Oil Cash Waning, Venezuelan shelves lie bare - New York Times

By William Neuman,

JAN. 29, 2015

CARACAS, Venezuela — Mary Noriega heard there would be chicken. She hated being herded “like cattle,” she said, standing for hours in a line of more than 1,500 people hoping to buy food, as soldiers with side arms checked identification cards to make sure no one tried to buy basic items more than once or twice a week.

But Ms. Noriega, a laboratory assistant with three children, said she had no choice, ticking off the inventory in her depleted refrigerator: coffee and corn flour. Things had gotten so bad, she said, that she had begun bartering with neighbors to put food on the table.

“We always knew that this year would start badly, but I think this is super bad,” Ms. Noriega said.

Traffic in Caracas, where inexpensive fuel keeps old gas guzzlers on the road.Venezuela May Meet New Reality, and New Price, at the PumpJAN. 20, 2014

Venezuelans have put up with shortages and long lines for years. But as the price of oil, the country’s main export, has plunged, the situation has grown so dire that the government has sent troops to patrol huge lines snaking for blocks. Some states have barred people from waiting outside stores overnight, and government officials are posted near entrances, ready to arrest shoppers who cheat the rationing system.

Because Venezuela is so dependent on oil sales to buy imports of food, medicine and many other basics, the drop in oil prices means that there is even less hard currency to buy what the country needs.

Even before oil prices tumbled, Venezuela was in the throes of a deep recession, with one of the world’s highest inflation rates and chronic shortages of basic items.

One of the nation’s most prestigious public hospitals shut down its heart surgery unit for weeks because of shortages of medical supplies. Some drugs have been out of stock for months, and at least one clinic performed heart operations only by smuggling in a vital drug from the United States. Diapers are so coveted that some shoppers carry the birth certificates of their children in case stores demand them.

Now economists predict that shortages will get even more acute and inflation, already 64 percent, will climb further. The price of Venezuelan oil dropped this month to $38 a barrel, down from $96 in September.

“Things are going to be even worse because oil keeps Venezuela going,” said Luis Castro, 42, a nurse, standing in line with hundreds of others at a grocery store. He had arrived with his wife and 6-year-old son at 6 a.m., but by 11:30 a.m., they had still not entered. “We’re getting used to standing on line,” he said, “and when you get used to something, they give you only crumbs.”

The shortages and inflation present another round of political challenges for President Nicolás Maduro, who has vowed to continue the Socialist-inspired revolution begun by his predecessor, the charismatic leftist Hugo Chávez.

“I’ve always been a Chavista,” said Ms. Noriega, using a term for a loyal Chávez supporter. But “the other day, I found a Chávez T-shirt I’d kept, and I threw it on the ground and stamped on it, and then I used it to clean the floor. I was so angry. I don’t know if this is his fault or not, but he died and left us here, and things have been going from bad to worse.”

Venezuela has the world’s largest estimated petroleum reserves, and when oil prices were high, oil exports made up more than 95 percent of its hard currency income. Mr. Chávez used the oil riches to fund social spending, like increased pensions and subsidized grocery stores. Now that income has been slashed.

“If things are so bad now, I really cannot imagine how they will be in February or March” when some of the lowest oil prices “materialize in terms of cash flow,” said Francisco J. Monaldi, a professor of energy policy at the Harvard Kennedy School of Government.

Mr. Maduro spent 14 straight days in January traveling the globe in an effort to court investment and persuade other oil-producing nations to cut production and push the price back up.

“We have serious economic difficulties regarding the country’s revenue,” Mr. Maduro said to the legislature during his annual address, which had to be pushed back because of the trip. “But God will always be with us. God will provide. And we will get, and we have gotten, the resources to maintain the country’s rhythm.”

After months of toying with the politically taboo idea of raising the price of gasoline sold at pumps here, the cheapest in the world, he said that the time had finally come to do so.

And he reiterated his position that the country’s economic ills are the fault of an economic war being waged against his government by right-wing enemies.

Many economists argue that government policies are a big part of the problem, including a highly overvalued currency, price controls that dissuade manufacturers and farmers, and government restrictions on access to dollars that have led to a steep drop in imports.

Some investors fear Venezuela will default on billions of dollars in bonds, but Mr. Maduro has said the country will pay its debts.

Typically, in an election year like this one, when voters will choose a new legislature, the government showers supporters with goods, like refrigerators and washing machines, or other benefits, like free housing. But now there may not be enough foreign currency to import appliances and construction materials.

In interviews, shoppers did not say they were going hungry. Rather, many said the economic crisis meant eating canned sardines instead of chicken, or boiled food instead of fried because vegetable oil is so hard to get. Many said they ate meat less frequently because it is out of stock or too expensive. Fresh fish can be harder to find, in part, fishermen said, because they find it more profitable to use their boats to sell subsidized Venezuelan diesel on the black market in a high-seas rendezvous instead of hauling in a catch.

