Transitions

Democracy Lab Weekly Brief, February 25, 2013

Javier El-Hage and Thor Halvorssen profile Guillermo Cochez, the former Panama ambassador to the Organization of American States, whose outspokenness on human rights issue led to his premature departure. 

In our latest Lab Report, Phil Gunson offers an in-depth analysis of the Venezuela that Chávez built, and wonders whether the construction can survive its founder. Reporting from Caracas, Juan Nagel shows what it's like to live through a currency devaluation. 

In his weekly column, DemLab editor Christian Caryl explains why the conflict between Sunnis and Shiites is likely to dominate the news for decades to come. 

Anna Nemtsova takes a skeptical look at Vladimir Putin's new campaign against corruption. 

Sarah Kendzior explains why stability has been a raw deal for Central Asia. 

Mohamed Eljarh sets out a to-do list for Libya in the coming year. 

And now for this week's recommended reads: 

Writing for Radio Free Europe / Radio Liberty, Deana Kjuka offers examples of authoritarian leaders who are embracing social media.

Syed Zain Al-Mahmood reports for The Guardian on the ongoing protests and clashes between Islamists and "athiests" in Dhaka's Shahbag Square following the recent war crimes tribunal. (The photo above shows a protest on February 22.) 

The Boroumand Foundation presents a report on a little-noted agreement between the governments of Iran and Argentina to create a truth commission to investigate the 1994 bombing of a Jewish center in Buenos Aires. 

Robert Kagan and Michele Dunn argue in The Washington Post that it's time for the United States to start showing Egypt some tough love. 

At TEDxWomen, 22-year-old teacher Shabana Basij-Rasikh tells of the dangers and the opportunities that confront girls and young women as they seek education in today's Afghanistan. In her TED talk, Libyan activist Zahra Langhi explains how smart feminist politics can yet make a mark on the next stage of Libya's revolution. 

Al Jazeera profiles Martha Karua, Kenya's former minister of justice and a very unique candidate in that country's presidential race. James Verini provides a pithy overview of the recent Kenyan presidential debate in The New Yorker

Dan Glazeman, writing in Al-Ahram, contends that the West's military interventions in the Sahel and Sahara are self-serving efforts to gain access to cheap raw resources and minerals. 

In a new in-depth report, the Transnational Institute makes a plea for "people-centered development" in Burma. And Burma Partnership explains why the country's transition continues to be dogged by the inadequacies of an outmoded constitution.

Sarah Leah Witson of Human Rights Watch writes a public letter to the Egyptian Justice Minister on the problematic provisions included in the draft law on demonstrations.

David Trilling reports for EurasiaNet on World Bank support for the hydropower project that is the center of a Tajikistan-Uzbekistan feud. 

Photo by MUNIR UZ ZAMAN/AFP/Getty Images

Transitions

Living through Venezuela's currency madness

The U.S. dollar is facing competition from other currencies, but there is still one place, ironically, where the greenback is king: the streets of socialist, anti-imperialist Caracas. Everyone here wants dollars -- from the importer looking to stay in business, to the mid-level professional wanting to save his Christmas bonus.

Venezuela has had a fixed exchange rate of 4.3 Bolivars (BsF) per dollar for years. By selling dollars in exchange for so few Bolivars, the local currency was severely overvalued. Propped up by oil exports (hence the term "petrodollars"), the government was effectively subsidizing imports and travel abroad. A few weeks ago, the government decided to devalue to 6.3 BsF per dollar.

But devaluation was not the only thing rocking the market. The official dollar is only available for procurement if you are buying some imports -- food, medicine, airplane tickets, and the like. You can't get them unless it's for one of those approved purposes, leaving out many people who need them. The artificially low prices, combined with the scarcity of dollars, creates the perfect opportunity for a black market where you can buy USD at the official rate, and then sell them underhandedly at a jacked-up price for an easy profit. In the last few weeks, following the devaluation, the price of the dollar in the black market has shot up to BsF 22 per dollar, up from BsF 18 the week prior to devaluation.

Stroll through the streets of this chaotic capital, and it is not difficult to figure out how both of these events are affecting people.

I stop by a local café and order some breakfast. The owner, Aída, in her mid-50s, is in a mood to talk. She says that she doesn't have "pastelitos," a local pastry, because she cannot find the flour to make them. Flour, you see, is imported, and given the differential between official and black market rates, flour vendors would rather take their subsidized dollars and make money by selling them in the black market instead of using them to buy the flour they're intended for.  Economists I've spoken with estimate that roughly 50 percent of the dollars approved to import basic staples end up in the black market instead.

I ask Aída if there is a black market for flour. She says she doesn't know of any. The price of flour is controlled, so flour vendors can't really use the black market for dollars to import flour and sell it a profit. The end result is that Aída, like thousands of other small business people, can't sell her pastelitos. The flour is simply not there.

Devaluation supposedly means that flour prices will have to go up, as local businesses have to pass the cost increase to their customers, but the government has already signaled that prices will remain fixed. It may be weeks before flour is on the shelves again. And even if it is, there is no guarantee that the government will allow Aída to transfer the increase in the cost of flour to her customers.

Everyone who imports something has been affected. Everything from the wrappers that you use to store potato chips to the metal linings you put on the coffins you sell is affected by the government's decision. Vendors lucky enough not to be under the government's magnifying glass are simply jacking up prices to reflect the black market rate. Some furniture vendors, for example, will quote prices in dollars, and then will whip out a calculator to translate it to local currency at the day's black market rate.

Ordinary chavistas say that devaluation doesn't affect them since they do not use dollars. This, however, ignores the reality that the dollar plays in the distribution channel of most consumer goods in the country.

In effect, when the value of the U.S. dollar goes up compared to the BsF, what people are able to buy for their money (i.e. their wage value) goes down. The less ideologically pure are already seeing the effect of devaluation when they go to stores.(As seen in the photo above, Venezuelans are making a run to electronics stores, to buy what they can before already expensive goods become unaffordable.)

Using the black market, of course, is not an easy proposition. Selling small amounts revolves around people you trust -- relatives, or friends. Selling dollars to people on the street could lead to a mugging or getting counterfeit money in return.

Finding dollars in small amounts is easier than finding them in large quantities. Multinational companies wishing to repatriate dividends, for example, have a difficult time finding people willing to sell large amounts of dollars. There are stories of "shadow traders," companies who are able to illegally exchange large amounts of dollars at the black market rate via a complicated scheme of international transfers. Local economists say that the supply of those dollars comes from two main sources: importers with access to official dollars, and the government itself.

The dollar may be losing luster in other parts of the world, but in Venezuela it remains the benchmark for price-setting and the preferred means to store wealth. Here, green still rules.

Juan Nagel is the Venezuela blogger for Transitions. Read the rest of his posts here.     

Photo by GERALDO CASO/AFP/Getty Images