.

Whenever I've been in Central America its usually cost me under 1000$ and that is with lodging included. Of cours, I'm usually staying in the jungle.

I just noticed that the people who haven't been anywhere near places like Panama, Nicaragua, Venezuela, etc. sure seem to "know" a lot.

You are the first person who ever decided it would be a good idea to imply she is lying. Incomprehensible.

DU'ers knew long ago she was a US lawyer, and that she has moved to Merida, Venezuela whe she teaches English now. You could determine that much if you even bothered to take the time to go to her journal which has been available for a long time, and start working back. If you can withstand the pressure of concentration you may enlighten yourself. Her credentials are far more than adequate.

How fascist.

on a wide range of topics, including some superior posts on Venezuela with information I'm very certain never made the newspapers or wire services here.

Break down and do your homework, as the rest of us must, and do.

Seems like that would be high on your list of things to do?

s

I'll take a left-winger that understands economics, please.

Any corroboration for your calumnious assertion?

How many political prisoners are there right now in Venezuela?

Do you have any information about Hugo Chavez doing ANYTHING unconstitutional as the President of Venezuela?

Venezuela has had enough real, bona-fide, cruel dictators historically so that the people would know if that BS, you might even believe, were true.

Show me!