Venezuela's economic measures - first considerations
By Editorial, 15 y Ultimo
Les Blough, Axis of Logic, Translator and Editor
Monday, Sep 18, 2017
|Now President Maduro's economic measures are known, and pending further clarification, we can state the following preliminary considerations and early warnings:
1.There is no doubt about the president's commitment to the working class and defense of salaried majorities against speculation. Now, the plan of 50 protected items, whose prices will be agreed with the producers / importers, need to include several factors so that it can function as a price stabilization plan.
2. The first is that the final price of a product or item cannot be guaranteed if the costs of production is not guaranteed. This is the case, for example, of chicken or meat: little can be done with regulating its final price if the price of balanced animal feed is not regulated.
3. Price negotiation mechanisms have the advantage of sharing responsibility between the regulator (the state) and the private sector. However, it is often the case that before and during the negotiation process, prices and scarcity are triggered, mainly for three reasons.
The first, because traders and producers take the "foresight" of saving (hoarding) the existing merchandise or delaying production waiting as they wait for the new prices resulting from said negotiation (i.e. speculation).
The second, because such a monopolistic-speculative practice serves as a blackmail at the time of negotiation. And the third, because conscious of this process, the consumers are sent to look for the products in question, contributing to the speculation and the scarcity [i.e. demand].
It is for these reasons that, in general, negotiations must be accompanied by temporary price freezes or failing that, there must be an active and immediate audit.
4. In the context of a speculative economy with a strong component of distribution like ours, and deliberate actions of sabotage (which the State itself denounces), the price of protected items has to deal not only with that of the inputs along the production chain, but also with the price of other goods that push through the adjustment of relative prices.
That is, the price of chicken obviously depends, among others, on the price of the balanced chicken feed. But it is also affected by the the price of meat or clothing, to the extent that those who produce chicken are in turn the consumers of these other things. In this case, the trader/producer's argument will be that the cost of living rises so he/she needs to increase his income but not to guarantee the production or sustainability of his own business nor his own costs as a person (who eats, pays services, family, etc.).
5. We always salute and defend wage increases from this position. And we believe that it is a theoretical and political fallacy to affirm that they are inflationary. However, we must be aware that in the context of the economic war and pledges to distribute, such increases are exploited by speculators who fraudulently raise prices. The failure to take immediate measures to combat speculation will repeat the scheme under which wage increases are quickly devoured by prices.
6. An agreed stabilization of prices involves controlling two variables: transparency and expectations, as the idea is to move from uncontrolled indexing (the world fixing the price as it desires) to a coordinated one. Accordingly, it requires that all parties involved put all available information on the table. These include the price index (NCPI), the exchange rate and the distribution of income, both projected and completed, so that the parties have a frame of reference for negotiation. Thus, the ideal is to update the publication of indicators in these and other economic matters.
7. On the other hand, there can be no price stabilization with exchange rate adjustment [dollar to bolivar]. In this sense, in the face of the new, imminent electoral event [i.e. the gubernatorial elections slated for October], faced with the presence of specific foreign threats and aggressions, given the existence of a parallel exchange rate that, as the government itself has said, is adjusted for political reasons and the non-cooperative behavior of collaborators who are holding local currencies, rather than “the market.”
This includes those whom the president himself has denounced, those who receive foreign exchange [dollars at preferential prices] for export under the Bolivarian Economic Agenda without liquidating in the DICOM that part that touches on the dividends obtained by the recipient. Due to these economic manipulations the gubernatorial elections in October are confronted with the exchange rate which likely will continue to rise, pushing prices in the same direction and serving as an excuse for speculators.
8. The question for the exchange houses is who will price the currencies that are amassed in them. Will it be the State with it’s current restricted offer or their private operators?
If it is the first scenario, it does not seem feasible that a stabilized exchange rate can be sustained, given conditions described in the previous paragraph, but also given a demand for foreign exchange that exceeds its available supply.
And if it is the second, the private companies will most likely seek to put currencies at the highest possible price, which leads them to endure the liquidation of foreign currency, saying that when the exchange rate is raised, they will have to pay less to obtain more bolivars. This is what is currently happening to Macri, who in order to to support the exchange rate (which continues to rise) and the inflation target (which the Central Bank has already acknowledged can not meet) borrows, since the private operators - which are its own allies - do not liquidate.
1.Venezuela’s Complementary Currency Exchange System with Floating Market Agenda
2. The Bolivarian government has consistently increased workers’ wages atuned to rising prices and the two in tandem produce spiraling inflation. But it is not a “chicken or the egg” scenario. Rather, instead of basing their prices upon the legal exchange rate, retailers adjust prices to the price of the dollar as arbitrarily fixed and published daily on “black market dollar” websites like Dolar Today and Dolar Paralelo located in the United States.
Parallel exchange rate or “black market dollar. President Maduro explained how consumer prices are fixed upon the parallel exchange rate causing a “fraudulent inflation.” One can truly appreciate this by looing at the history of the dollar to bolivar cost ratio in 2017 alone: In January 2017 the price on the black market for one dollar was 3415 bolivars 1:3415. In June it increased to 1:8200. When elections for the new Constituent Assembly were underway in July, rejected by the opposition and Washington and leading to President Trump’s threats, the price shot up to 1:1253. Following the success of the Constituent Assembly in August, the price rocketed to 18,193. Today, 15 September, the price stands at 23,744,63 bolivars to purchase one dollar. These escalations are not based upon respected economic principles; rather, they are arbitrarily fixed to increase consumer prices and destroy Venezuela’s national currency, the bolivar.
Les Blough, Axis of Logic, Translator and Editor
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