Archive for February 2nd, 2004

Atmosphere tense around CNE

February 2, 2004

Opposition representatives were in Washington DC today to meet with OAS Secretary General Cesar Gaviria and US Government officials. The purpose of the trip, led by Manuel Cova, one of the leading figures of the opposition who is said to be the front runner as candidate in an election to replace Chavez after a possible recall, was to express their concern over what has happened at the Elctoral Council in the last few days. After a number of irregularities surfaced last week, Chavez revived his charges of fraud and said he would hold a nationiwde TV program to explain to the country how the fraud was perpetrated. So much for respect for the CNE.  CNE Director  Jorge Rodriguez, accepted there were irregularities in how the forms were processed and the unusual jump in forms under observation and said a few employees were removed. He did defend the CIO of the CNE, who the opposition had asked to be removed from his position. The CIO was said to be a member of Patria para Todos. Rodriguez defended him saying the charges were unfounded. The other CNE Director Ezequiel Zamora blamed the jump in froms under observation on the CIO himself. In theory, there are only ten days left for the CNE to announce if it accepts or not the opposition signatures requesting a recall referendum vote for Hugo Chavez.

Article about Chavez and Castro in todays WSJ

February 2, 2004

 


Article about the Castro Chavez relationhsip in today’s Wall Street Journal (by subscription). Among the highlights:


 


“Over the past three years, Cuba has run up a massive debt of $752 million for oil shipped by Venezuela‘s state oil company, according to people close to the company and internal documents reviewed by The Wall Street Journal.


Though Venezuelan officials deny that Cuba is falling behind, people familiar with the matter say the debt is piling up and that the government has made little effort to collect. This makes the shipments a crucial subsidy that is helping keep the island nation’s economy afloat as it struggles with the impact of endemic mismanagement, declining sugar sales and longstanding U.S. sanctions.


While the subsidy doesn’t approach what the Soviets were doling out to Cuba at the height of the Cold War, it underlines the growing strategic alliance between Venezuela‘s Mr. Chávez, a populist former coup plotter elected in 1998, and Cuba‘s Mr. Castro. At a time of rising anti-American and anti-free-trade sentiments, U.S. officials fear that the combination of Venezuela‘s oil billions and Mr. Castro’s well-honed political skills could cause trouble for the U.S. throughout a restless Latin America.


The debt represents about 80% of the roughly $931 million owed PDVSA by its clients, say the people close to the company. In 2002, PDVSA had revenue of $42.58 billion and net income of $2.59 billion, according to its latest filing with the U.S. Securities and Exchange Commission. The company is still struggling to bring oil production back to prestrike levels of 3.1 million barrels a day, according to independent oil analysts.


Prospects for repayment appear slim. Although Cuba has managed to double its own production since 1991, so far it has only found sulfur-laden heavy oil, which is less valuable. The country is pinning hopes of finding more oil on newly announced projects by foreign companies to explore in deeper waters.”

The Revolution, the Oligarchs and exchange controls

February 2, 2004

 


President Chavez loves to use the term “oligarch” when referring to the opposition. It is unclear who falls within that group. In fact, it seems as if Chavez is not using the term properly, as oligarchs only refers to the few that control Government or an organization. In some wide sense, one may talk arbitrarily about three types of oligarchs, the ones from the Government, the ones from the private sector who are Venezuelans and the foreign oligarchs. If one inspects the Venezuelan private sector, it is surprising to find that few of the really large sectors belong to the local oligarchs. The Polar beer group is one exception and media groups such as the Cisneros is a second one. But today few major industrial group remains in the hands of locals. Locals are not important players in telecommunications, power generation or electric services, oil, auto, mineral, pharmaceutical and steel. Surprisingly, the most important group largely controlled by locals is the one defended the most by President Chavez: agriculture and cattle, a sector that has received for years subsidies via cheap loans, gimmicks and preferential rates. Construction and commerce are also largely in the hands of Venezuelans. And then there is banking. While Venezuela’s banking system had been mostly in the hands of Venezuelans, this did not survive the 1994 banking crisis, when a huge percentage of the banking system was taken over by the Government, due in part to terrible supervision and mishandling of the crisis, which I will not go into at this time. Many of these banks were later privatized and sold to foreign investors and in the process of consolidation they in turn bought smaller banks as a way of supposedly gaining the economies of scale. Today, a large part of the private Venezuelan banking system is in the hands of foreigners.


