March 29, 2008

Chronicle of a Devaluation Foretold

Quico says: So, as I mentioned, in the middle-class-to-escualidón circles I tend to frequent in Caracas, Cadivi has become a constant, ever-present worry, a universal obsession. Everyone you meet seems to be at some point along the process of getting Cadivi dollars, everyone you meet has a Cadivi story to tell.

Which, really, shouldn't surprise us. People get excited enough about a bargain when they’re shopping for clothes, or when they find an airline tickets at below-the-going-rate… but money? Money sold for less than it's worth?! That’s something else! The notion itself is counterintuitive, perilously close to the definition of "too good to be true".

But it is true. The Chávez government really is hawking dollar bills for 40 cents a pop. Can you really call it a surprise that a bit of a frenzy ensues?

And so Cadivi has become a conversation set piece, the petrostate's answer to the weather. Everybody has something to say about the weather, right?

In particular, the weirdly dysfunctional Cadivi website has become an object of collective obsession. The site - which you must use to file a currency application - works sporadically, erratically, shuts down completely for hours on end, and generally seems designed by an unreconstructed sadist.

How to beat it? Is it better to log on late or early? From a PC or a Mac? Firefox or Explorer? What, pray tell, is the secret!??

In fact, the secret isn’t hard to fathom. The government needs a rationing mechanism for dollars. Cadivi itself is supposed to be a formal rationing mechanism, but the demand for subsidized dollars is so overwhelming that a secondary, informal rationing mechanism has become a must. After all, if the state approved the $5,000 traveller's allowance people are technically "entitled to get" for the ten million Venezuelans who probably want it, the entirety of the nation's $50 billion in oil income would go up in smoke right there, before they've even paid for any imports.

The principle behind all this is pretty straightforward, though it systematically eludes the government's economic policy makers: When you price a good – any good – at below it’s market value, it’s going to run out.

If the going price for apples is $1 and you start selling apples for forty cents, you’re going to run out of apples. Why? Because people will soon realize that they can buy apples from you for forty cents and turn right around and resell them for a dollar, pocketing the difference. So you will run out. It's a mathematical certainty. How big an orchard you have or how loaded the trees look is neither here nor there.

For the exact same reason, if the going rate for a dollar bill is one dollar and you start selling dollar bills for forty cents, you’re going to run out. It's a certainty. That, in for-dummies form, is what Cadivimania comes down to.

Of course, people say, “well, with oil at $110 a barrel and $32 billion in reserves, what’s the problem?” But that’s just fundamentally flawed reasoning. No level of reserves, no level of income is "high enough” when you’re selling dollars off at less than half their value.

Problem is, the government can’t let dollars run out, or even appear to be running out. Again, for an economist, what comes next is simple: they either have to either raise the price of dollars (devaluation) or they’re going to have to ration them…whether it’s through a ration book, long lines outside banks, a dollar lotery, or Cadivi’s peculiar, 21st Century contribution to the fine art of rationing price controlled goods: the Kafka-inspired website.

The experience of using Cadivi’s website pretty much defies description. It appears purpose engineered to magnify your frustration. The system spends far more time down than up, and in the highly unusual case that you do manage to log on, will reject your application for the most inanely arcane reasons you can imagine. One night, I wasted three hours because Cadivi could not fathom that the name of my educational institute had a non-Alpha Numeric character in it (the humble dash.) And that after I had, miraculously, managed to log on to the system after "just" 45 minutes.

And so a generation of middle and upper class Venezuelans are spending the best days of their lives mindlessly hitting “refresh” on their browsers for hours and hours on end to try to get into Cadivi’s website. Social events get planned around Cadivi’s curious, día de parada style restrictions on when you can and can’t log on. (“Dinner Wednesday night…mmmm, well, that’s my Cadivi night… could we do it Thursday instead?”) Entire evenings are wasted. It’s futile. It’s maddening. It’s obsession forming.

This idiotically inefficient rationing mechanism has given rise to a bizarre twist on what was already a real anomaly. It was already weird that the revolutionary people’s socialist government was handing out wads and wads of free money to the (relatively) privileged through Cadivi, but thanks to the website, we class enemies are now taking that money with a sense of grievance!

“Pssshh! The nerve! Ransacking the national treasury should not be this aggravating!”

