Archive for September 18th, 2005

Revisiting Julio Borges’ demagogic proposal

September 18, 2005


(I have changed
the post, since someone pointed out in the comments that Borges
proposed giving Bs. 2 million per family, not per person as I believed)

Right
before I left last week, I called the proposal by Primero Justicia’s Presidential
candidate Julio Borges, to distribute 25% of the oil income directly to all
Venezuelans irresponsible. This generated a large number of comments, such that
the limit per post of the software of the blog was exceeded. Some people
actually liked the proposal, others agreed with me. But there was more to my
objection which required a full post and I was traveling (actually, I write
this as I fly back) and had no time to explain all of my objections in detail.

First of
all, I have always expressed here that I firmly believe that the highest
responsibility in the country is that of the those in Government. They are
supposed to be the protectors of the law and the rights of the people. Below
that level are the politicians who aspire to lead the country in the future or
question what the Government does. Borges is in such a position, he is the only
leader of an opposition party to have announced he is a candidate, as such, I
feel that he has a special responsibility to all of us or at least to those he
thinks may vote for him.

No
proposal exists in a vacuum. One of the toughest jobs of any Government
official is how to decide whether to spend money here instead of there. In
countries with more political accountability than in Venezuela, many times politicians that
propose programs have to say where the money will come from and are, in many
cases, forced to give explicit detail of how they plan to fund such programs
and their cost is. Unfortunately, this does not happen in Venezuela, does
not happen now and never happened before.

Few
Governments in our modern history have acted responsibly in this sense. We have
a social security system that is not funded and currently costs US$ 1 billion a
year to pay minimum salary to all those that have retired, we have universities
that use half of their budget to pay retired professors and employees, some of
whom retire after only 25 years of work and we have new programs (Yes, I am
talking “misiones”) where nurses have not been paid in the last six months. But
it has never been the style of our Governments to calculate how something will
be funded or even if there is funding for it. Promise and you shall reap
political benefits and that seems like the only thing that matters.

Thus, a
candidate making a bold proposal should at least have thought it through.
Someone that aspires to become a President of Venezuela the least he or she
should do is to do the homework, ask basic questions and figure out some basic
numbers, before venturing a proposal. Obviously Julio Borges did not do it,
much like what Chavez does when he proposes something and has no clue as to
whether there are or not funds for it.

The proposal and its basic numbers

Let’s look
at what Borges proposed (El
Nacional
, Friday September 9th, page A6, by subscription only). He
stated that we should distribute 25% of oil income directly to all Venezuelans,
which would give each family Bs. 2,000,000 per year directly to their pocket.
Well, to begin with, the math is absolutely wrong. If I say, for the sake of
the argument, that we are talking about Bs. 2.1 million per person, just to
make it an even US$ 1,000 per person, then Borges is talking about distributing
US$ 5 billion per year to the people.

Budget US$
33 billion (from 2005 budget)

GDP US$
106 billion (Approximately)

GDP per
capita
US$ 4,240 per inhabitant

Oil
Revenues
US$ 49 billion

Oil Income
US$ 23 billion

The proposal and its impact

But let’s
assume we could do it. If we could distribute 25% of oil income directly (25%
of US$ 23 billion), it would come out to US$ 230 per year per individual
according to my numbers. Assume a family of four on average; we are talking
$920 per year per family or US$ 77 per month per family. Given that the basic
“food basket” for a family of four is, according to the Government, US$ 200,
this would only provide 38% of the basic needs of a family each month. Thus,
the impact would be skewed, because you will be giving a small amount of money
to those in the higher strata of the population, which they don’t need, and not
giving enough to those that really need it.

But then,
you have to balance things, the Government is providing an important subsidy
already via the Mercal markets, so is this instead of or in addition to? We
just don’t know. By the way, since we are on the subject, to me Mercal is just
too inefficient and corrupt. Its prices should be lower given the fact that it
is non-profit, pays no custom duties and uses the military for transport and
storage. Thus, somebody is getting mighty rich indeed at our expense. I also
think that Mercal resorts to imports too often; it is just more expedient and
hides commissions better. It is the usual non transparent corrupt solution at
its best. I prefer direct subsidies like school meals and milk programs.

But
there
are no details on the proposal it was a shoot from the hip idea without
any
thought or understanding. Not very promising for a Presidential
candidate. Where would the US$ 5 billion come from? What budget item
would be cut? Venezuela’s budget is quite rigid. Inefficient, but
rigid.

The Proposal and its philosophy

Additionally,
the proposal perpetuates the long standing history of telling the people that the
state will provide for them, without knowing where the money will come from and
compromising the future of those Venezuelans that have not been born yet. It
represents demagoguery at its best. I can not support that. We need to elect
decent and responsible leaders if we are going to go anywhere in the future as
a country.

The
proposal is irresponsible because it is based on high oil prices and not on any
measure of importance or impact of the program. Suppose you approve it and
tomorrow the price of oil goes down? You will distribute 25% of oil income at
the expense of what? Where will you cut the budget? Some will suffer while
others get money they don’t need. Borges has said nothing about this. You could
propose something like: when oil income is above x you will distribute half of
what is above this level directly to the people and the other half will be
saved. But that was the same spirit of the Macroeconomic stabilization Fund
that Chavez completely spent in 2002 and has now been revived with total
discretion on the part of the National Assembly to decide on when to use it or
not. Some savings!

A simpler alternative

Thus, I
see nothing but an irresponsible and very ill conceived proposal by Julio
Borges which changes little in the way the country has been and is being run. I
still think that creating a trust for all Venezuelans which will borrow to
invest in all new oil projects is the best way to go. Ownership will be for
life, can not be sold, transferred or given away. All profits from the fund
will be distributed yearly to all the owners. People will be able to borrow
from the trust at prevailing interest rates up to their equity. Each year the
number of owners would go up as more people are born than die. Ownership may be
converted to an annuity after sixty years of age by returning ownership to the
trust itself.

Or
something like that…but hey! I am not running.

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