 


One of the most curious aspects of this “revolutionary” Government is how it has allowed the banks to make huge profits, while most of the economy (and the country) languishes. Of course, from an economic point of view, it is a symbiotic relationship, the Government needs the banks to buy Government bonds and the banks need the Government in order to invest the excess cash they have from their deposits. Indeed, with economic activity in decline, high inflation and high interest rates, it is difficult to borrow at 30% lending rates. Thus intermediation by banks is marginally at best. Meanwhile, banks pay 12-13% on deposits, making spreads huge. Exchange controls have a lot to do with this, if people were free to purchase foreign currency, banks could not get away with paying such low rates (some corporates get paid only 3-4%). Thus, with the “revolution” banks have been making huge profits, not for doing their usual job of intermediation, but by making money off the large spread between Government bonds and the savings rates they pay their depositors. To this, you may add commission fees on everything from minimum balances, to Internet service, to checkbooks, to copies of your monthly statement. Bankers argue that they really are not making such huge amounts of money, since their capital base has been eroded by constant devaluations. In fact, many bankers argue that the profits they have made in the last four years do not even compensate for the loss of their capital.  Of course this is true, but most economic groups have lost their capital base with no other compensation whatsoever.


 


But what really caught my attention was to learn how the Chavez administration through its exchange control office CADIVI has been giving preferential dollars for these banks to repatriate dividends to their home offices. Thus, foreign banks make money twice, once because of the large spreads and easy money and the second time when they are given dollars at the official exchange rate of Bs. 1600 per US$.


 


Thus, I decided to look at the CADIVI Web page to see what I could learn about these dividend payments. First, I must say (Warning: Miguel is about to say something good about the Government!!!) that I think it is great that CADIVI places so much information in its web page, this is what being transparent is all about. It is a pity that it is not presented in a form adequate for full analysis (For example, you can find a list of all foreign currency approved, but you get the name of the bank, not of the beneficiary). But what I saw in this web page absolutely and completely shocked me. In a country with food and pharmaceutical shortages, the government is giving out huge amounts of foreign currency for both dividend and private debt payments. Mind you, I think that the Government should do all of them, but after all of the problems consumers have due to how slow CADIVI is approving foreign currency, which I thought were due to priorities and limits in how much is given out per day, I find the amounts very surprising. In the Table below, taken from CADIVI, in the bottom right hand corner its says CADIVI has given out US$ 519 million for “Inversion Extranjera” which is simply dividends to parent companies of registered investments. Now, there is no law guaranteeing these, or placing a limit on the time frame for this payment, so I was very surprised the foreign “oligarchs” are being treated so nicely more so, if you consider that most of these dividends are for banks and I have heard that one bank, not in the top four, received $52 million to send to its main shareholder.. (As far as I know only one company in the Caracas Stock Exchange has been given foreign currency for dividends, which were given to CANTV the Venezuelan telephone company. Think about this, if you are a Venezuelan investor in Venezuela you get dividends in local currency and have no access to foreign currency. But if you are a foreign investor, you receive dividends in US dollars at the official rate, so much for equality under the law…Oh well).


 


Now, if this was astounding to me, imagine when I saw the amount of how much has been given to pay private external debt, versus how much has been given to imports. Imports have received US$ 3.7 billion while private external debt has received US$ 1.63 billion, a full 43% of what has been given to imports, including food and pharmaceuticals.  Understand that in the much derided IVth. Republic no recognition was ever given to private external debt when there were exchange controls, simply because it can be so easily fudged or made up.


