Caracas Chronicles

If someone comes over and says “I want to buy 50% of everything you produce”, you’d be happy for the new business, wouldn’t you? Well, what if your shiny new customer will only pay what he considers a “fair price” and then won’t specify when exactly he’ll pay you?

Not so glad now, are we?

On October 4th, the Defense Minister/Food Distribution chief, Vladimir Padrino López, signed resolution Nº 10 as chief of the Comando para el Abastecimiento Soberano — it’s hell translating the names of these looney made-up Chavista entelechies.

In article 2, the resolution says “public and private companies engaged in the production of inputs or goods from the agri-food, personal hygiene and household cleaning products sectors, must to sell up to 50% of their production to [certain] Public Entities”.

The idea is that those products will then be distributed through CLAPs — those chavista neighborhood committees charged with delivering groceries door to door. (For those of you keeping score at home, the resolution was later published in Gaceta Oficial Nº 41.005 on October 7th.)

The real kicker, though, is in the resolution’s Article 8: “Efforts to purchase may include the exchange of information with the forced prioritized sale subject, or making the latter the necessary notifications, in order to initiate the process of production of the required items, while carrying out the administrative procedures for the acquisition”.

In normalspeak, that means “you start producing the stuff -with your very own working capital- while we work out the paperwork to pay you”.

How to disentangle that particular chavista word salad? The key bit of jargon is those “administrative procedures for the acquisition”. In normalspeak, that means “you start producing the stuff -with your very own working capital- while we work out the paperwork to pay you”.

Producers will be forced, in other words, to hand over the products with no clear sense of when they’ll get paid. In an economy with double-digit inflation per month, this amounts to a generalized Dakazo…and one you can’t really get out of, unless you go out of business altogether.

Four resolutions earlier, (resolution Nº 6, G.O. Nº 40.994 of September 22nd, 2016) the National Procurement Service was allowed to enroll and enable “de oficio” (on its own initiative) businesses that produce, sell or distribute any goods and inputs needed for CLAP in the National Registry of Contractors — the big list of government suppliers.

Those goods include 402 presentations of 25 basic products. We’re talking all the staples: vegetable oil, white rice, tuna (fresh and canned), sugar, coffee, beef, chicken, pig meat, peas, lentils, black beans, corn flour (white and yellow), eggs, milk (powdered and pasteurized), margarine, pasta, cheese, sardines (fresh and canned), sanitary pads, shampoo, deodorant, soap, baby diapers, toilet paper and detergent.

This, we’re told, will save up a lot of paperwork and delays.

Resolution Nº 6 also says that If Maduro and his team haven’t gotten around to setting a “fair price” for a given product, Gran Misión Abastecimiento Seguro may establish price bands — price ceilings and (ha!) floors. For all other products, the Organic Law of Fair Prices would be applied supplementarily.

So let’s put it all together. Say you run Company A, a mid-sized soap manufacturer.

Company A has all of its basic paperwork in order. Whether it likes it or not, Company A has already been enrolled in the National Registry of Contractors —“de oficio”, remember? — handily saving time. So convenient!

But ojo, this special enrollment cannot be used for other types of contracts with the Central Government, so Company “A” has to follow the regular procedure to enroll in the Registry all over again if it wants to sell the Government anything else, (as in, y’know, stuff it can actually make money on.)

Then, some state corporation (such as Corporación Única de Servicios Productivos y Alimentarios, MERCAL, PDVAL, VENALCASA, RABSA, Lácteos los Andes , CORPOZULIA, CORPOMIRANDA or CORPOLARA) turns up at Company A’s door — knock, knock — saying “you have to “sell” me 50% of your soap, and we’ll pay you…when we get around to it.”

(Never fear…our administrative procedure for paying you is already up and running!)

Sell to a private supermarket chain and you’ll get paid in 1-4 weeks. But how long it will take the Central Government to pay for its stuff nobody can tell. Three months? Six months? Your guess is as good as anyone’s.

At the beginning of the next production cycle, Company A will have brought back in half of its working capital to pay suppliers for raw materials and supplies. The other half? Bien gracias. What do you think is going to happen to production that next cycle?

This is a pretty interesting —and worrying— creative new form of financial repression. The state is, in effect, temporarily expropriating Company A’s working capital.

This is a pretty interesting —and worrying— creative new form of financial repression. The state is, in effect, temporarily expropriating Company A’s working capital. At the rate the Bolívar is losing purchasing power, forcing you to hand over product now and telling you I’ll pay you a given number of bolivars “at some point” is to turn every corporate balance sheet in the country into a disaster zone. It’s unilaterally claiming a 80-95% discount on the stuff you sell, just because.

Public opinion has registered the sell-me-half-your-production clause as a Thing That Happened. But the financial repression angle in Article 8 has gone by largely unnoticed.
Local industries — the ones that have managed to hold out this long somehow — are typically in big big trouble. They’re operating, on average, on just 36% of installed capacity, because they can’t get their hands on spare parts, inputs and supplies, to say nothing of a stable electrical supply. They also face a market with over 70% of customers classed as poor by income, and where prices are controlled at levels often far below production costs. If on top of all that, they get paid months late… it’ll be game over for many of them.