A former bus driver once responsible for navigating Venezuela’s complex web of roads, the country’s current president, Nicolas Maduro, now faces the more difficult task of steering the country’s economy.
On November 9, Maduro sent soldiers to occupy several major electronics stores after accusing entrepreneurs of price gouging.
“The ones who have looted Venezuela are you, bourgeois parasites,” he said. In a speech on November 8 he said “We’re doing this for the good of the nation.
Leave nothing on the shelves, nothing in the warehouses!”Over the weekend, bargain-hunters in Caracas, the country’s capital, waited outside outlets of the Daka electronics chain, hoping to purchase deeply discounted goods.
Carlos Rangel, one of several hundred people in line outside a Daka store in Caracas, explained “Inflation’s killing us. I’m not sure if this was the right way, but something had to be done.”
Maduro claims that government inspectors have encountered cases of goods being sold at prices ten times higher than the prices of in the state stores.
He cited the case of air-conditioning units being sold for 36,000 bolivars ($5,730) at Daka versus 7,000 bolivars ($1,113) in state-owned stores.
However, Maduro did not address the fact that Venezuela’s system of price controls makes it difficult to exchange currency for dollars at the official rate, forcing entrepreneurs into an unofficial market.
“Because they don’t allow me to buy dollars at the official rate of 6.3, I have to buy goods with black market dollars at about 60 bolivars, so how can I be expected to sell things at a loss? Can my children eat with that?” said one businessman, who asked to not be identified.
According to Reuters, “Venezuela’s runaway inflation – the annual rate is now 54 percent, the highest since Chavez came to power in 1999 – is due to economic mismanagement and the failure of socialist policies rather than unscrupulous retailers.
Opponents say excessive government controls and persecution of the private sector are to blame for shortages of basic goods ranging from flour to toilet paper, and for price distortions and corruption caused by a black-market currency rate nearly 10 times higher than the official price.”
According to The Economist’s Big Mac Index, a tool that measures exchange rates and prices at purchasing power parity, Venezuela has the most over valued currency in Latin America, and in comparative terms, the second most expensive Big Mac in the world.
Venezuela’s government nationalized the cement sector in 2008, targeting facilities owned by Mexico’s Cemex and other companies. Exxon Mobil and other oil companies have pulled out of the country and many investors remain skeptical.
Henrique Caprils, a right-of-center opponent who lost the presidential election to Maduro by a narrow margin has not reserved his criticism. “Never in our history have we had anyone so incompetent in [the presidency],” Capriles tweeted.
“Everything Maduro does means more destruction of the economy and investor flight,” he added, via Twitter.
David Smilde, a Venezuela scholar from the University of Georgia explained “Venezuela’s immense resource base means it is not on the verge of collapse or default…But it is sliding into serious economic dysfunction.”
Although oil production is declining, annual revenues from the oil sector are worth twice as much as the value of the country’s debt, a fact which provides the government with cash for social and political projects and makes default unlikely.
For now, Maduro’s government can continue to supply the public with foreign goods imported at the official currency rate and engage in theatrics as a distraction. But the underlying economic problems in Venezuela are not being addressed.
According to Michael Riddell, a bond fund manager at London-based M&G Investments, “The big warning sign for Venezuela is its plummeting foreign exchange reserves.”
While shortages of toilet paper have become a challenge for residents, Venezuela’s economic challenges are also a problem for corporate interests. In October Toyota announced that it would shutter its Venezuelan plant for two weeks after struggling to secure dollars and buy inputs.
Maduro has inherited the economic problems set in place by his predecessor, Hugo Chavez. He has been slow, however, to propose real solutions to Venezuela’s current problems.
He faces the challenge of devaluing the Bolivar, a move that would boost the local currency receipts of oil exports but also drive up import prices.
