jueves, 6 de febrero de 2014

The collapse of the Venezuelan economic model

When these things happen, the price spiral is accompanied by a shortage of products on the shelves of supermarkets, a phenomenon that grew steadily during 2013, reaching a constant level of 22% shortage of food items. In other words, when a housewife goes to get basic food, there is always one in five of them is simply not available in business.

The biggest culprit of what is happening in Venezuela is certainly excessive public spending, financed broadcasting. This generates a high inflation and the desire of the people of "shelter" in the dollar. In addition, the supply of Venezuelan inefficient public companies in the food sector has declined significantly. We speak of a quarterly loss of nearly 12%.

In the dirigiste model also influences the price control when preventing costs are covered, simply generates a decrease in production. Faced with declining domestic supply, foreign exchange shortages prevent deficiencies of local production with imports covered.

Inflation in Venezuela in 2013 was 56.2%. More than half of the savings held by the people, and the purchasing power of wages and pensions, vanished in just one year. What is unsustainable over time. The government announces that it is now trying to reduce inflation and to locate it at levels of 28% annually. For this, the main instrument is the control and surveillance of prices, so as to prevent its increase, with a battery of inspections, checks, penalties, threats and intimidation. Clearly this way Venezuela will not be able to contain its inflation. Over a decade of stringent controls Venezuela has not done so. It happens that not combat inflation through price controls, in the long run, always fails. Inflation is a result of the crazy issue, particularly when it increases the amount of money over the increased productivity of the economy.

With regard to Argentina, the parallel of what happens in this second country with what is happening in Venezuela is so strong that we disclaims additional comments. Same problem. Similar remedies. Little chance of success in controlling inflation, especially when there is no political will to work on the relentless rise in current expenditure of the public sector. Because populism and ideology prevent it.

The dirigiste model is floundering in South America. In more than one scenario. As was to be expected. Unfortunately, fixed income sectors will be the "duck this wedding." Ideological reasons make the Venezuelan reactions are wrong and the only response to the crisis. The trouble is that that means just adding fuel to the fire.

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