Monday, January 23, 2017

Will America Fall Into Maduro's 'Blame' Trap?

from Forbes
The Bolivarian socialists in Venezuela have been claiming for years now that the reason the wheels came off the economy there was because of the sanctions that the United States was imposing. Obviously, taking a middle income country, and oil rich one at that, into penury could not just be because the local politicians were following idiot economic policies. No, of course, if had to be Uncle Sam directing the gringoes to subvert the socialist experiment through sanctions. And now there's even a possibility that they could be right in the future.

For the behaviour of some economic managers has now become so egregious that there is talk of imposing real sanctions on the country:
Venezuelan officials may face U.S. sanctions for profiting from food shortages that have exacerbated hunger in the South American country.
Maduro put the army in charge of food importation and distribution just recently. And the allegation is that the army is enjoying this new found responsibility:
The AP report published last month detailed a chain of dirty dealing by the military, including kickbacks to generals for food contracts and bribes to move food out of the port. Some of the food is purchased in the U.S. and some of the bribes passed through the U.S. banking system.

U.S. prosecutors are investigating senior Venezuelan officials, including members of the military, for laundering riches from food contracts through the U.S. financial system, the AP learned from four people with direct knowledge of the probes.
It is possible to be cynical here and call this a masterpiece of realpolitik by Maduro. If you've half the population demonstrating against your government, you're doing everything you can to dodge a recall election and even your supporters are getting more than a bit tired of being hungry all the time then why not? Cut the army in on the graft available in the economy and make sure at least the top brass of the army is on side?

The Associated Press cited documents and testimony from business owners who pointed to food minister Gen. Rodolfo Marco Torres and his predecessor, Gen. Carlos Osorio, as key figures involved in fraudulent food imports.

In that sort of environment it's a better assumption than most that those with the power and the permissions are allowing some of the money to stick to themselves. Not a certainty, by no means, but incentives do matter and this is economics, no?

The solution to this problem from the Venezuelan end is entirely simple. Just abolish the multiple exchange rates and all other price controls and do it overnight. At which point there's no point in such graft as there are no permissions or corners to allow the graft. Plus, obviously, we'll be back to a reasonable market economy and price system within a week or two. Inflation would near cease overnight as well.

No, inflation would cease. For the reason it's so high is that the government is trying to pay all the usual bills and also provide that cheap imported food and there's not enough oil money to do both. Thus it is printing more and more money to pay the bills--that's inflation. Stop messing with the food market and that expense disappears. We've also seen this before. I was living and working in Moscow when the Soviet food price controls were abolished. It took about 6 weeks for there to be far more food on the market than there ever had been before. For markets really do actually work, d'ye see?

No comments:

Post a Comment