 







 


 








Operador cambiario


CADIVI


 





















































































Por entregar a CADIVI


Recibidas


En análisis


Suspendidas **


Rechazadas *


Aprobadas


Liquidadas


Importaciones


4.146.903.917,37


10.448.903.942,86


1.102.034.282,57


637.278.463,12


39.499.708,13


8.670.091.489,05


3.698.854.681,35


Estudiantes


6.841.893,47


104.329.746,12


19.240.273,43


0,00


4.974,99


85.084.497,70


81.616.777,88


Casos especiales


11.119.638,78


123.984.616,47


71.593.496,68


11.052,00


152.375,00


52.227.692,79


52.135.614,51


Líneas Aereas
Internacionales


25.873.661,30


439.436.213,18


215.747.910,30


0,00


0,00


223.688.302,88


223.688.302,88


Seguros y
Reaseguros


10.616.981,01


78.995.907,71


35.406.905,51


0,00


0,00


43.589.002,20


43.589.002,20


Deuda Externa
Privada


81.667.169,39


2.197.270.791,51


562.850.324,03


412.443,64


0,00


1.634.008.023,84


1.634.486.150,65


Inversión
Extranjera


324.386.343,59


1.273.217.793,02


753.366.473,38


0,00


0,00


519.851.319,64


519.851.319,64


Total


4.607.409.604,92


14.666.139.010,88


2.760.239.665,90


637.701.958,76


39.657.058,12


11.228.540.328,10


6.254.221.849,11


 


 


 


This raises three additional questions. First, is the Government simply pleasing foreign investors because in this manner they will simply be silenced? Imagine you are an expat in Venezuela for a foreign company, your yearly bonus depends on how much your company makes and repatriates, all of a sudden your estimate based on the profits at the parallel rate double magically. Will you criticize the Government of your host country? Will you even get involved if you saw injustices? You tell me. Second, does the money simply flow easily at CADIVI? I have some stock in a small private pharmaceutical company. When the exchange controls were imposed the company had foreign debt of US$ 220,000. The company has requested foreign currency at the official rate, but has received nothing. But the company has definitely received offers to “ease” the way within CADIVI for a small payment, say Bs. 170 per US$.  Third, private individuals have had little access to foreign currency. This week, CADIVI announced that it will allow up to US$ 2000 per person at the official rate starting on March 1st. However, in order to have access to this you need to have a credit card. Credit Card penetration in Venezuela is very low; something like 3-4% of the population has a credit card. Thus, once again, only a few, will be able to receive official dollars for travel. By now, we have so many oligarchic groups receiving foreign currency that if they created a union there would be so many of them that they will not qualify as oligarchs. And there are other examples, such as the fact that airlines have received US$ 200 million. Oh! I am not saying airlines are oligarchs, but definitely those in Venezuela that can travel abroad are definitely part of a selected group, you might even say a few. The truth is that traveling abroad is a very cheap option today, you get the airline ticket at Bs. 1600 per US$. Same with buying a car, the same table shows that the auto industry has received US$ 474 million allowing the few that can afford a car to buy them practically at the same price you would purchase them in US$ at the parallel exchange rate.


 


I could go on and on. The point is that this “revolutionary” Government is buying silence, corrupting its officials, corrupting the private sector and privileging a select few through the exchange control system. And many in the private sector are shutting up, enjoy the moment and forgetting about the future. Somehow this is not what I think about when I think of a revolution. In fact, these privileges and perversities sound closer to a savage capitalistic system than anything else I can think of. But then again, as I like to say, what do I know…


 


The Revolution, the Oligarchs and exchange controls

February 2, 2004

 


