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Hugo's Ghost
Chavista Shortages, Explained

With a fresh wave of protests rocking the country, Venezuela’s price-control schemes and many product shortages are once again getting 15 minutes of fame. By now you’ve probably seen the images of Venezuelans lined up by the thousands to buy scarce consumer staples like toilet paper or bread. Remember, this is the country that, by some estimates, has the largest proven oil reserves in the world, even beating out Saudi Arabia.

It’s not hard to understand in theory the connection between price controls and shortages, but how exactly do Chavista policies create such crises? Francisco Toro of the Caracas Chronicles blog explains in the New Republic:

In Venezuela, butter is price-controlled at 109 bolivars a kilo. As usual, whether that’s a lot or a little depends on which exchange rate you use. At the official exchange rate, that’s an extortionate $17 per kilo of butter, around five times the international wholesale price. On the black market, it’s just $1.23 per kilo.

Here’s the tricky bit: If you can persuade the state to sell you $17 to import butter, you’d have to be insane to spend it on five kilos of butter that you can only sell for 545 bolivars, because that same $17 in the hands of your local black market currency operator will buy you almost 1,450 bolivars.

As it turns out, there’s a simple fix: fudging the receipt. Say you import 1 kilo of butter—just get your foreign supplier to give you paperwork showing you’ve imported 2 kilos. The first $17 will buy 5 kilos of butter and net you a modest 545 bolivars. But the second $17 you can sell on the black market, for 1,450 bolivars. In this example, 73 percent of your income comes from the currency deal rather than the sale of butter. […]

It’s easy to see how the actual butter becomes an afterthought in a deal like this. The more the official and black market exchange rates diverge, the bigger the profits to be made out of dollar arbitrage, the more onerous the clean part of the business becomes. In the end, “butter importers” are no such thing: They’re currency arbitrageurs, with a loss-making side-business in butter imports.

Which explains why shoppers in Caracas have found it nearly impossible to find actual butter in the shops for months now.

Yesterday was the one-year anniversary of the death of Hugo Chavez, but his legacy lives on. One of the wealthiest countries on earth in terms of natural resources is a banana republic that makes crime pay, turns merchants into currency manipulators, and can’t stock a supermarket shelf.

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  • qet

    This confused me more rather than less. And I wonder what could be the point of accumulating all those bolivars in a country with less and less to spend them on.

    • mesquito

      If you bribe the right person you can exchange them for dollars at a fantastic rate.

      • John Stephens

        But who would be fool enough to take bribes in Bolivars?

        • mesquito

          Everyone knows that you pay third world bribes in dollars, silly.

    • Jim__L


  • Jacksonian_Libertarian

    This is what happens in a Socialist or Communist country when the Government tries to overrule the Law of Supply and Demand. When the Government sets below market prices for a product like toilet paper or health care, the Demand for those products becomes infinite, and the Supply can never be enough and so the product vanishes from the market. This is why socialized medicine is characterized by long lines and wait times, poor quality, and even worse service. “There is no such thing as a free lunch”

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