A Plasma TV In Every Pot

Nov 18 2013 @ 2:19pm

Plasma TVs are a weapon in Venezuela’s “economic war”:

With support for the ruling United Socialist Party of Venezuela (PSUV) crumbling ahead of local elections due next month, [President Nicolás] Maduro decreed on November 8th that as part of an “economic war” with unscrupulous businessmen, prices of electrical appliances were to be cut to their level of a month earlier. For good measure he had a couple of dozen shopowners and managers arrested for “usury.” Shops were besieged by bargain hunters. In the country’s third city, Valencia, looters ransacked an outlet belonging to the Daka electricals chain. Even members of the national guard, deployed along with partisan militiamen to keep order, were filmed loading looted goods onto pickup trucks. Several days later people were still queuing in their dozens and even hundreds, in the hope of picking up a discounted television or fridge.

Jonathan Watts and Virginia Lopez report that the army has occupied electronics stories accused of “profiteering” and that more than 100 “bourgeois” businesspeople have been arrested for alleged price-gouging. As Juan Nagel notes, “the use of cheap appliances to shore up political support is nothing new in Venezuela”:

Last year, [then-president Hugo] Chávez handed out more than a million Chinese appliances to his supporters as a way of convincing them to vote for him. I witnessed one of these acts, in which unsuspecting citizens were gifted free washing machines, courtesy of Comandante Chávez. The ailing Chávez coasted to a 10-point victory at the polls in October.

But Maduro does not have the deep pockets that Chávez had a year ago. The new president faces a mayoral election a month from now, yet Venezuela’s reserves are low, and oil prices are dropping. The budget deficit is enormous, and with inflation running at more than 50 percent a year, the government is finding it hard to make ends meet. Faced with this reality, Maduro has decided that if he can’t give away appliances, he will give away someone else’s.

The economy’s in shambles:

Since Maduro took over from Chávez, Venezuela’s economic woes have worsened. Although the country is oil rich, with the world’s largest deposits, other industries have collapsed as a result of price controls, government mismanagement and land appropriation. Once a major producer of agricultural commodities, Venezuela has to import most of its food. Even though malnutrition has fallen as a result of subsidized food programs, it has become hard for many people to secure basic necessities because dollars are in short supply.

In the past year, residents of Caracas have struggled to buy rice, coffee and cornflour, there has been a run on toilet paper. Wine and bread supplies ran so low that Catholic priests were instructed by bishops to conserve what was left so that they did not run out during mass. Despite abundant oil, poor infrastructure has also led to power cuts. In September 70% of the country was left without electricity for hours.

Not to mention this:

Since Chavez’s death, this house of cards has begun to collapse, and the black market exchange rate between the bolivar (VEF) and the U.S. dollar (USD) tells the tale. Since Chavez’s death on March 5, 2013, the bolivar has lost 62.36 percent of its value on the black market, as shown in the chart below. …

Black Market Currency

This, in turn has brought about very high inflation in Venezuela. The government has responded by imposing ever tougher price controls to suppress the inflation. But those policies have failed, resulting in shortages of critical goods, such as toilet paper, without addressing the root cause of Venezuela’s inflation woes.

The Maduro government has responded to this problem with the very same tactics employed by other regimes with troubled currencies. Yes, from Mugabe’s Zimbabwe to North Korea today, the playbook is simple, if misguided: deny and deceive.

Jay Ulfelder ran some numbers and found that “chief executives in democracies are about as likely to lose their jobs during a hyperinflationary episode as they are to hang on to them, while autocrats face more favorable odds of political survival of roughly 3:1.” In autocracies, the length of the episode also plays a role. So what does that mean for Maduro?

I consider Venezuela’s political regime to be authoritarian, so f I only had these statistics to go by, I would say that Maduro will probably survive the episode, but the chances that he’ll get run out of office will increase the longer the hyperinflation lasts. I’m not an economist, so my best guess at how long Venezuela might suffer under hyperinflation is the average duration from Hanke’s list. That’s a little shy of two years, which would give Maduro odds of about 4:1 to of weathering that storm.

Of course, those statistics aren’t all the information we’ve got. Other things being equal, authoritarian regimes with leaders in their first five years in office – like Venezuela right now – are about three times as likely to transition to democracy as ones with guys who’ve been around for longer, and democratic transitions almost always entail a change at the top. We also know that Maduro so far has been a “boring and muddled” politician, and that there are some doubts about the loyalty he can expect from the military and from other Chavista elites. Putting all of those things together, I’d say that Maduro’s presidency probably won’t last the six years he won in the April 2013 election.