October 8, 2009

Off Target

Quico says: The imbecilities of Venezuela's Foreign Exchange Control Regime just keep piling up one on top of another, accumulating in layers that some future archeologist of macroeconomic incompetence will have to peel back one at a time. The latest is Central Bank chief Nelson Merentes's announcement that the gap between the official dollar exchange and the parallel market - which, mind you, doesn't officially exist - shouldn't exceed 60%.

In effect, Merentes is announcing an upper target for the permuta rate, committing the central bank to keep the parallel rate below BsF.:$ 3.45. Trouble is, the permuta rate has been well above that, trading at a gap that's more like 150%.

But that's just the start because, idiotically, it's actually against the law for me to tell you exactly what the permuta rate is. That means that the single most important number in the debate on Venezuelan macroeconomics today is strictly verboten, off-limits...what's the word I'm looking for? Censored.

Now, think this through for a minute. Venezuela now has an official exchange rate. And an official target for the unofficial exchange rate. But we can't mention what the actual unofficial rate is. Which, effectively, means we're not allowed to know if we're meeting Merentes's target or not because - stay with me now - we now have public targets for secret variables!

And, come to think of it, we're now committed to defending an exchange rate we don't admit exists!