Facing an important municipal election cycle in December, Maduro has little time to make serious proposals to right Venezuela’s economy. In the longer term he faces a major challenge when it comes to steering the economy out of its current traffic jam.
forbes.com
On November 9, Maduro sent soldiers to occupy several major electronics stores after accusing entrepreneurs of price gouging.
“The ones who have looted Venezuela are you, bourgeois parasites,” he said. In a speech on November 8 he said “We’re doing this for the good of the nation.
Leave nothing on the shelves, nothing in the warehouses!”Over the weekend, bargain-hunters in Caracas, the country’s capital, waited outside outlets of the Daka electronics chain, hoping to purchase deeply discounted goods.
Carlos Rangel, one of several hundred people in line outside a Daka store in Caracas, explained “Inflation’s killing us. I’m not sure if this was the right way, but something had to be done.”
Maduro claims that government inspectors have encountered cases of goods being sold at prices ten times higher than the prices of in the state stores.
He cited the case of air-conditioning units being sold for 36,000 bolivars ($5,730) at Daka versus 7,000 bolivars ($1,113) in state-owned stores.
However, Maduro did not address the fact that Venezuela’s system of price controls makes it difficult to exchange currency for dollars at the official rate, forcing entrepreneurs into an unofficial market.
“Because they don’t allow me to buy dollars at the official rate of 6.3, I have to buy goods with black market dollars at about 60 bolivars, so how can I be expected to sell things at a loss? Can my children eat with that?” said one businessman, who asked to not be identified.
According to Reuters, “Venezuela’s runaway inflation – the annual rate is now 54 percent, the highest since Chavez came to power in 1999 – is due to economic mismanagement and the failure of socialist policies rather than unscrupulous retailers.
Opponents say excessive government controls and persecution of the private sector are to blame for shortages of basic goods ranging from flour to toilet paper, and for price distortions and corruption caused by a black-market currency rate nearly 10 times higher than the official price.”
According to The Economist’s Big Mac Index, a tool that measures exchange rates and prices at purchasing power parity, Venezuela has the most over valued currency in Latin America, and in comparative terms, the second most expensive Big Mac in the world.
Venezuela’s government nationalized the cement sector in 2008, targeting facilities owned by Mexico’s Cemex and other companies. Exxon Mobil and other oil companies have pulled out of the country and many investors remain skeptical.
Henrique Caprils, a right-of-center opponent who lost the presidential election to Maduro by a narrow margin has not reserved his criticism. “Never in our history have we had anyone so incompetent in [the presidency],” Capriles tweeted.
“Everything Maduro does means more destruction of the economy and investor flight,” he added, via Twitter.
David Smilde, a Venezuela scholar from the University of Georgia explained “Venezuela’s immense resource base means it is not on the verge of collapse or default…But it is sliding into serious economic dysfunction.”
Although oil production is declining, annual revenues from the oil sector are worth twice as much as the value of the country’s debt, a fact which provides the government with cash for social and political projects and makes default unlikely.
For now, Maduro’s government can continue to supply the public with foreign goods imported at the official currency rate and engage in theatrics as a distraction. But the underlying economic problems in Venezuela are not being addressed.
According to Michael Riddell, a bond fund manager at London-based M&G Investments, “The big warning sign for Venezuela is its plummeting foreign exchange reserves.”
While shortages of toilet paper have become a challenge for residents, Venezuela’s economic challenges are also a problem for corporate interests. In October Toyota announced that it would shutter its Venezuelan plant for two weeks after struggling to secure dollars and buy inputs.
Maduro has inherited the economic problems set in place by his predecessor, Hugo Chavez. He has been slow, however, to propose real solutions to Venezuela’s current problems.
He faces the challenge of devaluing the Bolivar, a move that would boost the local currency receipts of oil exports but also drive up import prices.
Facing an important municipal election cycle in December, Maduro has little time to make serious proposals to right Venezuela’s economy. In the longer term he faces a major challenge when it comes to steering the economy out of its current traffic jam.
forbes.com
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