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Who rules Venezuela? The MERCAL set up as an example

By Daniel Duquenal | Venezuela News and Views

06.03.05 | This is not an idle question contrary to what people might think. When one reads that the Venezuelan president is happily traveling around the world speaking at many an "organized" rally he can find and that he is even provided with an allowance to buy foreign debt, one cannot help but think that he is like those rich scions of the old European Aristocracy who were sent to the "grand tour" of Europe, mainly Italy where the partying was good. Some "daddy" at home of course takes care of the unpleasantness of providing funds to pay the bills of the good times. In today's case, a devaluation of the currency by 12% did the trick nicely.

Yes, that is right, Venezuelan citizens lost last Thursday 12% of their assets in a single day by what is the most unjust tax, a devaluation provoked by irresponsible government spending. Or as some say "plain robbery". And Chavez was nowhere around to take the blame of something that would have caused a European government to fall and call for early elections.

So, if one knows that Chavez is president one can at least wonder about how things are run. As it happens the devaluation event coincided with the announcement that the subsidized food distribution system was seeking to raise its prices. The back and forth on this was quite revealing. But some background first.

MERCAL was founded shortly after the strike of 2002-2003. It was one of the very first misiones launched by Chavez when he realized that he would have to face elections and that he better had something to show. It was also a political move as Chavez realized that he needed a way to be able to at least distribute food to his supporters in case of crisis, not to mention as some people claim, that it was also a way to prepare the road to an eventual ticket rationing by teaching people to stand in long lines at the official stores.

Through 2003 the inauguration of respectable sized Mercals was a regular feature of Alo Presidente shows. Critics on their shoddy goods and lack of choice was also a regular feature of the opposition discourse. A second wave followed as the mini Mercals were opened. There some Chavez follower got some help to set a small in house Mercal in the barrio (s/he had to provide the place to get a license, or should I write franchise?). But in time and with the public monies spigot wide open the distribution system of Mercal became quite a big affair, run by the military, and widely rumored to become fast a source of corruption. It must be reminded to the reader that such scheme of subsidized food for the masses has existed in previous administrations of Venezuela, what changes this time is the scope.

Now the big problem with Mercal is that it is an unfair competitor. When a private distribution wants to import any food stuff it must ask for CADIVI dollars. If it does not get them and want to import the goods anyway it must go to the street dollar adding a 30% to its costs. Then when the goods arrive in Venezuela, the importer must pay heavy import taxes to which a sales tax is added. Mercal imports are exempt of all of these financial costs save shipping. And this is unfair as half of the food sold at Mercal is imported. So the obvious first question I why not allow tax exempt food import for all?

Now we can look at what concerns us today: how the running of Mercal is reflective of the new Venezuela. One thing that must be kept in mind is that the Army runs the show, and the Army has been taking heavy at the cash register since Chavez wants to make sure it remains faithful to him (again, nothing new in LatAm practices).

It all starts when on Thursday 3 El Universal published the declaration of Jorge Rodriguez the head of Mercal as to the intentions of increasing their prices, by less that the inflation prediction of 15%. The tough luck of course is that his printed words came out a few hours before the devaluation of 12 % was announced, killing of course any hope that Mercal will held price increases this year at less than 15%.

Now, I am no wizard but should not Rodriguez have consulted with someone at the finance ministry before announcing a less than 15% price increase? When devaluation was widely expected since last November? Donít these guys talk among themselves? We are not talking shopkeepers here; we are talking the soldier who manages what has become the biggest distribution system of food in Venezuela, heavily subsidized by the finance ministry!

But it gets better. The head of CASA, the organization who imports the goods sold at Mercal announced on Friday, I assume to mitigate the negative effect of the devaluation announcement, that he was loaded with cash overseas in a New York Bank and that he would be able to import stuff as he pleased without increasing prices. This of course was disingenuous at best since eventually he would have to replace these dollars and the 12% price increase will be reflected sooner or later. I wonder if he thinks we are stupid or if he is not that bright himself.

The side effect was speedy, the National Assembly in a moment of strange lucidity was launching an investigation into the management of CASA and Mercal and the announcement of the millions stashed away in a New York bank were incorporated to the long lists of possible irregularities to be investigated. Reminder: with CADIVI it is forbidden to hold dollars outside of Venezuela unless deposited there before 2003.

One interesting detail is that the huge expansion of Mercal, if not its success is now here to haunt the government. If it is true that almost half of Venezuelans shop at one time or another in Mercal, any increase in prices will be blamed directly on the government officials and not the private shopkeepers as it was the case all along Venezuelan history. It certainly did not help that Jorge Rodriguez of Mercal (not to be confused with the one of the Cosa Nostra Electoral) hurriedly announced Friday that the council of ministers had to decide whether prices would increase. Which means that he put the decision on a traveling Chavez. Considering that there are two elections this year, the only question is which will be the size of the subsidy that will disappear in the sands of Mercal.

And so is Venezuela run daily, a web of contradictions managed by incompetent people, while the boss is away wasting precious money as long as any adulator is crossing his path.

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