Blog Yet more subsidies for the rich...

Yet more subsidies for the rich...

Posted by Author on in Blog 49

As is well known, Venezuela has an official fixed exchange rate between the its Bolivar currency and the U.S. dollar. It is also well known to be an overvalued currency and while the government gives it to sectors of the economy that it wants to prioritize not everyone gets dollars at the official exchange rate. Hence, there has been a parallel market where currency is exchanged at free market prices (technically it is bonds that were traded, not currency, but it winds up being exactly the same).

So, for example, stores that were needing to import basic food items or medicines could get dollars at the most favorable exchange rate of 2.6 bolivares per dollar.

People importing less essential items, maybe clothes, would use the less favorable rate of 4.3 bolivares per dollar.

Finally, there were people who were importing things that were not a priority of the governments at all such Ipods or Whisky and they would have to get their own dollars. They would go to the parallel market and pay upwards of 8 bolivares for a dollar.

This blog has long been critical of the government giving out way to may "cheap" dollars via an overvalued exchange rate. However, at least they did tell SOME people wanting some totally frivolous things to bug off and get their own dollars.

Well, it looks like someone got pissed that their whisky was getting expensive or the Ipods whey wanted to give their daughter for her 15th birthday were costing too much because it was determined that the parallel market rate was too high.

Chavez has complained that the parallel market was selling dollars at too high a rate, has threatened and forced to shut down blogs that listed prices, and even raided brokerage firms. The central bank will now make arrangements to give people who formerly used the parallel market directly, at presumably a more favorable rate - may 5 or 6 bolivares per dollar.

Lets back up and think about this for a minute. The government, which controls virtually all the dollars coming into the country due to its controlling the State oil company, has long given "cheap" dollars to many sectors it considered important, and even some rather frivolous ones.

However, there were certain sectors that even the government thought were two frivolous to subsidize with cheap dollars - people importing Ipods, whisky, or simply wanting dollars to take them out of the country - ie capital flight. In fact, as it turns out, of the $29 billion dollars sold on the parallel market last year 70%, yes 70%, were simply people wanting dollars to take them out of the country - ie CAPITAL FLIGHT. Less than 30% went to actually importing anything.

Yet the government considers it important to keep the parallel rate low!?!?!? Why??? Why would any sane government want to subsidize capital flight????

Of course, they shouldn't. And the more expensive dollars were for people wanting to take them out of the country they better - they should have been happy if people wanting to buy dollars to deposit them in a bank in Miami had to pay 20 bolivares for them.

But not this government. The people running it are so confused and so equate a favorable exchange rate for Bolivares with being a sign of success and power that they always want the fewest bolivares to be able to buy dollars. That is probably a big reason why they have always insanely had an fixed and overvalued exchange rate and why they now are in the completely absurd position of giving dollars more cheaply to rich Venezuelans taking money out of the country.

So here we go, billions more dollars to be pissed away on the rich while the country itself stagnates and can't even make its own washing machine!!!