Better Or Worse?
We’ll get to our Down The Rabbit Hole segment in a few but first…our friends at Caracas Chronicles had a piece titled “The End Of The Year Slump” regarding the state of the economy. We reported last week about the lack of interest among the common people of Venezuela regarding the talks in Mexico between the Maduro regime and the Venezuela opposition. Most people surveyed either didn’t know what was happening or didn’t care, a stark contrast to years past when political debate was everywhere. It seems that political debate has been replaced by economic debate, is the economy really improving and are we really better off now?
The answer to that question is…well…it depends…Some say they are worse off than 2017 (The year that famine, lack of medicine, and problems with basically everything caused the country to explode in protests in which Maduro’s security forces killed 140 protesters, wounded thousands, and jailed thousands more). “At least in 2017 we had the expectations of being able to make change possible.”
The fragile economic recovery of this year has been losing steam as inflation makes a comeback due to the Maduro regime cranking up the printing presses (figuratively) on the bolivar (local currency) to pay holiday and special bonuses. (FYI, Maduro declared the holiday season as beginning in October this year)
The de facto dollarization of Venezuela, which has added to the stability of the bolivar and spurred growth, has been hurt by Maduro’s poorly conceived IGTF (Tax on foreign currency and Zelle usage, called the Large Financial Transaction Tax, why…nobody knows). He just couldn’t leave well enough alone, it’s in the socialist/Marxist DNA…if something is doing well, tax it!
Most companies and businesses are having worse results now than in the first half of the year. In Caracas, many restaurants and nightclubs that were packed earlier in the year are now half empty although some of that can be explained by too many new openings due to irrational optimism after 8 consecutive years of recession, a 4 year bout of hyperinflation (2nd longest in history), and almost total economic collapse under Maduro and the Chavista’s 21st Century Bolivarian Socialism. Worldwide inflation has had an inflationary effect on the dollar as well which doesn’t help those using dollars to escape the inflation of the bolivar (in addition to the Foreign Currency Tax).
There are still many folks who feel things are getting better. More Consulting reports that only 48% of those surveyed said they were worse off than last year, down from 73% in 2018. Both multi-dimensional and income poverty are decreasing as of late. The economy is growing but GDP is still only 1/3 of it’s level in 2017. Now, with inflation up and the bolivar down, Maduro wants to revive price controls (They never learn…don’t do it!). One economist described the economy by saying, “Venezuela is in the intensive care unit, and it is better, but there’s no chance it’s ready to leave the hospital”.
Then we have Florida Politics reporting that former Miami congressman, David Rivera, indicted last month on charges pertaining to his $50 million consulting contract with the Maduro regime, was arrested and is currently out on bail. The indictment was sealed so at this point the charges are unspecified. Records that emerged as part of a counter-suit by Rivera show his consulting work was done in concert with Raul Gorrin, disgraced Venezuela businessman and media tycoon, also under indictment in the US on money laundering charges.
Then we have Argus Media reporting that Venezuela crude oil production was down from October numbers and came in at 716,000 bpd (barrels per day) according to PDVSA (Venezuela government-owned oil company) documents. The Venezuela Oil Chamber puts the number at 710,000 bpd but either way it’s a far cry from Maduro’s prediction of 2 million bpd by year end. (FYI, the last number we saw for the yearly average was 625,000 bpd)
And we have BNN Bloomberg telling us that a shadow business sector is rapidly growing in Venezuela, private lending companies. The rise is due to a lack of bank loans (for context, recently the total auto loan portfolio was $400,000 for the entire country).
People can’t even get small bank loans and credit card limits are so low (most only about a dollar) they’re basically useless. There’s no data available on private lending companies but interviews with individual loan companies show a growth rate of 800% this year. The average loan amount is approximately $500 with a 3%-5% interest rate per month and a duration of 90 days. Surprisingly there have been almost no defaults, according to those interviewed.
And we have SANA telling us that Nicolas Maduro met with the new Syrian Ambassador to Venezuela and reaffirmed Venezuela’s support for the regime od President Bashar al-Assad….big surprise huh?
Then we have AP reporting that an oil spill has smeared two and a half miles of coastline at Lechereria, a popular tourist area. The mayor called it “a catastrophic scene”. Neither the Maduro regime nor PDVSA were available for comment. As we frequently report, Venezuela’s decimated oil infrastructure is constantly plagued by oil spills, fires, explosions, mechanical breakdowns, and pretty much anything else you can think of.
And we have The Real Deal telling us that ex-TSJ (Venezuela Supreme Court) judge, Carmen Porras, a faithful supporter of Hugo Chavez, is heavily invested in south Florida real estate with holdings of approximately $3.2 million in Florida and additional holdings in Panama. There is so far no proof that the money to purchase these properties is tainted but questions remain as to where the money came from (a standard refrain regarding wealthy Chavistas).
And we have Reuters telling us that PDVSA officials and Chevron executives had planned to address workers in their four joint ventures regarding operational and management changes (this was supposed to take place at the Propiar facility, as previously reported) but instead opted for a closed door meeting…hmmm… Both Chevron and PDVSA declined to comment.
Now let’s go Down The Rabbit Hole…
Chapter 9/ El Dorado continued…
…When the oil business was doing well gold, and in turn the region, was mostly an afterthought consisting of relatively small mining concerns and artisanal mining by the indigenous Pemon people. Area towns were mostly quaint tourist spots and indeed many Pemon made a living servicing tourism. As the economy, and society as well, collapsed tourists stopped coming for a number of reasons and more and more people, Pemon included, turned to mining.
As you might expect, with the rise in mining activity criminal activity increased. Extortion occurred in every aspect of life in the region from the supply chain, the mining activities, the transport routes, and the market. Everywhere along the line everybody paid…and got paid. Local gangs, mostly run by the Pranes (criminal organizations stemming from the prison system), the syndicates (organized crime), Colombian guerillas (both the ELN and demobilized FARC units), all extracted a price. Local police and military were also involved. It was, and is, the Wild Wild West.
A chaotic scenario like this was the perfect opportunity for Chavismo to get their hands on some much needed revenue as well as to exert their control over another segment of the population (the country). In February, 2016 Maduro announced the launching of a new project, “The Mining Arc”. The initiative was supposed to drive development of the vast resources of gold, coltan, diamonds, uranium, etc. in a responsible and eco- friendly manner for the 112,000 square kilometer area.And, of course, the military was put in charge of the project.
At the time of the announcement there were supposedly 150 companies from 35 countries interested in projects in “The Mining Arc”. This interest has produced nothing substantial to date. The primary reason for this is the required partnering with either CAMIMPEG, the military controlled mining, oil, and gas company, or Minerven, the government-owned mining company. Another contributing factor to the lack of international investment in the project and to the violence in the region was (and is) the military itself.
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