Archive for the ‘economics’ Category

Venezuela: The start of the really bad news

Saturday, November 16th, 2013

Venezuelan dictator Nicolas Maduro inaugurates a new state of bad news in Venezuela: Like his Cuban Communist bosses, Maduro is now incarcerating business owners. Their crime? Owning a business:
Venezuela Arrests 100 ‘Bourgeois’ Businessmen In Crackdown, Maduro Says

Venezuelan President Nicolas Maduro said on Thursday that authorities had arrested more than 100 “bourgeois” businessmen in a crackdown on alleged price-gouging since the weekend.

“We have more than 100 of the bourgeoisie behind bars at the moment,” Maduro said in a speech to the nation.

One of them movingly tries to protest (in Spanish) in vain,

Make no mistake, this is the start of the really bad news.

Venezuela’s House of Cards goes from bad to worse, as Steve Hanke points out:

the implied monthly inflation rate has now ramped up to 36%, as shown in the chart below. That’s dangerously close to the hyperinflation threshold of 50% per month. This is due to an accelerating depreciation of the bolivar, reflecting Venezuelan’s deteriorating economic outlook.

Indeed, the repression is going to worsen, as the regime will never admit that Communism doesn’t work.

Venezuela: Price controls, profit caps UPDATED

Tuesday, November 12th, 2013

As if the Venezuelan economy wasn’t going to hell on a hand basket fast enough, Venezuela Moves to Cap Prices, Profits
Venezuelan President Nicolás Maduro began to extend price controls over a broad swath of the economy in a bid to control inflation set off by his government’s increased spending, moves which risk exacerbating shortages in this oil-rich nation.

Caracas’s move to control prices came after the central bank reported last week that inflation had reached 54%, the highest rate in nearly two decades and, according to Trading Economics, a website that tracks global economic statistics, topping even war-torn Syria with the world’s highest rate.

Venezuela’s woes also come in an era of low global inflation, and when most neighbors, such as Colombia enjoy annualized inflation rates of around 2%.

The central bank report also signaled the likely culprit for the rise: The amount of bolívares in circulation rose 70% over the past year, a clear sign the government is printing ever larger amounts of money to stoke a slowing economy.

Rather than acknowledging increased spending, Mr. Maduro late Sunday blamed businesses that he said were responsible for hoarding and price-gouging as part of a so-called economic war against his administration.

Maduro is timing this ahead of the December 8 regional elections, even when he’s already said “that the results are already in” and has threatened jail for anyone who disagrees with same results.

Video in Spanish:

Johns Hopkins professor of economics Steve Hanke calculates that Venezuela has an implied annual inflation rate of 320%. The further radicalization of disastrous Chavista economic policies will make this worse.

Regarding the looted appliance store Daka, Miguel Octavio points out that It Is All About Arbitrage in Venezuela

My suspicion is that the viciousness against Daka was largely due to the company either receiving goods from Government imports (My main bet!) or receiving some Cadivi dollars for the stuff they sell. Daka was simply taking advantage of the arbitrage the Government was handing it over on a silver plate and the Government found out about it and got mad.

Venezuela Becomes A Nation Of Looters

Mexico: Tax my chocolate!

Thursday, October 31st, 2013

Higher tax rates for the rich are only half the story; there are new taxes on sugary soft drinks, chocolate and junk food, dividends, mining, and an increase in the value-added tax to 16% from 11% in border areas,,

The Senate also ratified a new 7.5% tax on mining companies’ earnings before interest, taxes, depreciation and amortization—and an additional 0.5% charge on sales of gold, silver and platinum.

What the Mexican Senate has done is to essentially raise taxes on everybody.

The Mexican Ministry of Finance had lowered its economic growth projection for 2013 to 1.8% earlier this year.

In a country where tax avoidance is rife, adding inflationary measures like taxes on consumer items and higher VAT while at the same time punishing the mining industry does not bode well for growth.

Luckily for you, gentle reader, you can buy your Mexican chocolate through these Amazon links,

Go ahead. You know you want to.

