Saturday, 3 May 2014

The Idiots that manage Venezuela's economy

If you want to understand how thick the managers of Venezuela's economy are you just have to read a couple of statements.

Merentes, the president of the Central Bank of Venezuela, declared 14 March that Venezuela would have a GDP growth of 4% (four per cent) for the current year. The IMF stated two weeks later what this blogger said last year: Venezuela is going to enter a recession. The IMF thinks Venezuela will show a GDP of -0.5% for 2014.

Merentes said 21 April there would be a "slow growth" and high inflation.
Venezuela's economy could improve so much if we just made this chicken finance minister or head of the Central Bank

Of course, he and the rest of the regime are now blaming the slow GDP on the students and the rest of those who oppose the government. Never mind his first, very positive forecasts came right after the most virulent protests.

Back in 2012 Merentes  stated Venezuela was likely to have a GDP growth of at least 6% in 2013. In reality the GDP grew -officially- only 1.2%, which is lower than Venezuela's population growth. There were no big surprises, oil prices were just a little bit lower (around 3%) than in 2012. The Chinese loans for the election time and the massive money-printing were the main reasons why the GDP didn't drop more dramatically.

Merentes is a mathematician, but he doesn't seem to be even that. By all means he has no clue about economics. He studied in Hungary just at the time Hungary's communism was crumbling down, but he didn't seem to have learnt anything from the mess he saw there. Seriously: a poor, illiterate grandmother could have a much deeper understanding of Venezuela's micro- and macroeconomic issues than this joke of a minister-president-of-Central-Bank.

The other key men managing Venezuela's economic policies are communist Jorge Giordani, aka the Monk - read Rory Carroll's book to understand more about him - and Rodolfo Clemente Marcos, a military honcho who took part in the bloody February 1992 coup led by the caudillo Chávez.

We don't have to be seers to see what's in the offing. Venezuela will most likely get into a serious recession this year. It doesn't matter that the government will do all it can to borrow more money from the Chinese. This economic mess is taking place in the middle of the longest oil boom in our history. The regime will keep concocting new bureaucratic measures to "fight the economic war", measures that will only trammel economic development and keep promoting more corruption. The 31 ministers and over 100 vice-ministers will keep their obstreperous stance trying to explain why their mess is the opposition's and the US's fault.

Expect more repression to go along with all this.

What else do I expect?

  • More rounds of negotiations with the Chinese for Q4 to get more loans to be paid in 2015-2017
  • Higher electricity prices for companies in Q2
  • A series of new laws to try to get more money from all kinds of fines to private companies
  • New talks with the Chinese - who are getting more cautious by the day - for them to exploit gold, iron and more natural resources for some extra cash
Some time ago I tried to gauge the correlation between annual GDP and oil price difference. Of course, the relation is there but it is not quite as strong as many would suspect: the real oil price flow is highly variable due to very changeable contracts, the government has borrowed more and more money in order to make up for the sinking return for every petrodollar...still, I believe the correlation will become more apparent from now on.

In the next couple of weeks I hope to get more concrete data to produce some raw forecasts. Mind: I am no economist but the way I have seen the economists work...

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