The sales tax increase I can absorb. After all I have purchased all of my big ticket expenses, including a small LCD TV.
The rest is more complex. The only thing we can retain from Chavez speech is that no serious spending cuts will be done and borrowing will increase further
to compensate the fall of oil prices. The implication is very simple: Chavez realizing that a two year stint with inflation above 30% has not stopped him from winning last February vote has decided that as long as he manages to feed his base he can still win further elections (or cheat without consequences, same difference). When we think of it a little bit more, the real economic announcement was not Saturday: it "escaped" Chavez two days before when he mused about "la bola de billetes" that the private banking had in forced reserve at the Central Bank. That is, Chavez is simply getting ready to take over the banking system, or at least some of its cash.It is not necessarily that Chavez does not understand why the banking system must retain some of its cash in the Central Bank to sustain the confidence of its clients, it is that he needs money and ideologically banks are, well, inherently against any XXI century communism, oops, sorry, socialism! By intervening further the deposits of the Central Bank Chavez by now knows very well that he will push inflation to very dangerous levels. But he also knows that banks will become very dependent on the government for their survival and will thus be for all practical purposes nationalized. That is, in case of a run on Banesco, to name one bank, this one will have to call Miraflores instead of relying on its now compromised BCV reserves.
I think at this point the government does not know exactly how to go about this latest madness, but after yesterday non-announcement we know that they are up to something with our savings and working money. It might be an outright nationalization without compensation (what seems to be happening with Spanish held Banco de Venezuela). It could be a "corralito" like in Argentina. It could even be at some point the end of the convertibility of the Bolivar, as limited as that one is today, making thus any saving you have pretty much worthless, as well as your home, your business and the rest. After all Cuba has been operating for decades without a real currency and what Chavez has been trying to do at local level with exchange coupons in lieu of currency is telling of the mentality in the higher echelons of his pseudo-administration.
One thing is clear: Chavez is gambling on a return of high oil prices sooner than later. Thus he is not afraid of hitting the banks even if only partially, assuming that the return of better days will minimize the damage he will bring to the banking system. Of course, once he gets the taste of this new drug there is no way to stop him, just as he did with the famous currency reserves of the BCV ("el millardito" only, remember?)What should I do with my meager income? Well, time to buy dollars at any price and to find ways to hide them under some rock. We are back to the time of the "morocotas". Some progress this robolution brought us!
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Morocotas: nickname of the 20 USD gold dollar coin which served of savings in Venezuela before banks existed outside of Caracas. The lore is that there are little stashes of these gold coins in hiding as their owners perished during some of the civil wars that we suffered util Gomez came. Any Venezuelan restoring a very old home or farm secretely thinks for at least a second that a rotten leather purse will appear inside a crumbling wall.....
-The end-