It’s easy to sneer but, if I’m going to be honest, I have to admit that more than once, during those long hours of hitting "refresh," that’s exactly how I felt.

Of course, this direct use of their website to get dollars is just the visible tip of the Cadivi iceberg…the much more relevant portion is below the surface, in the tens of billions of dollars worth of subsidized imports coming into the country now, making huge profits for importers, underselling local producers that can't compete with half-off dollars, wreaking havoc with the country’s industrial structure and subsidizing the lifestyles of, for the most part, the rankest of the rank oligarchs.

In the grand scheme of things, the rationing-via-404-error-screen thing is a relatively minor warning sign that Cadivi can’t keep up with the demand it has created for subsidized dollars. A more ominous sign is the long delays many importers are facing in getting their dollars. One prominent multinational that sells equipment to PDVSA is getting its dollars six months late; stories of three and four month delays are common.

In effect, Cadivi is taking forced-loan after forced-loan from importers, and speculation is rife about just how big the accumulated backlog of requests has gotten. Cadivi sources admit, off the record, a $12 billion backlog. The independent estimates I’ve heard range between $16 and $20. Which is pretty alarming, considering the operative reserves at the Central Bank (i.e. excluding the gold) amount to just $25 billion: pay off the backlog, and the grim reality of a highly precarious reserve situation would be plain for all to see.

“The reserves are a mirage,” is how one well connected friend put it, “if Cadivi isn’t executing its backlog it’s precisely to preserve the illusion.”

Where this is all headed is painfully obvious, and has been since the second the words “exchange controls” were first uttered: devaluation. Everybody knows this, and that knowledge fuels the antsy sense of urgency that hangs around East-side Cadivi-mania. And yet, for reasons that make exactly zero sense to me, the government keeps putting it off.

As one unconfirmed, unconfirmable, quite possibly false but nevertheless suggestive rumor would have it, the reason is simple. As the story goes, soon after taking on his post as Finance Minister, Rafael Isea sat down with President Chávez and showed him a carefully worked out power point presentation demonstrating beyond any reasonable doubt that devaluation was now inevitable and doing it sooner would be less traumatic than doing it later. Chávez, the rumor has it, listened carefully, thanked his minister warmly, and sentenced, “that’s all very good Isea, but you can just forget about it: No devaluation!”

Isea, shocked, tried to plead, “but, comandante…” only to get cut off “my decision is final.” End of conversation.

Such are the ways of policing making in the Chávez era.

And so, Isea is left to think up yet another new batch of tricks, accounting gimmicks, and ley-de-salvaguardia defying stunts to keep this whole Rube Goldberg Machine of a fiscal and monetary policy sputtering on for another few months. So far, they've tried:
  • Stretching out Cadivi’s payments over longer and longer periods of time, creating what amount to forced loans from importers to the state.
  • Setting up the website to accept just a handful of new requests a day, holding the line against even greater expansion of the backlog.
  • Getting PDVSA to demands payment for oil sooner, and to sell on future’s markets, literally selling oil before it’s pumped it out of the ground, to try to squeeze some extra cash out of the cash cow.
  • Issuing crazed amounts of “Notas Estructuradas” – dollar denominated domestic debt sold for bolivars - to try to relieve the pressure from the parallel market.
  • Holding up tens of thousands of new, imported cars up for weeks at a time in Puerto Cabello as Cadivi checks whether they meet new regulations.
And, no doubt, a thousand other gimmicks that you can bet are out there, but we're not hearing about. One could only wish the government would devote the kind of ingenuity it shows for concocting accounting smoke-screens to solving the country's actual problems.

None of these tricks really addresses the underlying non-viability of Misión Cadivi, none of them alters the ultimate inevitability of devaluation, but each of them puts off the day of reckoning for that little bit longer.

And then, of course, there’s the political economy of all this lunacy. Because each of these gimmicks creates a new rent-seeking opportunity and spawns its own little ecosystem of parasitic intermediaries and financiers with more connections than scruples who long ago figured out how to monetize Chávez’s economic illiteracy. Each new patch stuck on the Cadivi money hole corrupts our society just that little bit more and helps transfer wealth from the socialist state to those who need it least, deepening the trends towards inequality the government daily swears to be combating.

