Dollar triumphs in socialist hellhole, rescuing high-quality producers
What's doing in socialist hellhole Venezuela these days?
Bloomberg has a credible story about how its bond market is going, beginning with this lovely headline:
In Venezuela Bond Market, Gunmen and Bags of Cash Are Required
In what is perhaps the tiniest and almost certainly the most primitive bond market in the world, default isn't the greatest risk that investors face.
This market can be found in Caracas, Venezuela, where the socialist government of President Nicolas Maduro is ever so slowly freeing up the battered economy to allow the kinds of capitalist ventures it had long banned. As part of the overhaul, the U.S. dollar is now the de facto currency in the country but, given the ad-hoc way that reforms are being rolled out, there's no way to electronically transfer greenbacks from one bank to another.
So when a local rum maker decided to become the first company to sell dollar bonds in the country in at least two decades, investors shoved stacks of hundred-dollar bills into bags and lugged them over to the distiller's bank in eastern Caracas. All sorts of techniques were employed — everything from an armed-guard escort to an incognito approach — to navigate the streets of one of the world's most dangerous cities. And while the deal was minuscule — totaling a mere $300,000 — its success late last year has triggered a wave of interest from both companies seeking financing and wealthy Venezuelans looking to get a return on their cash.
Crime in Caracas is pretty well known. Nobody's safe in the socialist hellhole, and the government uses that crime without consequences as an instrument of social control. Here's a Miss Venezuela who didn't make it, waylaid and killed on a lonely highway by brutal homicidal Venezuelan thugs in 2014. This brilliant film about Venezuela's thug "express" kidnapping industry by director Jonathan Jacubowitz, if you see it, will leave you screaming in terror. It goes on. Here was a 2010 protest of such crime at the Miss Universe pageant, by the outgoing Miss Venezuela Universe Stefania Fernandez, no less.
The ends to which Venezuelans go to avoid crime, above anything else, are dramatic. That people could be more fearful of transporting money to pay for the bonds than the prospect of default itself underlines the extent of Venezuela's socialist problem.
And like any socialist hellhole, the infrastructure for safely transmitting funds, the product of the capitalist experience, and otherwise common everywhere, just doesn't exist in that place. They used to have such infrastructure; socialism has ensured that now they don't. It's a trip back to the Dark Ages, where people had to sew diamonds into the linings of their clothes before they could travel. So much for socialist progress. This new Stone Age brought on by socialism has also brought poverty. In 2020, Venezuela surpassed Haiti as having the highest poverty rate in all Latin America. Amazing what socialism can do.
American Thinker founder Thomas Lifson tells me that the most interesting part of the piece, however, is how Venezuelans have adopted the widespread use of the dollar. To me, that story was invisible; it's been going on for about four years, and it obviously has accelerated as Venezuela's money turns less valuable than toilet paper.
The real story, it seems, is that unlike everything else in that socialist hellhole, the dollar is still worth something. And being worth something, it's being used in exchange for something else that's worth something — no, not a Joe Biden-type government "infrastructure" project, but a company that actually makes things of great quality that people want to buy.
I was amazed to hear that the Santa Teresa rum operation was still alive at all in Venezuela. But it is, it is, built up from an old hacienda by a respected German family since 1830, the Vollmers, who are still running it.
I first encountered Santa Teresa rum on a visit to Caracas back in December 2005. It was glorious, rum unlike any other, a rum of the gods, a flawless creation, a rum where even a non-connoisseur of rum such as myself could actually taste the difference. It was the world's best rum, and it came from the country that invented rum. I visited the farms on which the sugar was grown — battered by Chavista expropriations and collectivization of farms, which turned many fields into wastelands, but some still untouched, some still working.
I met rich Venezuelans at the time who preferred high-grade Scotch whiskey. I was a little astonished with that, given that the local brew was so amazing. The Chavista thugs I visited drank it, though, pirate-style, straight out of the bottle. When I presented a bottle of Santa Teresa to my parents as a gift back in San Diego upon my return, their response was: "Go back and get more!"
So there is demand — and an export market that is waiting. Who in the States and beyond wouldn't want to buy this extraordinary rum once word got around? Or else be all in for buying the bonds that could keep this company afloat, given its impressive earnings prospects? With a wholesome, ethical family running the operation that somehow has managed to navigate and escape the worst of the socialist expropriation excesses, the risk is left in the money transfer as Bloomberg described, not in the prospect of default.
As for the socialism risk, well, even that might not be much of a risk. Communists of the former Czechoslovakia never touched the operations of the ancient Pilsen beer operation, given that they liked that beer themselves. The Chavistas of Venezuela, who, as I noted, have a taste for this rum, may well also not want to mess with this good thing that they can't get elsewhere.
Now it's possible only because of the use of the U.S. dollar, a currency still of meaning (though the money-flinging Bidenites are trying to put a stop to that), which is the basis for the issuance of these corporate bonds. Good product of value in exchange for good money of value — that's how capitalism works.
But that development, along with the socialist overspending, has now forced the country to dollarize. That means that the state oil monopoly is not the only one who has dollars from exports, the source of the socialist state's petro-power, but now everyone can or does. In times past, Venezuela was highly susceptible to "Dutch disease," meaning that the high dollar inflow weakened export prospects of all the other products because they had to be priced too high. That included Venezuela's awesome rum, and Venezuela's terrific coffee and chocolate. Dollarization kills that curse of oil for them, that "devil's excrement" problem, dead immediately. When everything is traded in dollars, export prices don't have to be inflated. It's why Hong Kong with a hard-dollar peg, or Panama, with a straight-up longtime dollarization, with the currency renamed the "balboa," and even Ecuador, which just elected a right-winger, are all countries and districts that are survivors. Dollarization has been recommended to the country for years by respected economic experts such as Johns Hopkins University's Professor Steve Hanke and the amazing former blogger-banker Miguel Octavio.
Permission or not, it's now there in Venezuela, given socialism's total failure. And that's why the rum of Venezuela now sees a pretty amazing prospect of growth. Even in cave-age conditions, it's amazing what dollars can do.
Image: Pixabay, Pixabay License.