Brain-Drained
Venezuela: Real Wages Collapse amid Continuing Crack-Up Boom
While the crack-up boom in Venezuela continues, real wages in the country have have utterly collapsed. The bolivar is still trading close to 700 to the US dollar on the black market, and the Caracas stock index keeps making new all time highs in nominal terms almost every day. Ironically, Venezuela’s currency is called the “bolivar fuerte” (VEF), i.e. “the strong bolivar” ever since it has been “reverse split” 1 for 1,000 in January 2008.
Image via designlimbo.com
As an aside, the stock market has likewise been subject to a reverse split of 1 for 1,000 about a year ago – pre-split the index would now be trading at a cool 15.5 million points.
The black market rate of the “strong” bolivar (VEF) – 1 USD now buys nearly 700 VEF – click to enlarge.
Meanwhile, Venezuela has the highest sovereign CDS spreads in the world. Below is a chart of Venezuela’s annual default probabilities based on 5 yr. CDS spreads at a 40% recovery assumption:
Venezuela: annual sovereign default probability from 5 year CDS spreads at an assumed recovery rate of 40% (which may prove to be a generous assumption) – click to enlarge.
Venezuela’s Economy Loses its Best People
The great successes of socialism in Venezuela aren’t confined to increasing shortages of basic goods, a collapsing currency and extremely high sovereign CDS spreads.
Businesses are confronted with a mixture of sharply rising input costs and price controls and as a result are unable to pay their employees wages that can even remotely balance the sharp losses in the bolivar’s purchasing power. As Reuters reports, skilled workers have been hit the worst:
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