Mexico: Is Peña Nieto backtracking?

Tuesday, October 22nd, 2013

Mary O’Grady raises the question,
As Leftists Attack, Mexico’s President Retreats Tax increases and higher deficit spending? The promise of more economic freedom is fading.

Union thuggery is not news. But the government has not done much to prevent it. Criminal prosecutions for violence are rare. Paralyzing the capital or an important highway often results in negotiations with the government and compromises, reinforcing the behavior.

This is worth noting as Mr. Peña Nieto works his plan of tax increases and higher deficit spending through Congress this week. The package includes new taxes on capital and dividends and progressively higher income-tax rates on earnings above $38,000 annually, with fewer deductions. In 2014, public-sector borrowing requirements as a percentage of gross domestic product are forecast to reach 4.1%, a level not seen in more than a decade.

Mr. Peña Nieto is proud of the tri-party political agreement—dubbed “the pact”—that he won with the center-right and the hard-left in the early days of his government. It is designed to minimize gridlock. But for a president who has pledged to boost productivity, this is more like a suicide pact.

Paco Almaraz had something to say (in Spanish) about protesting-teacher burnout,


Last night at PU: Krauze and Vargas Llosa, the two giants

Wednesday, October 9th, 2013

Imagine the two foremost figures of Latin American letters having a conversation on the politics of the region, and you being able to listen. Well, that was the scene last night at 50 McCosh on the Princeton University campus.


Nobel Prize for Literature Mario Vargas Llosa conversed with historian Enrique Krauze Kleinbort in front of a standing-room-only audience. The two gentlemen spoke about Peru, Mexico, Uruguay, Venezuela, and Cuba, among other countries. The Daily Princetonian reports,

“Latin America is improving. We have more democracy; we have large consensus on what kind of economic policies we need to develop and become modern and successfully fight poverty,” Vargas Llosa said, adding that the transformation of most Latin American nations in recent years has been formidable. “Poverty has diminished; in statistical terms, the poverty level is still large, but the way which the middle classes have been grown in the country is fantastic.”

Vargas Llosa cited Uruguay’s economic success as a model for the rest of Latin America. He said that the country has seen very liberal social reforms, including gay marriage and gay rights. “Not liberal in the American sense,” he added to the audience’s laughter.

More importantly, Vargas Llosa enumerated, Uruguay has respected its constitution, has independent strong institutions, observes the rule of law and welcomes foreign investment.

Krauze is not as optimistic on Mexico, pointing out the country’s recent lack of economic growth and the absence of a moderate left.

I had the pleasure of asking what the Pacific Alliance may mean for the hemisphere . Vargas Llosa said it will be the only alliance that will endure; Krauze pointed out “best yet, like the name says, it’s pacific”.

It was a splendid evening, bringing many insights from two of the greatest minds in the contemporary world.

Troubled currencies: Argentina & Venezuela

Saturday, October 5th, 2013

Prof. Steve Hanke updates on his Troubled Currencies project,

Venezuela: While the crises in the Middle East are easing, the troubles in Venezuela are far from over. The black market exchange rate for the Venezuelan bolivar has fallen from 44.03 per U.S. dollar on September 24th to 40.92 on September 30th. This represents an appreciation of 7.6% over the last week. The implied annual inflation rate as of September 30th sits at 255%, down from a local high of 292% on September 17th. The ConocoPhillips dispute, a massive blackout, and worsening shortages caused by price controls have ravaged the Venezuelans’ confidence in the bolivar over the month of September.

Although the bolivar has rebounded modestly in recent weeks, this simply indicates that the economic outlook in Venezuela is only slightly less miserable than it was in mid-September. The economy is still on a slippery slope and economic expectations continue to be weighed down by the fragile political atmosphere, worsening shortages, and the ever-present specter of political violence. An inflation rate of 255% is nothing to celebrate.