President Chavez loves to use the term “oligarch” when referring to the opposition. It is unclear who falls within that group. In fact, it seems as if Chavez is not using the term properly, as oligarchs only refers to the few that control Government or an organization. In some wide sense, one may talk arbitrarily about three types of oligarchs, the ones from the Government, the ones from the private sector who are Venezuelans and the foreign oligarchs. If one inspects the Venezuelan private sector, it is surprising to find that few of the really large sectors belong to the local oligarchs. The Polar beer group is one exception and media groups such as the Cisneros is a second one. But today few major industrial group remains in the hands of locals. Locals are not important players in telecommunications, power generation or electric services, oil, auto, mineral, pharmaceutical and steel. Surprisingly, the most important group largely controlled by locals is the one defended the most by President Chavez: agriculture and cattle, a sector that has received for years subsidies via cheap loans, gimmicks and preferential rates. Construction and commerce are also largely in the hands of Venezuelans. And then there is banking. While Venezuela’s banking system had been mostly in the hands of Venezuelans, this did not survive the 1994 banking crisis, when a huge percentage of the banking system was taken over by the Government, due in part to terrible supervision and mishandling of the crisis, which I will not go into at this time. Many of these banks were later privatized and sold to foreign investors and in the process of consolidation they in turn bought smaller banks as a way of supposedly gaining the economies of scale. Today, a large part of the private Venezuelan banking system is in the hands of foreigners.


 


One of the most curious aspects of this “revolutionary” Government is how it has allowed the banks to make huge profits, while most of the economy (and the country) languishes. Of course, from an economic point of view, it is a symbiotic relationship, the Government needs the banks to buy Government bonds and the banks need the Government in order to invest the excess cash they have from their deposits. Indeed, with economic activity in decline, high inflation and high interest rates, it is difficult to borrow at 30% lending rates. Thus intermediation by banks is marginally at best. Meanwhile, banks pay 12-13% on deposits, making spreads huge. Exchange controls have a lot to do with this, if people were free to purchase foreign currency, banks could not get away with paying such low rates (some corporates get paid only 3-4%). Thus, with the “revolution” banks have been making huge profits, not for doing their usual job of intermediation, but by making money off the large spread between Government bonds and the savings rates they pay their depositors. To this, you may add commission fees on everything from minimum balances, to Internet service, to checkbooks, to copies of your monthly statement. Bankers argue that they really are not making such huge amounts of money, since their capital base has been eroded by constant devaluations. In fact, many bankers argue that the profits they have made in the last four years do not even compensate for the loss of their capital.  Of course this is true, but most economic groups have lost their capital base with no other compensation whatsoever.


 


But what really caught my attention was to learn how the Chavez administration through its exchange control office CADIVI has been giving preferential dollars for these banks to repatriate dividends to their home offices. Thus, foreign banks make money twice, once because of the large spreads and easy money and the second time when they are given dollars at the official exchange rate of Bs. 1600 per US$.


 


Thus, I decided to look at the CADIVI Web page to see what I could learn about these dividend payments. First, I must say (Warning: Miguel is about to say something good about the Government!!!) that I think it is great that CADIVI places so much information in its web page, this is what being transparent is all about. It is a pity that it is not presented in a form adequate for full analysis (For example, you can find a list of all foreign currency approved, but you get the name of the bank, not of the beneficiary). But what I saw in this web page absolutely and completely shocked me. In a country with food and pharmaceutical shortages, the government is giving out huge amounts of foreign currency for both dividend and private debt payments. Mind you, I think that the Government should do all of them, but after all of the problems consumers have due to how slow CADIVI is approving foreign currency, which I thought were due to priorities and limits in how much is given out per day, I find the amounts very surprising. In the Table below, taken from CADIVI, in the bottom right hand corner its says CADIVI has given out US$ 519 million for “Inversion Extranjera” which is simply dividends to parent companies of registered investments. Now, there is no law guaranteeing these, or placing a limit on the time frame for this payment, so I was very surprised the foreign “oligarchs” are being treated so nicely more so, if you consider that most of these dividends are for banks and I have heard that one bank, not in the top four, received $52 million to send to its main shareholder.. (As far as I know only one company in the Caracas Stock Exchange has been given foreign currency for dividends, which were given to CANTV the Venezuelan telephone company. Think about this, if you are a Venezuelan investor in Venezuela you get dividends in local currency and have no access to foreign currency. But if you are a foreign investor, you receive dividends in US dollars at the official rate, so much for equality under the law…Oh well).