And all for the sake of adding just a few weeks or months of life to a policy that isn’t even viable in the medium term, much less in the long term, and that will necessarily, self-evidently collapse…carrying with it a hugely destructive new wave of financial instability, corporate failures and heightened inflation that’s as sadly predictable today as it was in ahead of Viernes Negro in 1982, of the collapse of Recadi in 1989, of the Caldera controls in 1996 and of every other experience with the macroeconomics of populism Latin America has ever seen.

...just some thoughts to keep you entertained (and motivated) as you down another cup of coffee and keep hitting "refresh" on that %*#^)*^! Cadivi page.

March 27, 2008

No Hay Material

Quico says: Ask anyone at all and they'll tell you: hands down, the three most feared words in Venezuela’s bureaucratic vocabulary are "there's no material."

It's a kind of code phrase, meaning something like “no, seriously, there’s no use trying to bribe me: I genuinely can’t help you.” The cargo gods have not come through. For whatever reason, the tenuous link with the fairy country that manufactures the little physical booklets that, provided a photo and a battery of official stamps, become passports, has been severed.

For what reason? For how long?

These are questions no sane Venezuelan ever asks.

I ran into the dreaded phrase at El Llanito’s INTTT Inspectoría, Venezuela’s DMV, as I went to get my driver’s license renewed.

“No, mi amor, es que no hay material."

Oh shit. Well, “y ¿cómo hago?” I say in a gambit to see if there’s some back channel way to get that covetted bit of laminated plastic.

Amazingly, uncharacteristically, it works…for some baffling reason, she takes a shine to me and decides to confide.

“Mira,” she says, “word on the street is that they’ll have material tomorrow in Los Chaguaramos. Otherwise, you can try again here next week.”

I can’t believe my luck. I have a tip, an actual dato, straight from the functionariate’s mouth, good as gold.

“Muchas gracias, amiga,” I say and rush out smiling, actually happy, as though I haven't just wasted a trip that cost me an hour and a half in traffic.

The next day I go to the bank to pay my fee and then rush off to the Inspectoría in Los Chaguaramos, getting there at about 9:00 a.m.

Or, rather, I get to the metal fence setting off the Inspectoría from the sidewalk. A little hubbub of maybe 20 or 25 people are crowding in on the gate, as one single guy – a security guard – holds off the barbarian masses, trying to give out information one case at a time.

I kind of jostle my way up to the front and eventually get to ask him, “amigo, to renew my license?” as I show him my documents.

“Yeah, ok, we have 30 spots, and it’s first come first serve, so you better get in line right there.”

He points to a spot just outside the gate, on the sidewalk. I’m amazed, there’s just a handful of people in line there. “This is going to be a piece of cake,” I think to myself.

“Disculpe, is this the line for license renewals?” I ask the guys in line. They nod.

“And do you know what time they’ll let us in?”

“At 1:30,” one of them says.


“Yeah, 1:30…this is the line for the afternoon spots…the morning people already went in.”

Oh Christ.

“Ay coño,” I say, and add… “pero, sí hay material, ¿verdad?”

They all nod, a little too eagerly for my taste, as though they’re trying to convince themselves.

“That’s what they said…30 plásticos this afternoon.”

Bueno…nothing to be done. Just hunker down for four and a half hours on a sidewalk in Los Chaguaramos breathing exhaust fumes and passing the time who knows how.

Damn it, I should’ve had breakfast.

The vexation on my face must’ve been pretty clear, cuz one of the guys looks at me and says “c’mon, chamo, don’t make such a face: just think, this señor here’s been doing this for a whole week.”

I look at the round faced man just ahead of me in line.


He smiles, beatifically, obviously way past getting exasperated by this kind of thing anymore.

“You have no idea what they’ve put me through this week…” he pauses, thinking through the memories. “I spent all day queuing at El Llanito on Monday just to be told at the end that they’d run out of plásticos…on Tuesday they said they had no more material and didn’t know when any more would be coming in. Lost day. Wednesday a friend told me to head out to Los Teques and try there so I had to shell out for transport to get all the way out there, but it was a bust there as well. They told me to come here…and yesterday it was just like today, they said they had 30 plasticos, and I was number 23 in line, but right as I got up to the front, after 8, count them, eight hours standing here taking the sun like a rooftile, they said no, 'es que se acabó el material' and sent me home.”

He pauses, savoring the string of disasters.

