Omar Z., over on his increasingly invaluable blog, points us to the nub of the nub of the issue: the enormous, fast-growing debt that PDVSA has been running up with the Central Bank this year.
If you’ve been paying attention you already know that, more than anything else, it’s the uncontrolled growth in the money supply that’s driving the growing macroeconomic chaos we’re seeing in Venezuela.
The finer point, though, is less often made: more than anything else, it’s the uncontrolled growth in money-created-to-be-loaned-to-PDVSA that’s driving the growth in the money supply.
To be clear, running up debts with the Central Bank isn’t like running up debts with a normal bank. When it’s the Central Bank you’re borrowing from, the money you’re getting is hot off the printing press: money created exclusively for this purpose. That’s why this kind of “monetized debt” is a four-letter word for economists: it has inflationary impact on a scale that’s different from normal money.
Which is why it’s hard to look at that chart without a deep sense of foreboding. It’s not just that PDVSA’s tab at the Central Bank has risen 150% this year, it’s that the Central Bank has created 100+ billion bolivars out of thin air for PDVSA to spend in the last four weeks alone.
There’s a Yakov Smirnoff joke hiding in there somewhere: in Soviet Venezuela, it’s Central Bank that bankrolls state oil company!
The thing is, inflation doesn’t give a shit that 99,999 Venezuelans out of 100,000 don’t understand that what’s driving it is this obscure BCV-PDVSA financing mechanism. It gets driven all the same.
Here, a dark thought insinuates itself: even at the insane official rate, the Bs.400 billion the BCV has printed up for PDVSA to spend comes to around $63 billion. Spread over the last five years, that’s around $13 billion per year which, depending on whose sums you go by, is either a little more or a lot less than the cost to PDVSA of giving away gasoline in the internal market for what amounts, centavos más centavos menos, to free.
Take a minute to think about what that means…