 


Now, if this was astounding to me, imagine when I saw the amount of how much has been given to pay private external debt, versus how much has been given to imports. Imports have received US$ 3.7 billion while private external debt has received US$ 1.63 billion, a full 43% of what has been given to imports, including food and pharmaceuticals.  Understand that in the much derided IVth. Republic no recognition was ever given to private external debt when there were exchange controls, simply because it can be so easily fudged or made up.


 







 


 








Operador cambiario


CADIVI


 





















































































Por entregar a CADIVI


Recibidas


En análisis


Suspendidas **


Rechazadas *


Aprobadas


Liquidadas


Importaciones


4.146.903.917,37


10.448.903.942,86


1.102.034.282,57


637.278.463,12


39.499.708,13


8.670.091.489,05


3.698.854.681,35


Estudiantes


6.841.893,47


104.329.746,12


19.240.273,43


0,00


4.974,99


85.084.497,70


81.616.777,88


Casos especiales


11.119.638,78


123.984.616,47


71.593.496,68


11.052,00


152.375,00


52.227.692,79


52.135.614,51


Líneas Aereas
Internacionales


25.873.661,30


439.436.213,18


215.747.910,30


0,00


0,00


223.688.302,88


223.688.302,88


Seguros y
Reaseguros


10.616.981,01


78.995.907,71


35.406.905,51


0,00


0,00


43.589.002,20


43.589.002,20


Deuda Externa
Privada


81.667.169,39


2.197.270.791,51


562.850.324,03


412.443,64


0,00


1.634.008.023,84


1.634.486.150,65


Inversión
Extranjera


324.386.343,59


1.273.217.793,02


753.366.473,38


0,00


0,00


519.851.319,64


519.851.319,64


Total


4.607.409.604,92


14.666.139.010,88


2.760.239.665,90


637.701.958,76


39.657.058,12


11.228.540.328,10


6.254.221.849,11


 


 


 


This raises three additional questions. First, is the Government simply pleasing foreign investors because in this manner they will simply be silenced? Imagine you are an expat in Venezuela for a foreign company, your yearly bonus depends on how much your company makes and repatriates, all of a sudden your estimate based on the profits at the parallel rate double magically. Will you criticize the Government of your host country? Will you even get involved if you saw injustices? You tell me. Second, does the money simply flow easily at CADIVI? I have some stock in a small private pharmaceutical company. When the exchange controls were imposed the company had foreign debt of US$ 220,000. The company has requested foreign currency at the official rate, but has received nothing. But the company has definitely received offers to “ease” the way within CADIVI for a small payment, say Bs. 170 per US$.  Third, private individuals have had little access to foreign currency. This week, CADIVI announced that it will allow up to US$ 2000 per person at the official rate starting on March 1st. However, in order to have access to this you need to have a credit card. Credit Card penetration in Venezuela is very low; something like 3-4% of the population has a credit card. Thus, once again, only a few, will be able to receive official dollars for travel. By now, we have so many oligarchic groups receiving foreign currency that if they created a union there would be so many of them that they will not qualify as oligarchs. And there are other examples, such as the fact that airlines have received US$ 200 million. Oh! I am not saying airlines are oligarchs, but definitely those in Venezuela that can travel abroad are definitely part of a selected group, you might even say a few. The truth is that traveling abroad is a very cheap option today, you get the airline ticket at Bs. 1600 per US$. Same with buying a car, the same table shows that the auto industry has received US$ 474 million allowing the few that can afford a car to buy them practically at the same price you would purchase them in US$ at the parallel exchange rate.


 


I could go on and on. The point is that this “revolutionary” Government is buying silence, corrupting its officials, corrupting the private sector and privileging a select few through the exchange control system. And many in the private sector are shutting up, enjoy the moment and forgetting about the future. Somehow this is not what I think about when I think of a revolution. In fact, these privileges and perversities sound closer to a savage capitalistic system than anything else I can think of. But then again, as I like to say, what do I know…


 


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