“Bueno, the good thing is that at this point I’m immunized against frustration," he says, shrugging the whole thing off. "Today I came even earlier and now I’m fifth in line. If they turn me away again I’ll toss a Molotov cocktail in there.”

It’s the kind of story to put my own problems in perspective.

“Thing is, I’m a transportista, a bus driver," he continues, "so every day without a license is a day I can’t work, and a day I don't work is a day I don't bring home anything to my family."

A bit of a circle is forming around the guy’s story. Everybody's nodding. Pretty soon one of the other guys pipes in as well.

“That’s where I'm at too. The guy who owns the microbus I drive won’t let me go out without a license. The bribes we have to pay the cops if we get caught are so high they’d wipe out two weeks worth of work. But in the meantime…hell, you know how it is, we’re contractors, we don’t work we don’t earn.”

“¿Oh yeah?” one-week-running-after-a-license-man says, “¿what part of town do you cover?”

Pretty soon, it’s social hour at the license renewal line. Everybody knows we’re in for a long wait and conversation seems like as good a way to pass the time as any.

I find Venezuelans remarkably good humored in situations like this. I’m surrounded by people suffering real economic hardship because the damn government can’t get it together to source enough drivers’ license cards, but nobody really bitches. They crack jokes, trade stories, share anecdotes about being held up during work, and soon a pretty strong esprit de corps is arising in our group.

In my little sector of the line we have three bus drivers, a taxi driver, a guy who runs an ice delivery truck, a housewife who needs her license to drive her kids to school, and a guy doing a PhD in political science in Europe. It strikes me that standing in line waiting to be humiliated by the bureaucracy is one of the few spaces for genuine social equality in Venezuela. Right here, right now, there are no social distinctions: we really are all the same.

One thing is clear, though: nobody brings up politics. We’re strangers. More than likely some of us are chavistas and some are anti-. Bringing it up could only bust the vibe we’ve developed. It’s not a risk worth taking.

Just to keep things from getting too chaotic, somebody pulls out a pen and a note pad and starts making little numbered slips so we each know what our exact place in line is. The move makes the gate guard nervous. He comes over and warns us in no uncertain terms that the inspectoría will not recognize those numbers, that come 1:30 it’ll still be first come, first serve. His tone is that of a dad warning a 6 year old kid.

We grin and bear it: however squalid his little quota of power may be, right here, right now, he is the one guy we can’t afford to piss off. We reassure him we’re just doing it to keep track of who’s where among ourselves. But, actually, by this point, it’s kind of superfluous…we’ve spent 2 hours in this line already, talking, hanging out, and by now everybody knows who’s in what spot in line. The chances of someone cutting and getting away with it are nil.

Come to think of it, if the gate guard wasn't treating us like shit, would we be bonding the way we are? I kind of doubt it...when you get right down to it, the only thing bringing us together is the disdain of officialdom.

Still, we’re antsy…we kind of feel better with an actual number in hand, whether Power chooses to recognize it or now.

At about 11:30 I fall into a one-on-one conversation with Nelson, one of the bus drivers. After asking me a few questions about public transport in Holland (yes, a bus ride really does cost Bs.7,000 there, no, you don't get a Welcome Drink for that kind of money) he decides to confide.

“Really I’m an accountant,” he tells me, “I got my degree from INCE, but you know how the vaina is, I couldn’t get a job so…now I drive a bus.”

I ask him about his work. He lives up in El Junquito and drives down into downtown Caracas a couple of times per morning. He tells me about the intricacies of timing his runs just right to maximize his take. Go too early and there aren’t any passengers. Go too late, and there’s too much traffic. You only make money when you’re loading passengers, and you can’t load passengers if you’re stuck in a traffic jam.

The best, he reckons, is to set off at about 5 a.m., that’s pretty much the sweet spot when good passenger numbers meet relatively unclogged streets. Then he gets back to El Junquito by about 6:30 and has a nice, leisurely breakfast just long enough to miss the student-heavy time slot; another variable in his little optimization problem.

“Students? Why do you go out of your way to avoid them? Are they really that rauckous?”

“Nah,” he says, “it’s the student ticket thing.”

He explains that they’re not allowed to charge students full fare. Technically, the government is supposed to make up the difference but, surprise surprise, refunds are invariably late.

