Fausta's Blog

American and Latin American Politics, Society, and Culture

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Venezuela: Price controls, profit caps UPDATED

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.

UPDATE:
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


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Mexico: Tax my chocolate!

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.

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The Cristina headache Carnival of Latin America and the Caribbean

LatinAmerThe week’s big news: Cristina Fernández is recovering from brain surgery, which has generated a political headache.

ARGENTINA
Mary O’Grady: Kirchner Moves Against Argentina’s Free Press
The government acts to strip the most important television network of its main source of revenue.

Cristina Fernández health scare symbolises Argentina’s ills

BRAZIL
Power couple
Marina Silva joins the Socialists—and transforms the presidential race

Brazil prison fight leaves 13 dead
A fight between members of rival gangs in Pedrinhas prison in north-eastern Brazil leaves 13 people dead and at least 30 injured.

COLOMBIA
Canadian Miner Freed in Colombia Returns to Work
Gernot Wober, a Canadian mining company executive kidnapped in Colombia by Marxist rebels for 221 days, is back on the job.

ECUADOR
Chevron asks judge to review mystery documents in Ecuador case
Emails anonymously provided to Chevron may show a “conspiracy against Chevron,” the oil giant claims, as well as leaks of confidential court materials to high-level Ecuadorian government officials in violation of court orders

Chevron’s Ecuador Defendants Denied Jury Trial by Court

After Chevron-Ecuador, Lawyer Defends Himself
It took lawyer Steven Donziger two decades to secure one of the biggest environmental verdicts in history: a $19 billion judgment against Chevron. Now he’s battling to salvage his reputation—and his financial stake in the winnings.

HAITI
UN sued over Haiti cholera epidemic
The UN faces a claim for compensation by victims of a cholera epidemic in Haiti, which victims’ lawyers say was caused by peacekeepers., via Gates of Vienna.

PARAGUAY
Paraguay mulls patch-up with Venezuela

Paraguay will patch up differences with Venezuela that have paralyzed Mercosur — a trade and political association of several South American nations — and put free trade talks with Europe on the back burner.

PUERTO RICO
Worsening Debt Crisis Threatens Puerto Rico

URUGUAY
Maybe Jose Mujica didn’t want to miss a thing: Uruguay’s President Meets With Aerosmith

VENEZUELA
Venezuela to Pump Dollars into Economy
President Promises to Inject $900 Million Over Next Several Weeks to Help Import Foreign Goods

The week’s posts:
More on Vargas Llosa’s optimism

The Danish modern Salvadorans

Venezuela detains ship with US crew

Panama: Cuban weapons aboard N. Korean ship part of ‘major deal’

Venezuela: Maduro strangles democracy

Mexico: Why the Sinaloa Cartel {hearts} Chicago

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

Cuba: Foreign businessmen jailed for wanting to collect

Brazil: Violent demonstrations, again

Argentina: Cristina recovering from brain surgery


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The Swedish model

No, not this one,

not this one, either,

pic01-6

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!


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Argentina: Kiss your bucks good-bye, part 2

Part 1: The USA is considering siding with Argentina in a Supreme Court case over the 2002 default repayments brought by a group of hedge funds.

Part 2: A New Twist in Argentina’s Bid to Dodge Its Debts
Now the International Monetary Fund may aid an effort to stiff creditors.

On Wednesday, it was widely reported that the International Monetary Fund may file a legal brief with the U.S. Supreme Court—backing the South American country against its lenders.

This is the same IMF that, after years of warnings, issued a “declaration of censure” against Argentina in February for reporting phony economic data, such as an inflation rate 15 points lower than reality. Unless it cleans up its statistical act, Argentina risks becoming the only nation since 1954 to be expelled from the organization.
. . .
Argentina’s $100 billion default is far from typical. For one thing, the country has the money to pay. For another, when it borrowed in the 1990s, Argentina gave special protections to its lenders that other debtor nations usually do not.

In short, they lied.

If creditors cannot enforce contracts, and

If Argentina gets away with stiffing creditors, one consequence will be that lenders in the future will demand higher rates for their higher risk; another is that they won’t make loans.

So, kiss your bucks good-bye.

But don’t worry about the IMF; Argentina paid the IMF in full. They got their bucks.

