Venezuela a long way from the hyperinflation hall of shame

[Judi Lynn]

Venezuela a long way from the hyperinflation hall of shame

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Please check link for comments. Short, appropriate statement:
http://www.ft.com/intl/cms/s/0/5aa38c80-d1f3-11e2-b17e-00144feab7de.html#axzz2W2XebC6X

[reorg]

1. Interesting

so, the author of the chapter about Hyperinflation in "The Handbook of Major Events in Economic History" (written with the intent of presenting the professional consensus in explaining the economics driving these historical events) chastises the FT for falsely using the term for the situation in Venezuela.

(I got around the paywall by searching for the teaser text taken from FT's Letters page with a common search engine, the comment was linked from there with no interruption, strange).

[Judi Lynn]

2. That way works often, thank goodness! Thanks for mentioning it. n/t

[ocpagu]

3. Nice letter.

I remember the time we had hyperinflation in Brazil - early 90s. Real hyperinflation, over 2,000% a year. We used to go to the bakery in the morning and when we returned in the afternoon the price of the bread had already doubled. At least something good came out of it for me: I was forced to stop smoking since the price of cigarettes were readjusted three, four times every day.

Venezuela is far, far from being in the same situation. They are already far from being in the same situation they were before Chávez was elected, with 100% inflation annually. Let alone hyperinflation.

Thanks for sharing that letter from Prof Steve Hanke (though it was a bit difficult to read it because of the paywall). He put FT back to their place.

[Judi Lynn]

4. Did not know you had that kind of situation in Brazil!

Another reason to treasure Lula and his approach to government, as with Dilma.

Shocking, horrendous. It would have been a living hell for the poor, wouldn't it?

However, I'm certain you don't regret the push to stop smoking. After a little distance from them, you don't miss them,and your life can close seamlessly around their absence while your lungs move toward being healthy again.

The bakeries moving that fast to increase the cost of their merchandise really is disgusting. They didn't waste a moment taking advantage. Capitalism at work, and not for the people, either!

There's not much which can be said for capitalism once it's working with no constraints whatsoever. Very ugly.

[Socialistlemur]

5. The economics fix was carried out by Cardoso

President Cardoso was the one who implemented the changes needed to get Brazil on the current path. Lula can be admired for following in his steps, and Dilma seems to be trying to copy Lula.

Regarding Venezuela's inflation, it's not hyper, but it does create a really bad environment. The problem arises because the government relies on price controls, or fixes prices. Inflation destroys the ability to produce a regulated product and eventually it grows scarce. Then the government response is to threaten those who fail to produce at a loss, and sometimes nationalizes the property. Nationalized properties do not produce much, this drives up scarcity. So the government imports the missing goods, giving contracts to middlemen who grease chavista officials. Or they contract with boligarchs. This requires petrodollars. And so the stage is set for the current crisis, a toxic mix of inflation price controls, destruction of productive capacity, corruption, scarcity, black markets, unhappy citizenry and borrowing from Chevron and other multinationals to plug the income gaps. This story isn't just about 30% inflation, it's about all the other associated ills which are truly poisoning the economy. And yet these gentlemen find the time to do everything and travel everywhere rather than fixing the problems. Hopefully they will kick the Finance Minister in his behind and ship him to an ambassadorship or somewhere far from Caracas. Something needs to be done.

[ocpagu]

6. Inertial inflation was fixed during Itamar Franco's term.

Cardoso was then his minister of Finance. But Cardoso himself is a sociologist. He didn't create "Plano Real". The main responsible was Edmar Bacha. Cardoso posed as the creator of Plano Real for his political ambitions and was elected because of it. After that, he used Plano Real to justify every catastrophe he induced. His term is oftenly referred to in Brazil as "populismo cambial" ("foreign exchange populism&quot . From privatizations to severe austerity measures, that only screwed the country. So much that sectors traditionally allied with the conservative forces voted for Lula in the following election.

Lula and Dilma have kept the mix of orthodox/heterodox policies that sustain Plano Real. But they froze privatizations and reversed the situation of public investment from permanent cuts imposed by austerity to systematic policy of big investments. Dilma has made a very courageous decision of fighting with the financial sector, by making historical drops in interest rates in Brazil - which are still probably the most obscene in the planet. Interest rates peaked to almost 50% under Cardoso... they are about 7% with Dilma. Reduction of interest rates have made entire private fortunes be distributed in a fairer way. Certainly granted her lots of enemies. Dilma and Lula are running economy much better and to trying to benefit of all classes. Cardoso almost screwed what Itamar left of good.

[Judi Lynn]

7. It's so important to get the real information from you, ocpagu.

It's absolutely necessary to move ahead with the TRUTH locked into one's perception, rather than a colossal piece of silly right-wing spincrap, like a complete clown!

Thanks for taking the time to clear away the mess for us!

Cardoso has always come across as a complete a$$hole.

[Socialistlemur]

9. The Cardoso/de Silva formula and the switch from communism to savage capitalism

It all depends on one's point of view, but I see both Lula and Dilma to be following the basic structure designed by Cardoso when he was minister. Cardoso was a very popular and this allowed him to win two terms, which he used to dose the Brazilian economy with the dynamism and discipline it had badly lacked.

It's easy to be quite selective when reporting statistics...for example interest rates were high when Cardoso was president because he had to tame inflation...which he did in time. Evidently when there's high inflation interest rates increase dramatically.

But it's evident, as I said, that it all depends on how one filters the data. I happen to believe, like Lula, that the structure set in place by Cardoso is the winning formula. And Dilma seems to understand extremely well that returning to a system where the state owns as much as it did in the past is a big mistake.

And we can look around at other countries....even Cuba, the lone Stalinist hold out in the hemisphere is now switching to capitalism. My fear is that the type of capitalism practiced by former communists tends to be predatory and nearly fascist. China is a terrible example, where the regime even dares separate the working class according to birth place, and where inequality is increasing as a small group of former communist party leaders become the new ruling oligarchs.

This is why I like the Cardoso/da Silva formula. I don't like the corruption and the way the government emphasizes so much making Odebrecht richer, but this approach works, it's a lot better than seeing all those former Chinese cammarads, still hloding their communist party badge, being driven in Mercedes Limousines, playing thier great golf games and enjoying all the perks of the super rich.

[ocpagu]

8. Yep, pretty bad times those were.

Hyperinflation is probably one of the biggest traumas to the generation of Brazilians that includes me. Those machines used for remarking prices are icons of this era, they were seen anywhere from supermarkets to drugstores.





Food prices doubling day after day. Some five million people were thrown into poverty in less than two years. Chicken became luxury item for the population of the world's second largest chicken producer. And shortages, of course, though almost nobody had money to buy anything. Add to that the fact that one in each four Brazilians was unemployed - and up. And to make it all worse the clown that was in office, our first neoliberal pres., Collor de Mello, had confiscated the savings accounts of most Brazilians, causing widespread panic and drowning millions of regular citizens in debts.

Oh, stop smoking is one thing I don't regret at all!