Argentina: The black market exchange rate for the Argentine peso has held steady at around 9.5 per U.S. dollar since September 25th, with a 9.55 exchange rate on September 30th. That represents a 2.9% decrease in the value of the currency from the September 22nd rate of 9.27. The implied annual inflation rate as of September 30th sits at 54%, a decrease from the rate of 49% on September 22nd.

UPDATE: Linked by Babalu. Thank you!

Brazil: Moody’s lowers outlook

Thursday, October 3rd, 2013

After a few years on the upswing, this: Downgraded from positive, to stable,
Moody’s Lowers Outlook for Brazil
The ratings company says challenges are building for Latin America’s largest economy amid a sharp slowdown in economic growth.

It’s the second time this year that Brazil has had bad news on the credit ratings front. In June, Standard & Poor’s cut its outlook on Brazil to negative from stable, raising the possibility of an outright downgrade. A lower credit rating makes it more expensive to borrow money.

In a statement, Moody’s said that some of the key factors that were positive for Brazil “are no longer present.”


Latin America’s biggest economy expanded less than forecast by analysts in five of the past six quarters and the central bank trimmed its 2013 growth outlook to 2.5 percent from 2.7 percent this week. Brazil’s industrial production unexpectedly stalled in August as factories reduced output of consumer goods, suggesting gross domestic product will contract in the third quarter, according to Banco J. Safra SA.

The lowering of the outlook is “a testament to maybe some of the structural constraints on growth that Brazil currently faces because we haven’t seen enough progress on structural reforms over the last several years including investments in basic road infrastructure,” said Leif Eskesen, an economist at HSBC Holdings Plc in Singapore. “They are running a government deficit of more than 3 percent and the gross debt-to-GDP ratio has been rising.”

Last week The Economist was recommending that Brazil do three things,

It needs to rediscover an appetite for reform by reshaping public spending, especially pensions.
. . .
Second, it must make Brazilian business more competitive and encourage it to invest
. . .
Third, Brazil urgently needs political reform

That’ll be a good start.

Why has Brazil stagnated?

Friday, September 27th, 2013

The Economist is asking, Has Brazil blown it?
A stagnant economy, a bloated state and mass protests mean Dilma Rousseff must change course

The Economist’s op-ed looks at the factors why Brazil’s economy grew by only 0.9% in 2012:

  • The world’s most burdensome tax code
  • Absurdly generous pensions
  • Spending only 1.5% of GDP on infrastructure, compared with a global average of 3.8%
  • Gross public debt has climbed to 60-70% of GDP

The Economist recommends that Brazil do three things:

It needs to rediscover an appetite for reform by reshaping public spending, especially pensions.
. . .
Second, it must make Brazilian business more competitive and encourage it to invest
. . .
Third, Brazil urgently needs political reform

None of this is likely to happen; Carlos Alberto Montaner writes

“All you have to do is read the records of the São Paulo Forum and observe the conduct of the Brazilian government,” he said. “The friends of Luis Inácio Lula da Silva, of Dilma Rousseff and the Workers Party are the enemies of the United States: Chavist Venezuela, first with (Hugo) Chávez and now with (Nicolás) Maduro; Raúl Castro’s Cuba; Iran; Evo Morales’ Bolivia; Libya at the time of Gadhafi; Bashar Assad’s Syria.

“Cuban influence in Brazil is covert but very intense. José Dirceu, Lula da Silva’s former chief of staff and his most influential minister, had been an agent of the Cuban intelligence services. In exile in Cuba, he had his face surgically changed. He returned to Brazil with a new identity (Carlos Henrique Gouveia de Mello, a Jewish merchant) and functioned in that capacity until democracy was restored. Hand in hand with Lula, he placed Brazil among the major collaborators with the Cuban dictatorship. He fell into disgrace because he was corrupt but never retreated one inch from his ideological preferences and his complicity with Havana.”

Yesterday commenter Marcos stated,

please write more about the Forum of Sao Paulo, the organization created by Brazil’s Lula and Castro to change Latin America into an united Marxist region. Brazil has totally fallen to Marxism and is now engaged in the help of all marxist partners.

Brazil has already received the first of 4000 Cuban physicians who will come to indoctrinate Brazilian poor people on the wonders of communism. These guys are not even certified as doctors and are slaves who never see their salaries (money goes directly to Fidel).

Add to that the immense, structural corruption, and the drug trade from fellow Foro member Bolivia.

Back in 2009 The Economist had a picture of the Corcovado Christ as a rocket. Now the rocket is on a crash course:

Is The Economist’s image a good summation of the country’s situation?

You decide.

Colombia: Alvaro Uribe at the House Committee on Foreign Affairs

Friday, September 13th, 2013

Earlier this week, former Colombian president Álvaro Uribe testified at the Subcommittee Hearing: Challenges to Democracy in the Western Hemisphere

His complete statement is available online. I found this section particularly interesting,

Triggers of Change
The potential for positive change in growth in the years ahead is not an accident; it is a consequence of the consistency, congruence and sense of urgency that a group of countries have adopted as their policy cornerstone. Brazil, Mexico, Colombia, Chile, Peru, and Uruguay represent 70 per cent of the region’s population and 75% of the regional GDP.

This group of countries has common characteristics that explain their outstanding performance:
The strengthening of Liberal Democracy.
The adoption of an institutional Framework in favor of foreign and national investment.
The construction of a sound and sustainable social safety net.
The expansion of export markets and the commercial integration with the world (through free trade agreements).
A public administration driven by results and the elimination of the byzantine ideological debate between left and right.
A sound macroeconomic administration driven by fiscal and monetary prudence.
Better regulatory environment.
Construction of strategic infrastructure.
The consolidation of an innovation agenda leaded by an improvement in education.
A well capitalized financial sector and the constant expansion of financial services.

Today countries like Panama, Dominican Republic, Costa Rica, Guatemala, Salvador, Honduras, and Paraguay, as well as most of the Caribbean States, are following this line of behavior. Because of that, the IDB, with Luis Alberto Moreno as its leader, many analysts, statesmen and prestigious publications like The Economist, are optimistic and talk about “The Latin American Decade.”

Countries that opted for a sound evolution of policies have motivated sustainable positive change. Countries that have opted for a “Revolution” to accommodate the institutional order in favor of an ideology have been shown to be ones with instability, limitation of individual liberties, government intervention, lack of confidence from investors, and a growing social polarization with the risks of political turmoil’s [sic].

Read the whole thing.

The Swedish model

Tuesday, September 3rd, 2013

No, not this one,

not this one, either,


this one: The Swedish model for economic recovery (emphasis added)

After its crisis, Sweden reduced public expenditures by 20 percent of its gross domestic product, slashing social transfers such as unemployment benefits and sick-leave compensation. It cut its public debt in half (its debt, as a proportion of the economy, is now about half that of the United States). It cut marginal tax rates and simplified its tax code so much that nearly two-thirds of Swedes simply confirm by phone that the declaration automatically prepared for them by the tax authorities is correct. The banking system was thoroughly reformed and emerged unscathed from the global financial crises.

Structural reforms were also adopted. Successive governments deregulated one market after another and privatized as market conditions permitted. All children receive vouchers so their parents can choose private or public schools at public expense. Swedish social security became a true insurance system, rather than a pay-as-you-go one with huge unfunded liabilities as in the United States.

Sweden remains a social welfare society, and government spending still accounts for half of its economy; it finances all education and health care, as is common throughout Europe. Sweden did not dismantle the social system but, in addition to drastically reducing its costs, adopted macroeconomic and structural reforms to make it sustainable and greatly enhanced its efficiency by privatizing the delivery of many educational and medical services. The country’s guiding principle is that a successful social welfare society must be fiscally conservative and administratively efficient. This is the central Swedish lesson for the crisis countries of the euro zone and elsewhere.

Economic policies based on competition and openness, carried on a free-market economy and a high degree of government efficiency.

A model for our hemisphere.

And yes, a little Rule 5 for all is always good for catching your attention to the subject of economics, isn’t it?
Fausta’s blog: an equal-opportunity rule fiver!