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Argentina: 33% in poverty

According to this MercoPress report, Over a third of Argentine population in poverty conditions says food and nutrition report; And, what’s worse,

At least 17.8% of the Argentine population lives in indigence conditions, taking as reference a ‘Healthy Food Basket’ which estimates family monthly needs in 3.700 Pesos which is more that five times the official stats office Indec reference sum of 730 Pesos.

Earlier today I mentioned The Troubled Currencies Project; as you can see in it, Argentina’s implied annual inflation rate of 24.60% is more than twice the official 10.34% rate.

Earlier this year the International Monetary Fund made a motion of censure over the country’s failure to comply with the fund’s rules on the reporting of statistics.

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Venezuela: Runaway inflation, runaway asylum

The economy gets worse by the day:
Venezuelan Inflation Surges
Inflation in Venezuela reached a new milestone Tuesday: Prices measured on a yearly basis are now rising at the fastest rate since the late President Hugo Chávez took power in 1999.

The annual inflation rate in June registered at 39.6%, the highest 12-month figure since the central bank introduced a new methodology for its Consumer Price Index in 2008.

That’s the official rate; Johns Hopkins economics professor Steve Hanke has inaugurated The Troubled Currencies Project,

For various reasons — ranging from political mismanagement, to civil war, to economic sanctions — some countries are unable to maintain a stable domestic currency. These “troubled” currencies are associated with elevated rates of inflation, and in some extreme cases, hyperinflation. Often, it is difficult to obtain timely, reliable exchange-rate and inflation data for countries with troubled currencies.

To address this, the Troubled Currencies Project collects black-market exchange-rate data for these troubled currencies and estimates the implied inflation rates for each country. The data and estimates will be updated on a regular basis. A current snapshot is presented in the table below. A time series of these data can also be viewed in graphical form by clicking on the corresponding tab for each country at the bottom of this page.

As you can see at the Project table, Venezuela’s implied annual inflation rate tops 240%, and the value of the Bolivar has gone off the cliff. Additionally,

The central bank’s scarcity index, a measure of products missing from store shelves, eased in June, registering at 19.3%, after hitting record levels in recent months. The scarcity index soared to its highest levels in April at 21.3%, before declining to 20.5% in May.

Which brings us to the subject of runaway spy Edward Snowden, who clearly hasn’t been reading professor Hanke’s work. Just yesterday Glenn Greenwald reported that

Nicaragua and Bolivia have also said they would accept Snowden but Venezuela is better poised “to get him safely from Moscow to Latin America and to protect him once he’s there,” Greenwald told Reuters. “They’re a bigger country, a stronger country and a richer country with more leverage in international affairs.”

On their part,

The Venezuelan Embassy in Moscow said it had no information on whether the fugitive NSA leaker had completed a deal that would allow him to leave the transit area of an airport in the Russian capital.

I guess Putin hasn’t put the finishing touches on getting Snowden out of the country.


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Peru’s definitely not Cyprus

Last Tuesday in Rick Moran’s podcast I mentioned that the flight of capital from the EU might make emerging markets very attractive.

Well, look at Peru:
Peru intensifies currency fight (emphasis added)

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For the eighth time in 10 months, Peru’s central bank has raised deposit requirements on dollar-denominated accounts to stem the flow of hot money into its fast-growing economy and dampen currency appreciation.
With the sol approaching a 16-year high, Peru’s central bank said that as of April 1, the reserve ratio will rise 0.25 percentage points. The bank, which has ruled out Brazilian-style capital controls, has also been aggressively buying dollars in the spot market to slow the trajectory of the sol.

So far, its strategy has worked, with the sol weakening 1.33 per cent against the dollar this year, after appreciating 5.7 per cent in 2012.

The Peruvian bank’s struggle to rein in its currency is shared by fast-growing neighbour Colombia, which last week said it was willing to double its spending on dollars, to $10bn, this year to take some of the steam out of the peso.

Both countries are enjoying the fruits of years of prudent economic management – but rapid economic growth and low inflation have come hand-in-hand with the kind of current appreciation that makes exporters squeal.

Hmmm. . . Prudent economic management.

Are you listening, Paul Krugman?


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