Wednesday, March 12, 2014

Food Stamps

Entirely different from how we think about food stamps in the United States. In Venezuela food stamps are quite literal.

While U.S. news has been distracted by geopolitics in Ukraine things in Venezuela continue to escalate. Venezuela made a major decision last week by severing ties with Panama. On the surface this move didn’t seem surprising and the way the news agencies reported it would lead one to believe that it was purely because of Panama’s close ties to the U.S. There are a number of wealthy Venezuelans living in Panama and Maduro has suggested they are responsible for the unrest but in reality they have nothing to do with Maduro’s disastrous economic policies.

The real reason Venezuela called it quits with Panama is because of the money they owe to Panamanian companies for food and supplies. There have been rumors of defaults circulating for sometime and by severing relationships completely a whole bunch of businesses in Panama just officially got the middle finger from Maduro.

What does this mean for the people of Venezuela? More shortages. Just as we were drafting this post last night pictures emerged on Twitter showing more empty shelves of state run grocery stores and even more alarming photos like the one here show people getting stamps and numbers on their arms to wait in line for their food rations.

The bigger question everyone is asking is when do things change? Is there going to be a coup? Not yet in our opinion. Right now the country is largely divided between the working class and the middle class. This will change however as the lines continue to grow longer for food and basic necessities. With China on the brink of a credit bubble burst and other emerging markets hitting the skids it is possible we could see a drastic pullback in oil prices. We expect instability with food in the middle east this summer so Arab Spring 2.0 could keep prices stable but if oil were to decline below $80 per barrel it would crush Venezuela’s revenue and full riots with everyone involved would commence. Since we have a lot of friends from Venezuela we certainly hope this is not how things play out but with the current lack of structure for the protests it is hard to envision an alternative scenario.

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