Pages

Sunday, 26 January 2014

IT IS NOT CHAVISMO DESTROYING VENEZUELA

Venezuela has 56% official and 333% implied annual inflation (Prof. Steve Hanke estimate) and a sort of imploding economy.

Let us compare Venezuela with Brazil from 1964 to 1994:

Brazil was in hyperinflation of up to 2000% per year for 30 years from 1964 to 1994, BUT they had a relatively stable non-monetary economy because they used “correcção monetaria” which is in principle the same as Capital Maintenance in Units of Constant Purchasing Power (CMUCPP) as follow:

1. Their ACCOUNTANTS, BUSINESS MANAGERS AND BANKERS inflation-adjusted most (I can not say for sure all) monetary items (money loans) in terms of monthly indices and in the end a DAILY INDEX: their Unidade Real de Valor. In this way their ACCOUNTANTS, BUSINESS MANAGERS AND BANKERS overcame (counter-acted or made good) the destruction of the real value of their internal monetary unit of account by hyperinflation: Brazil´s ACCOUNTANTS, BUSINESS MANAGERS AND BANKERS eliminated THE EFFECT OF hyperinflation on the real value of monetary items. So, it did not matter how high hyperinflation went, their ACCOUNTANTS, BUSINESS MANAGERS AND BANKERS simply eliminated THE EFFECT OF hyperinflation by inflation-indexing most monetary items.

AND

2. Their ACCOUNTANTS, BUSINESS MANAGERS AND BANKERS also applied “correcção monetaria” to measure most of their non-monetary items in units of constant purchasing power in terms of, first monthly indices and, in the end, in terms of a DAILY INDEX: their Unidade Real de Valor. 

Their ACCOUNTANTS, BUSINESS MANAGERS AND BANKERS thus overcame (counter-acted or made good) the fact that hyperinflation destroyed the real value of their monetary unit of account (Cruzeiro, Real, etc.) at up to 2000% per annum - a figure much higher than currently in Venezuela. 

So, hyperinflation and mismanagement of their economy (CHAVISMO in the case of Venezuela ) did not destroy their non-monetary economy and where it destroyed their monetary economy, they eliminated its effect by inflation-indexing most monetary items.

So, it is not CHAVISMO per se that is destroying the Venezuelan economy. The combined failure of Venezuela´s ACCOUNTANTS, BUSINESS MANAGERS AND BANKERS to implement “correcção monetaria” in Venezuela has in the past and is currently destroying the Venezuelan economy - and will continue to do so in the future as long as they refuse to implement “correcção monetaria” which is free and widely known in Latin America.

No-one in Venezuela wants to discuss or even know anything about “correcção monetaria” which is another name for Capital Maintenance in Units of Constant Purchasing Power (CMUCPP) in terms of a DAILY INDEX.

That is the problem: Venezuelans are not interested: they are only interested in a “political” solution when what is required is, in fact, an accounting solution and their ACCOUNTANTS, BUSINESS MANAGERS AND BANKERS are the ones to blame for the destruction of the Venezuelan economy - not CHAVISMO per se. Proof: it did not happen in Brazil with 2000% annual inflation AND “CORRECÇÃO MONETARIA” implemented by Brazil´s ACCOUNTANTS, BUSINESS MANAGERS AND BANKERS.

For me just to state that CHAVISMO is NOT responsible - PER SE - for the destruction of the Venezuelan economy will upset the opposition in Venezuela so much that they would not even care to find out about the proven advantages of “correcão monetaria” in a situation like in Venezuela.

See: HOW TO MAINTAIN A COMPANY´S CAPITAL CONSTANT IN REAL VALUE IN A HIGH OR HYPERINFLATIONARY COUNTRY

Nicolaas Smith Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.