“Right now, the delay in getting paid is about three months," he says, “and hell, I studied accounting, so I know exactly what that's called: a forced loan. Interest free, to boot.”

With inflation running as high as it is, the bolivars they get paid three months late can be worth a good 8% less than the bolivars they were originally forced to loan the government, he explains. It’s just not good business, driving during time slots when half your customers are going to be students, he explains. Not surprisingly, kids have a hell of a tough time finding a bus to get on to get to school in the morning...just one more downside to schooling, one more prod to drop out.

Just then, we see a military vehicle pull up to the Inspectoría gates. Three, four, five army guys in uniform make their way inside. The line goes from sociable to restless.

“¡Que arrechera, chamo!”
one of the guys says, “man that pisses me off! Each one of those guys going in is one less plástico for us.”

We’ve been standing out there for three and a half hours, now. It’s noon, it’s hot, some of us haven’t had breakfast. Nobody dares make too much of a fuss, though. Those guys are army, y’know.

Within five minutes, the gate guard comes out to announce that, mysteriously, there are now just 25 plásticos to hand out today. The back of the line (which, in effect, has just been told that no hay material) is more deflated than furious. They slink off, muttering cuss words but resigned to come again the next day.

It’s the DMV, after all: it’s not like you can go to the competition if they give you shitty service.

As 1:30 draws near, a palpable sense of expectation builds in the line. Soon, the carefully differentiated lines for license renewals, first-time licenses, and car registrations that had remained neatly separate all morning all clump together into a mass around the door.

The gate guard definitely can’t cope. Soon, he's pretty much forced to rely on the little scribbled numbers he’s already told us he wouldn’t accept. People shove and push and yell and you can’t really tell if people are cutting in line in front of you or if they’re just from one of the other lines that’ve gotten all mushed up into one big melée. The people from "my" line try to help each other out, as far as possible, but frankly that’s not very far. It’s pretty much chaos as the gate guard gets into a series of increasingly testy exchanges with the hordes clamoring to get inside.

“Lo que pasa,” he yells at us in exasperation, “is that you people aren’t properly organized! You need to get organized, otherwise look at the chaos we’re left with!”

In time, a Tránsito Terrestre official comes out to look over this mess. He sees the gate guard arguing with the users, shakes his head, and reprimands him, saying – loud enough for all of us to hear – “why do you waste your time talking to them? Don’t talk to them, man…no hables con ellos.

In his own, haplessly testy way, the gate guard was treating us like human beings. Rookie mistake, obviously.

In the end, I manage to sneak in somehow and hand in my documents:
  • One cédula copy – check.
  • One bank payment slip – check.
  • One certificado médico – check.
  • One renewal form – check.
Now we wait inside the gate, finally sitting in proper chairs and under a bit of shade, it feels like relative luxury as we finish the conversations we’d started earlier. A half hour later, a Tránsito Terrestre official comes out and starts calling out names, handing out our 25 renewed licenses. I tremble in anticipation when he calls out Toro...

Then, just as suddenly as it had formed, our little community disappears.

As I stroke my still warm plastic, I can't help but muse on how thoroughly, gallopingly pointless the whole exercise is. Nothing I did, no part of the bureaucratic nightmare at all had even the slightest, most oblique bearing on my ability to drive a car. None whatsoever. There were no tests, practical or theoretical, no checks of accident records, no part of the procedure has anything to do with driving at all…and yet, if you want to drive a vehicle in Venezuela, you have to subject yourself to this baffling set of low level humiliations once every ten years, just because.

For me, normally stuck away in a Dutch provincial town, the whole thing was a bit of a curiosity, almost worth it just for the chance to talk at leisure with an accountant buseta driver. But for these other guys, the hours or days spent dealing with all this idiocy are days of real economic hardship, days of wages foregone for people living a hand-to-mouth existence.

Their good cheer baffled and charmed me, yes, but seemed to me also just a case of learned helplessness, of a deeply justified intuition that it’s just always been like this and it’s just never going to get better so what’s the point of getting upset?

As I left the Inspectoría with my plástico burning a hole in my pocket, I noticed a sign gracing the inside of the gate. In big, propagandistic blue letters it belted out,
“Now getting your license is easier!”
Heh. Quite.

