Venezuela’s Price PoliceAlvaro Vargas Llosa • Monday November 11, 2013 2:03 PM PDT •
Venezuelan President Nicolás MaduroThe Venezuelan government’s war on price inflation is not a metaphorical one—last weekend President Maduro, who owes his title to April’s rigged election, ordered the military takeover of Daka, a chain of electronic stores, and the arrest of several managers from that and other retail companies. The rhetoric employed by Maduro was inevitably interpreted by the masses as an encouragement to loot—which is what they did in the city of Valencia.
Besides the images sent out by citizen-reporters in Valencia, the picture that best captures the essence of what is happening is the one tweeted by a government minister who tried to justify the measures. The photo shows a washer/dryer that, in the words of the minister, “cost 39,000 VEF on November 1 and today costs 59,000 VEF, a nearly 100 percent rise in a week...”
Yes, minister, that is precisely what happens when you are on the verge of hyperinflation! The inflation rate is now nearing 60 percent and, as anyone who has lived under those conditions (including yours truly) knows, going from 60 percent to 1,000 percent is a lot easier than going from 3 percent to 40 or 50 percent.
For many years Venezuela has produced nothing but oil (in decreasing quantities) and has therefore had to import pretty much everything the population consumes. The artificial level at which the government has kept the bolivar in spite of the massive outflow of hard currency required to meet those import needs has, of course, caused a severe drop in foreign-exchange reserves. Government controls and the militarization of the economy have not prevented the black market from taking the real exchange rate to a level ten times higher than the official one. No wonder people who have to obtain US dollars to import even the most basic stuff sell it at much higher prices than the government Wonderland economy dictates.
But that is not all. Since 2002 the money supply (M1) has grown at an annual rate of 54 percent while real GDP per capita has risen at an annual rate of just under 4 percent. The socioeconomic model based on producing nothing and consuming everything at subsidized prices, printing colossal amounts of money to paper over the government’s yawning fiscal gap, and waging literally a war on private businesses has led to a stagflation—minimal growth and skyrocketing prices that have turned ministers into photographers. A few weeks from the local elections that will be the first test of Maduro’s support since the rigged presidential election, the political consequences are already serious—he faces the possibility of such a big defeat that the numbers will simply overwhelm the government´s ability to commit yet another electoral fraud.
This explains Maduro’s desperate move over the weekend. The man who openly encouraged people to loot and ordered the military to takeover several stores around the country in an attempt to lower consumer prices understands all too well that he is in danger. He lacks Hugo Chavez’s charisma, he is presiding over a regime that exhibits growing cracks, and he is fast losing support according to the few polls one can trust in that environment.
We don’t know if he will be able to rig the next election at this point. But we do know this: He cannot win the war on inflation (soon hyperinflation) no matter how many stores he takes over, how many managers he throws in jail, and how many businesses he allows the masses to loot. Sooner or later, price inflation will cause his demise.