But social media in Venezuela is full of urgent pleas from patients trying to find prescription medicine.

Dr. Gastón Silva, the head of cardiovascular surgery at the University Hospital of Caracas, said that because of medical shortages, only about 100 heart operations were performed there last year, down from 300 or more in previous years.

Some patients who had been hospitalized awaiting surgery for a month or more were sent home in November because there were not enough supplies, and the operating rooms remained shut for more than eight weeks, Dr. Silva said, despite a list of hundreds of people awaiting heart operations.

He said the shortages stemmed from the government’s foreign exchange controls, which have kept medical importers from getting access to the money they need to make purchases abroad. 

Now with the low price of oil further restricting the government’s supply of hard currency, he worried the crisis would get worse.“We are getting to a breaking point,” Dr. Silva said. “If one thing is lacking, O.K. If there are no automobile parts, we’ll see. Food, that’s problematic. But health care, that’s more problematic. Where will it end?”

Mr. Silva said that a private clinic where he also works had sharply scaled back heart surgeries in the last four months of 2014 because of limited supplies.

A heart surgeon at another private clinic said that a colleague had smuggled an essential drug from the United States to keep the operating room functioning.

Ana Guanipa, 75, a retired government office worker, said that she had searched numerous pharmacies for her hypertension medicine.

“I’ve been looking all month, and I can’t find it,” she said, adding that a neighbor who takes the same drug gave her some. “I take it one day on and one day off so that it will last longer.”

On a recent morning, hundreds of people stood in line outside a big-box store, similar to Costco. Inside, many shelves were stripped clean. The large appliance and electronics section was empty. One aisle displayed hundreds of boxes of a single brand of toothpaste. There was no fresh meat; a cooler was filled with frozen pigs feet.

Most people came to buy only three items sold at government-mandated prices: laundry detergent, vegetable oil and corn flour.

Most people came to buy only three items sold at government-mandated prices: laundry detergent, vegetable oil and corn flour.

Every purchase was entered into a database, ensuring that shoppers did not try to buy the same regulated staples at the chain for at least seven days.

Soldiers patrolled the line outside, police officers were stationed inside and government officials checked identification cards, looking for fake ones that could be used to cheat the rationing system — or for immigrants with expired visas. An official from the immigration and identification service said that offenders would be arrested.

“This is pathetic,” said Yenerly Niño, 18, adding that she had waited more than five hours to buy the three subsidized products because she could not afford to buy them at the higher prices charged by street vendors.

“You do what you have to,” she said. “If you don’t do it, you don’t eat.”

Venezuela should be rich. But its government has destroyed its economy.

http://www.washingtonpost.com/blogs/wonkblog/wp/2015/01/21

Empty supermarket.... Chavez & Maduro destroyed Venezuelan economy...

The problem with socialism isn't that you eventually run out of other people's money. It's that you eventually run out of oil money.

Well, at least in Venezuela. It doesn't have an economy, you see, so much as a poorly-run oil exporting business that isn't enough to subsidize everything else. And that was true even when oil was over $100-a-barrel. So now that it's under $50-a-barrel, Venezuela's government has gone from defaulting on its own people, as former minister Ricardo Hausmann put it, in the form of rampant inflation and shortages, to really doing so, to the point that it might have to start defaulting on its debt, too.

It shouldn't be this way. Venezuela, after all, has the largest oil reserves in the world. It should be rich. But it isn't, and it's getting even poorer now, because of economic mismanagement on a world-historical scale. The problem is simple: Venezuela's government thinks it can have an economy by just pretending it does. That it can print as much money as it wants without stoking inflation by just saying it won't. And that it can end shortages just by kicking people out of line. It's a triumph of magical thinking that's not much of one when it turns grocery-shopping into a days-long ordeal that may or may not actually turn up things like food or toilet paper.

This reality has been a long time coming. Venezuela, you see, has the most oil reserves, but not the most oil production. That's, in part, because the Bolivarian regime, first under Chavez and now Maduro, has scared off foreign investment and bungled its state-owned oil company so much that production has fallen 25 percent since they took power in 1999. Even worse, oil exports have fallen by half. Why? Well, a lot of Venezuela's crude stays home, where it's subsidized to the you-can't-afford-not-to-fill-up price of 1.5 U.S cents per gallon. (Yes, really). Some gets sent to friendly governments, like Cuba's, in return for medical care. And another chunk goes to China as payment in kind for the $45 billion it's borrowed from them.