March 26, 2008

Striking Oil in Terrazas del Avila

Quico says: My arrival in Caracas seems to have coincided with Milk’s. Everyone was real happy about that. It was all UHT, no fresh stuff, but I guess it’d been months since there’d been any kind of milk around so people weren't minded to be picky.

Personally, I don't really have much use for the stuff. I detest cereals, don't bake much, and I always have my coffee black. Still, particularly during those first few days, people were just so damn happy to have milk, I couldn’t help but feel it’d be rude to refuse it. “Would you like a café con leche?” they’d ask all proud like, with a big smile beaming from their faces, and I’d just nod meekly, unable to muster the courage to ask for the negrito I really wanted instead.

Actually, March was a fairly benign months in terms of shortages: toilet paper, sugar, beans, chicken, and beef were pretty easy to find. The biggest problem seemed to be with rice, but cooking oil and gas canisters (which, as I wrote, is a huge problem for people who can’t get them) were touch and go, and specific stores seemed to have specific shortages of oddball stuff, like paper napkins.

Even with the newly available staples, people were still antsy and minded to stock up while they could, so de facto rationing at the cash register remained quietly in force in many places.

Venezuelans being Venezuelans, all kinds of informal, back channel methods to beat the shortages now operate. When you find a scarce product, you’re fully expected to SMS your closest circle of friends and family about it. My sister, who hosted me, seemed to get at least two or three of these messages a day. “Toilet paper at Makro La Urbina”, or “rush for cooking oil at Cada La Florida,” they'd read.

With the supply situation a bit better, the messages during my trip weren’t so urgent but, she told me, a month back any “Milk” message would see her immediately drop whatever she was doing and rush to the place mentioned. "What can I say, Quico?" she'd shrug, "I have five children and a husband and all of them are hooked on Quick."

It was pretty clear that the milk shortage, in particular, had really messed with people's life.

One day during my trip she got a message, “corn oil at Exito Terrazas del Avila, 6 per person”…and we rushed out. While the cooking oil problem was not as dire as the rice drought, getting more than a bottle or two at a time had been hard for a while, and finding corn oil specifically, which Venezuelans typically prefer, had been really quite a challenge. For a long time, all you could find was weird stuff like peanut or soy oil or some gnarly tasting and alarmingly underlabeled stuff sold as "multipurpose vegetable oil."

So the prospect of six bottles of corn oil was still enticing enough to get her moving. We braved the traffic on the Cota Mil to get to the hypermarket out there and my sister went to work right away, making eyes at the guy behind the counter, blatantly flirting with him to see if he’d stretch the 6 per person rule.

“How many people are you?” He asked.

“Three,” she lied (it was just the two of us.)

“OK, so that's 18 bottles…” he says, but she's having none of it.

“¿Cómo?" she says, teasing him with a big smile, "You weren’t so good at math in school, were you? Three times six is 24, everybody knows that!”

He laughs and quietly lets her have the whole 24-bottle pack. It’s a big score. She’s thrilled. Very discretely, she slips him a Bs.5,000 bill. Everybody’s happy.

As we come out, she whips out her cell phone and starts banging away messages right away.

"Letting everyone know you struck oil, right?" I say, thinking I'm catching on. But she shakes her head.

"Nope, this message I'm sending out to my freebie network. Twelve of those 24 bottles I'm going to give out to them."

"Huh?" I couldn't believe it. "After all that, you're going to just give this stuff away?"

“It might seem crazy,” she says, “but I figured out a long time ago that the best insurance against running out of the basics is to just give stuff out. Whenever I get my hands on a hard-to-find item, my rule of thumb is to give half of it away. Of course, that means that whenever someone in my little network finds a hard-to-find item, they give me a freebie too. You know that rice we’ve been eating at home? I didn’t buy it: our neighbor Andrea just gave me three kilos cuz two months ago, when nobody could find toilet paper, I knocked on her door one day and gave her six rolls.”

She had her distribution list all worked out. Four bottles for her best friend, and then two-packs for four other lucky members of her little freebie network, each of them a tried-and-tested sourcer whom she knew she could count on, but only if they knew they could count on her.

And then it hit me. That sunuvabitch Chavez did it! We all made fun of him when he announced it, but now it’s happening! And not in some podunk nowhere town in Apure or something but right here in foufy East Side Caracas...she may not call it that, but what Ana is doing is trueque!

We never even noticed it creeping up on us, and now the Barter Economy is here!