We’ll go Down The Rabbit Hole in a bit but first…Oilprice.com reports that Venezuela’s Lake Maracaibo, South America’s oldest lake as well as it’s largest natural lake, and forms part of a crucial regional ecosystem, is dying.
The 5,000 square miles, ecologically diverse body of water, home to 145 species of fish, sits at the heart of one of the world’s richest petroleum-producing (At least it was producing before the Chavistas destroyed it) regions. It is estimated that the Maracaibo Basin contains one fifth of Venezuela’s oil reserves, the largest proven reserves in the world.
We’ve reported many times on the oil spills in and around the lake, with the magnitude of pollution drastically increasing after Hugo Chavez launched his socialist “Bolivarian Revolution” but, according to the article, the damage now appears irreversible.
There are reportedly more than 10,000 oil-related installations around Lake Maracaibo with thousands of miles of petroleum industry pipelines crisscrossing the lake. Much, if not all, of the aging infrastructure has fallen into disrepair (totally neglected), leaving it heavily corroded and steadily leaking crude oil into the lake.
According to a 2021 NASA report, most of the oil is coming from the vast pipeline network as well as storage tanks, drilling platforms, and transportation vessels.
The situation is so severe that Venezuelan environmental group, Blue Environmentalists Foundation, warned in June, 2023 of a state of emergency at Lake Maracaibo.
Venezuelan environmental group, OVDHA, reported in 2022 that 1,000 barrels of oil per day are being discharged into the lake.
Many spills go unreported, PDVSA (Venezuela government-owned oil company) doesn’t provide official data, and the government doesn’t acknowledge spills so it’s impossible to quantify the true scale of the catastrophe.
The latest announcement from Maduro that he has created a “special plan of attention” for the recovery of Lake Maracaibo underscores the gravity of the situation. (The Chavistas never acknowledge a problem exists until it is impossible to deny it)
Nonetheless, it is too little too late with a dictatorial regime determined to pump as much crude oil as possible regardless of the environmental devastation that occurs. It’s Enviro-geddon.
Now, lets head Down The Rabbit Hole…
Chapter 5/ continued…
… Note : The black market rate fluctuated while the government rate remained unchanged for over a year which is a bit suspect when the inflation rate was over 100% (That was the “good old days” since the inflation rate would reach over a million)
The government rationed conversion of bolivares to dollars through a byzantine regime of authorizations so only the well-connected were able to exchange their bolivares for the 6.3 rate leaving ordinary citizens and businesses to fend for themselves on the black market. Arbitraging between rates became a Chavista obsession and produced many overnight Chavista millionaires. Here’s how it worked…
Take 6.3 bolivares and buy a dollar. Sell that dollar on the black market for 71 bolivares. Take that 71 bolivares and buy $11.27. Sell that $11.27 on the black market for 800 bolivares. Take that 800 bolivares and buy $127. In a few simple steps you just turned EVERY DOLLAR INTO $127 DOLLARS.
The world is awash in bank accounts of Chavista millionaires created doing this and siphoning dollars out of government accounts and into their own. If they didn’t take all of their money out of the country they took their bolivares and bought hard assets to preserve their capital.
With the fall in oil prices and their depressed state for the next few years the government had to be more judicious with allocating dollars for bolivares. Their version of restraint was no money for non-connected individuals, no money for businesses, no money for importing food or medicine, and forget about money for the electric grid, PDVSA infrastructure, or pretty much anything else. The one area where they did act somewhat responsibly was they continued to make their bond payments. This was out of self-preservation as they were still borrowing billions of dollars and lenders take a dim view of bond defaults.
As they wound their way through the changes in controls through the next few years one thing was clear. They were not going to do much that would hurt the arbitrage opportunities for Chavistas even though the supply of dollars was much tighter. From the 6.3 rate in 2014 they only adjusted the lower rate up to 10 bolivares per dollar. That increased the distortion, due to the black market functioning normally, from an 11 to 1 arbitrage margin to 2,379 to one. The really crazy part of this was that in 2014 Economic Minister, Rafael Ramirez, gave a speech saying the exchange rate system was not functioning properly. With the collapse in oil prices causing tight revenues, high inflation (if he only knew what was coming…) and shortages of food and medicine, reforms needed to be made or the distortion would cause more problems. A few months passed and the only reform that was made was a new Economic Minister. Ramirez was reassigned to the United Nations.
In 2016 a new system was announced although it wouldn’t be functioning until 2017. The new DICOM system would solve everything. Hmm…isn’t that what they said about the three systems before DICOM? Anyway…one thing that was different was a higher exchange rate while still maintaining the 10 bolivar rate for priority usage called DIPRO.
So, now we have DICOM, DIPRO, and the black market. Since DICOM and DIPRO required that the government spend some of their much-coveted dollar reserves there wasn’t much volume in these two. DIPRO was almost non-existent and DICOM only sold $32 million from inception until mid-2019.In the world of foreign currency exchange that is almost nothing so, as before, businesses and non-connected individuals had to rely on the black market. Here’s an example of the breakdown from 2018 :
DIPRO – 10 bolivares/dollar
DICOM – 3,345 bolivares/dollar
Black Market – 240,000 bolivares/dollar
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