Sunday, 24 August 2014

You know your economy is in trouble when .........

In City A.M. Guy Bentley writes
The President of Venezuela, Nicolas Maduro, has announced plans for a major mandatory fingerprinting system to combat the increasingly dire food shortages and rampant smuggling afflicting the Latin American state.

He said the fingerprinting system would be similar to the one the country uses for voting and was intended to stop Venezuelans buying too much of a single item. Venezuelan authorities report up to 40 per cent of the goods the country subsidises for its domestic market are smuggled to Colombia and sold at higher prices.
The opposition argued mandatory fingerprinting is yet another demonstration of the government's "failed socialist policies", which has seen essential goods driven from shop shelves, oil production plummet and growth slow to a snail's pace.

Venezuela has been running short of basic goods like toilet paper, soap and cooking oil for over a year. Strict currency controls and a shortage of US dollars have hammered consumers' ability to get imported goods.

Furthermore, price controls have crippled the ability of producers to make profits and correctly identify market signals.
Earlier this month, in a desperate move to combat a wave of smuggling, the government deployed 17,000 troops on the Colombian border and began closing crossings at night.
I can't help but think that any system that requires 17,000 troops to stop smuggling of staple food items and fingerprinting of shoppers to stop them buying "too much" is a system that clearly is not working. Instead of such measures, which won't work anyway, President Maduro should remove subsidies, price controls and currency controls and reintroduce markets so that the price mechanism can work to give producers the right incentives to produce and consumers the right information to make decisions about what to buy. Only then will shortages be removed and smuggling stopped.

No comments: