Sunday, April 12, 2015

Venezuela: Another totalitarian top down economic management success...everyone is quickly becoming equally poor

Venezuela Alarmingly Low on Food"There is a real storm developing due to the lack of dollars. The situation is desperate and may get a lot worse," said Russ Dallen, head of local investment bank Caracas Capital Markets, who has spent several years keeping a close eye on the Venezuelan situation. "In the next two or three months we are about to see a terrible shortages situation, much worse than we have seen so far -- not only because inventory levels are quite low already, but because at this point imports of the products needed within 8-12 weeks are not being allowed into the country."

By Antonio Maria Delgado

CARACAS -- Venezuelans – who have been waiting in long queues to get into supermarkets and purchase basic products – have not yet seen the worst part of the shortages issue caused by a collapse in the chavismo-sponsored populist model, but they may do so shortly in the face of the warnings of the alarming levels food stocks have fallen to in the country, according to local industry groups and experts.

"Inventories, including those of the pharmaceutical and food industries, are hitting critical levels," said Eduardo Garmendia, head of the Venezuelan Confederation of Industries (Conindustria), a business association, in a recent interview with local radio station Unión Radio.

"The entire industrial system has been affected by the difficulties in acquiring raw materials, but it is worse in essential products because these are receiving a greater direct impact; we are talking about medicines and food," said Garmendia.

In the case of food, stocks of the country’s main industries will last less than a month, according to data released by the Venezuelan Food Industry Chamber (Cavidea).

"There are food companies that haven’t been allocated a single dollar so far this year," Pablo Baraybar, president of Cavidea, told the local press. "In some production lines, we only have stocks for 10 or 20 days."

This will surely make things exponentially harder for those Venezuelans trying to put food on their tables every day.

"There is a real storm developing due to the lack of dollars. The situation is desperate and may get a lot worse," said Russ Dallen, head of local investment bank Caracas Capital Markets, who has spent several years keeping a close eye on the behavior of the Venezuelan reality.

"In the next two or three months we are about to see a situation of terrible shortages, much worse than we have seen so far. Not only because inventory levels are quite low already, but because at this point imports of the products to be needed within 8-12 weeks are not being allowed into the country."

Most industries in the country have been operating at much lower levels than their capacity for quite some time due to extreme difficulties in finding raw materials, among other reasons.

But what might occur in just a few weeks from now is the total standstill of the country after running out of supplies, because companies are not getting the necessary dollars from the Government to pay for imports, Dallen said.

Some businesspeople believe that this is due to the doubts raised by the economic authorities of the regime of Nicolás Maduro over which of the various exchange rates should be applied to perform operations, given the vast differences between each one of them: with one official rate that is currently at Bs.6.3 per dollar, another one close to Bs.12, a third one that stands at Bs.190 and fourth, the black market rate, hovering around Bs.250.

But experts now believe that the regime simply does not have the necessary dollars to pay for the imports of products.

A sharp drop in crude oil prices – the export that brings in more than 95% of the country’s dollars – coupled with huge debts incurred by the Bolivarian regime over the past 15 years, have left the Government with a need for external financing of more than $23 billion so that it can maintain the supply levels seen until last year.

That’s why the Government has been making extensive publicity of the possibility that China is ready to provide up to $10 billion in loans for development projects in Venezuela, said Dallen.

"They are saying 'here come the Chinese, here come the Chinese; the Chinese are the ones who are going to get us out of this mess,'" he added.

But by the time the Chinese money comes in -- should it materialize this year -- it may only be used for importing goods from the Asian country or used in specific projects previously approved, which will not necessarily provide relief for the millions of Venezuelans who in a few weeks from now might not find milk or corn flour on shelves after spending the whole day queuing up to make it into a supermarket.

To economist Alexander Guerrero, a worsening of the shortages would affect the food and product supplies of large supermarket chains and grocery stores, which are already being controlled by the regime with the implementation of limits on the sales of products based on the last digit of the ID cards of consumers.

In the end, many of the products that will be available in Venezuela will end up selling on the so-called black market, a place that despite having become the target of frequent accusations of the regime itself for being one of the main causes of the general shortages in the country, is in fact being fed by corrupt elements of the own Government.

That market has turned out very lucrative because it offers the subsidized products at prices up to 10 times higher than what consumers pay for them in stores after spending hours waiting in line.

Local popular markets will continue to offer the "six or seven products" that the Government imports for the nation’s neediest sectors at subsidized prices, Guerrero said.

As a result, the working middle class is the one that is going to suffer more because, on the one hand, it will not be able to pay the high prices of products on the black market and, on the other, it doesn’t have access to popular markets or doesn’t want to go there since the available products are of very poor quality, Dallen explained.


 

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