That doesn't leave enough oil money to pay their bills. Again, the Bolivarian regime is to blame. The trouble is that while it's tried to help the poor, which is commendable, it's also spent much more than it can afford, which is not. Indeed, Venezuela's government is running a 14 percent of gross domestic product deficit right now, a fiscal hole so big that there's only one way to fill it: the printing press. But that just traded one economic problem—too little money—for the opposite one. After all, paying people with newly-printed money only makes that money lose value, and prices go parabolic. It's no wonder then that Venezuela's inflation rate is officially 64 percent, is really something like 179 percent, and could get up to 1,000 percent, according to Bank of America, if Venezuela doesn't change its byzantine currency controls.

Venezuela's government, in other words, is playing whac-a-mole with economic reality. And its exchange-rate system is the hammer. It goes something like this. The Maduro regime wants to throttle the private sector, but spend money like it hasn't. Then it wants to print what it needs, but keep prices the same like it hasn't. And finally, it wants to keep its stores stocked, but, going back to step one, keep the private sector in check like it hasn't. This is where its currency system comes in. The government, you see, has set up a three-tiered exchange rate to try to control everything—prices, profits, and production—in the economy. The idea, if you want to call it that, is that it can keep prices low by pretending its currency is really stronger than it is. And then it can decide who gets to make money, and how much, by doling out dollars to importers at this artificially-low rate, provided they charge what the government says.

This might sound complicated, but it really isn't. Venezuela's government wants to wish away the inflation it's created, so it tells stores what prices they're allowed to sell at. These bureaucrat-approved prices, however, are too low to be profitable, which is why the government has to give companies subsidies to make them worthwhile. Now when these price controls work, the result is shortages, and when they don't, it's even worse ones. Think about it like this. Companies that don't get cheap dollars at the official exchange rate would lose money selling at the official prices, so they leave their stores empty. But the ones that are lucky, or connected, enough to get cheap dollars might prefer to sell them for a quick, and maybe bigger profit, in the black currency market than to use them for what they're supposed to. So, as I've put it before, it's not profitable for the unsubsidized companies to stock their shelves, and not profitable enough for the subsidized ones to do so, either.

And, remember, this was a problem even when Venezuela had dollars. Now it doesn't. Not when 95 percent of its exports come from oil, and its price has fallen by half. (It's actually a little worse than that, since Venezuela's crude is so heavy that it sells at a $5-a-barrel discount to the rest of the world's). Without as many petrodollars, Venezuela has had to cut back on imports so much that its shortages, which had already hit 30 percent of all goods before the central bank stopped keeping track last year, have gone from being a fact of life to the fact of life. Things are so bad that there isn't a bank run—who wants to save their worthless currency?—but rather, as Jonathan Wheatley puts it, a supermarket run. People have lined up for days to try to buy whatever they can, which isn't much, from grocery stores that are even more empty than usual. The government has been forced to send the military in to these supermarkets to maintain some semblance of order, before it came up with an innovative new strategy for shortening the lines: kicking people out of them. Now they're rationing spots in line, based on the last digit of people's national ID cards.

But just like Venezuela has defaulted on its most basic obligations to its people—like, say, laundry detergent—it might also default on its financial ones. It can't afford anything, not food, not diapers, and not bond payments, if oil stays around $50-a-barrel. Now, investors have assumed that they'd be able to seize Citgo, which is owned by Venezuela's state-owned oil company, as payment if the country ever defaulted on its debt. But now it looks like that's not true. That, together with falling oil prices, is why credit default swaps, basically debt insurance, on Venezuela's 5-year bonds have exploded the past few months. The fiscal situation is so dire that Citgo, which, remember, supposedly wouldn't count as a part of the Venezuelan state, is planning on taking out $2.5 billion in debt to give to its parent company, who would presumably pass it along to the government. This makes sense, as much as anything does in Venezuela, because Citgo has a higher credit rating than the government, so it can borrow, and if it defaults, it will just be as if the country sold it.

It's a man-made tragedy, and the men who made it won't fix it. Maduro, for his part, blames the shortages on the "parasitic" private sector, while the food minister doesn't get what the big deal is since he has to wait in line at soccer games.

So it turns out Lenin wasn't just right that the best way to destroy the capitalist system is to debauch the currency. It's also the best way, as Venezuela can tell you, to destroy the socialist one.

Matt O'Brien is a reporter for Wonkblog covering economic affairs. He was previously a senior associate editor at The Atlantic.

Venezuelan complaining about shortages...

Venezuelan Revolution at Full Throttle

From the Editors of VenEconomy

If you thought things in Venezuela could not get any worse, you must be realizing by now how wrong you were.
Over the past few weeks, the country’s political situation, social environment and morals of citizens have been sinking into what it seems a bottomless pit at the same pace as the economy has been deteriorating.
On Tuesday, for instance, the National Assembly (namely, the Congress) is getting ready to withdraw the parliamentary immunity from María Mercedes Aranguren, a lawmaker from the Venezuelan opposition, as requested by the Supreme Court (TSJ), which is looking to bring her to trial for “alleged corruption, money laundering and criminal association as prescribed by the Organic Law against Organized Crime.” This is an accusation needed by the Government so it can pull a parliamentary majority required to grant special powers to President Nicolás Maduro so he can deepen a communist process in Venezuela.
One of the main aspects of this move is that the Government is requesting these special powers to fight “corruption and an ongoing economic war” and will turn to bribery to the end of “buying” the much-needed “lawmaker 99” that would buy the missing vote to pass this decree. This “lawmaker 99” will carry over his/her shoulders the fact of handing over the future of the country to a ruler who has no boundaries in curtailing the constitutional rights of Venezuelans, as long as he follows the Castro recipe to dominate the entire nation.
The truth is Maduro does not need this enabling law to fight the corruption that has taken hold during the revolutionary government. If he wanted to fight corruption, it would only take to apply existing laws and let the public powers do their thing without any political hues. But at present there is no autonomous moral power, or judiciary power or even a legislative power to hold the Executive accountable for looting the public purse and squandering the resources belonging to the population.
Neither does Maduro require special powers to fight a fictional economic war that he made up himself. There are countless existing laws, controls and ruling and inspection bodies that are capable of controlling, taking remedial actions and sanctioning those acting above the law in their entrepreneurial, business and personal activities.
The reality is that Maduro is requesting an enabling law so he can have a blank check that allows him to deepen the communist project started by the late Hugo Chávez in Venezuela. He wants to have a free path so he can finish destroying the country’s private sector and have total control over the productive sector from beginning to end and with no accountability whatsoever.
The events over the weekend, in which on a national TV and radio broadcast the ruler demanded to see empty shelves at major home appliances stores across the country that were subject to inspections after alleged usury, may be unleashing demons hard to contain in a country that has been tolerating economic and social limitations for quite some time. Today, several stores have been looted by some wild hordes of people, who Diosdado Cabello (the head of the National Assembly) calls a “popular organization.” Other retail stores have opted to close their doors in the event of a “mishap,” as some locals call the act of looting nowadays. Some 28 owners and managers from those retail stores have been detained by authorities; the Public Ministry has issued some 10 arrest warrants and has “temporarily” taken over three establishments.
It is quite worrisome the announcement of the creation of a special prosecuting office aimed at fighting usury, which seems to lead to the execution of summary trials, without right to defense or presumption of innocence. Who is going to invest amid this chaos? If the Government keeps moving forward with its plan, it will be worthless if it prohibits the people to talk about the shortages, lootings, inflation, unofficial dollar rates or just about any subject that has already been banned by the Government.
It is quite worrisome that when controlled sales finish off the inventories of inspected retailers, irate people may want to go there again for more.
It is worrisome as well that Maduro is calling the “Popular Power” and militias to step out into the streets to provide support to “civil, military and police authorities.” Making brothers fight against each other has always been a recipe that never has tasted any good.VenEconomy has been a leading provider of consultancy on financial, political and economic data in Venezuela since 1982.

So, Venezuela Has a Toilet-Paper Shortage (Don't Laugh—Seriously)

http://www.theatlantic.com/business/archive/2013/05/so-venezuela-has-a-toilet-paper-shortage-dont-laugh-seriously/275940/

Remember when you first learned what socialism was and somebody explained that it was nice in theory, but bad in practice? Here's the sort of thing they were talking about. 

Venezuela is now suffering from a government-induced toilet paper shortage. The situation has become politically dire enough that the government has promised to import 50 million rolls to calm shoppers. 

For those familiar with the Bolivarian Republic's less-than-sterling economic record of late, this won't come as a surprise. The country, while relatively wealthy by developing-world standards, has been suffering through a chronic shortfall of everything from groceries to asthma inhalers, resulting in desperatelines of shoppers and a healthy black market trade in kitchen staples like flour. 

While the government prefers to blame shadowy political enemies for the shortages -- according to the AP, Commerce Secretary Alejandro Fleming said the toilet paper crisis was the result of "excessive demand" sparked by "a media campaign that has been generated to disrupt the country" -- the explanation is much more straightforward.

In 2003, then President Hugo Chavez slammed currency controls into place to prevent money from fleeing the country while government seized land and corporate assets. Those rules have made it harder to buy imports. Meanwhile, price caps meant to make basic staples affordable to the poor are so low that, for many products, they don't pay for the cost of production. 

Nobody's going to make toilet paper if they'll lose money selling it.  

It's tempting make light of this situation, but it's really sort of tragic, yet another self-inflicted wound on an economy rich in natural resources. The shortages are bad enough that Venezuela's central bank has created a scarcity index (shown below in this WSJ graph), which has lately been hovering around a four-year peak. "The revolution will bring the country the equivalent of 50 million rolls of toilet paper," Fleming told a state news agency. It would be much easier to let the free market do it instead.