Archive for November 27th, 2005

NYT on Caracas, El Avila and much more

November 27, 2005

Just imagine browsing through the travel section of the Sunday New York Times and finding an article on Caracas with
two recommendantions a block from my home, I live a block away from an
entrance (the most popular one?) to El Avila National Park and the
Tarzilandia Restaurant. I must confess I have not been to Tarzilandia
in like 30 years. Read on!

Another tale of unparalled corruption: The swap of Argentinean bonds

November 27, 2005


If the
previous post describes a gift to the rich that I find somewhat obscene, there
are worse things going on which are incredibly obscene. In the bond offering I
described, the terms are known, everyone can put in an order and the National
Assembly approves the issue. This contrasts with using the same procedure but
assigning the bonds by having the Ministry of Finance “choose” by unknown
procedures just a few banks to participate. Then these banks are giving the
gift and we can not even know if the profit was 10% or 20% because no info is
revealed on these deals. But if they are anything like those of the current
bonds offering, we are talking tens of millions of dollars in profit handed out
by the Government to their friendly banks. This deals clearly involve
corruption. In fact, all of these more “private” deals have not been announced,
but have leaked slowly thru the financial system until someone in Government
has talked about it.

I
talked earlier about the case
of the “structured notes” whereby US$ 662
million in these notes was sold to five banks chosen by unknown procedures at
the official exchange rate. These banks turned around and sold the notes in US$
making a mint. The fact that it was done privately raises suspicions that
corruption was involved, so does the fact that the transaction was revealed by
the President of Bandes who held a press conference to make clear that his
institution had not sold them, but that they had been sold to the Ministry of
Finance who turned around and sold it to the banks.

Well,
there were rumors of a similar transaction but with Argentinean bonds. You see Venezuela
bought US$ 950 million of that country’s debt as a way of helping that country
since there was little interest in purchasing them on the part of foreign
investors. Fortunately for the Venezuelan Government emerging market bonds have
kept rallying even as interest rates rise in the US and Europe. Well, the
Minister of Finance, former mathematician and now proud debt trader Nelson
Merentes gloated that the Government had sold some US$ 400 million of these
bonds at a profit of US$ 40 million. But you see the bonds were sold to two
local banks that made a nice piece of change in the transaction as they paid
them with Bolivars at the official rate of exchange. Then, they turned around
and sold them in the international markets at a tidy profit in Bolivars.

The
question is once again, why those two banks? Why the lack of transparency? Why
not sell them in the international markets? Was there a profit in the end for
the Government? Obviously these transactions are doubly obscene as there seems
to be some sort of corruption involved in the handpicking of the institution
that these are sold to. But I will let Teodoro Petkoff in his Tal Cual
Editorial give you his opinion:

Swap by Teodoro Petkoff in Tal Cual

 A few days
ago we described the shenanigans with the so called “structured notes” of Bandes.
Now is the turn of the operation with part of the Argentinean bonds that the Government
acquired.

With
those, there was also an operation in the secondary market that happens to be
of a suspicious nature, much like those of the structured notes. In the first
two weeks of October some US$ 300 million in Argentinean bonds were sold to two
local banks. They had been acquired by the Venezuelan Government with at a discount
at 76.85% of their value and were sold, also at discount, somewhere between 80
and 85%. Did we win one? Keep reading.

At the
time, the official controlled Exchange rate was Bs. 2,150 to the US$. With the
discount, the implicit price of the bonds was some Bs.2300 per dollar. Where is
the trick? In the black market the price was hovering around Bs. 2600 and Bs
2700.

Singing softly those US dollars
left the country and maybe they went to the recently bankrupt Refco, where many
Venezuelans of the boli-bourgeois -the Bolivarian bourgeoisie- had placed their
precious green bills, for which there is no valid exchange control.

Now comes the questions. Who
pocketed the differential between the effective Exchange rate (Bs. 2300 per
US$) and the black market exchange rate (2600/2700). Supposing a difference of
Bs. 300 between both prices, the profit from the operation is around Bs. 900
million. (Petkoff made a “slight” mistake, it is actually 90,000 bolivars or US
$ 34 million at the parallel rate he assumed)

How were the buyers selected? It was not done publicly and
transparently, that is very clear. There was no auction. What is also clear is
that the Merentes method is much more opaque that the Nobrega method, because the
latter, at least, covered appearances, holding auctions for the placement of
public debt bonds that the country would then issue.

Do you have to be a professional dirty minded person to imagine that the
beneficiaries, chosen using fingermocracy for this operation, split the profits
with those that put them there?

If we recall the operation with the structured notes, we now
have that between the US$ 600 million of the former and the US$300 million the
latter, US$ 900 million were placed in the market. The difference between the
real or implicit price and the black market is around 3,000 million Bs. Not bad
(Once again Petkoff is orders of magnitude off, this is 270,000 million Bs. or
a clean US$ 100 million at the pararlel market rate. Unparallelled levels of
corruption for Venezuela)

How much was there
for each participant? How was the bounty split? Even admitting the lowest differential
between the real price of the dollar, implicit in the operation and the black market)
there would be some 2,700 (again x 100) million Bs. “sweated” by the chosen
banks for the operation and their accomplices in the Government.

The gears of corruption have their own life. Chavez said
that there would be no more debt operations and, nevertheless, the Finance Ministry
announced an upcoming placement of US$ 1.5 billion. The problem is that the
genie of cheating is out of the bottle and nobody has any interest in putting
him back in it. Today, much like in the oil boom of the 70’s, the large foreign
investment banks pressure, so that Venezuela will maintain its
presence in the international markets, issuing debt continuously and on the
local side are those that know how to profit from this very easy ride.

Fewer buds but always something in flower

November 27, 2005

This is the time of the year were flowering is at its lowest, but
somehow I keep getting something to post. Last week I thought there
would be nothing, but there is. Let’s see next week. Above left, the
same Cattleya Nobilior I posted last week, but now with all nine
flowers open. Above right, a bunch of Cattleya Walkeriana Pendentive,
which is clearly not Walkeriana as four flowers never occur in a
Walkeriana. Books say this is a natural cross between Cattleya
Walkeriana and Catlleya Loddigessi.

Above left, Cattleya Walkeriana. This is the first time this
flowers, the flowers are small but the color of the lip is very dark.
Above right a Phalenopsis hybrid from Taiwan.

More on the upcoming voting process for Venezuela’s National Assembly Deputies

November 27, 2005

A few months ago, the Electoral Board said that in the upcoming
electoral process, the traditional voting “notebooks” would be replaced
by electronic ones. What this means is that when you show up to vote,
instead of looking you up in a paper notebook and checking that you
voted, this would all be computerized. Sumate objected this vigorously,
arguing that if the electronic notebook kept the sequence of voters,
this could be compared to the sequence in the voting machines and the
vote would no longer be secret. This issue was so important to Sumate
that there is even a presentation on it at the Sumate website explaining the dangers.

There was the additional objection that the fingerprint machine would
also keep this sequence, thus there were two huge flaws in the process.
The Electoral Board objected this initially with as much vigor as
Sumate, insiting in the elctronic notebooks. For some reason that was never explained, the CNE insisted for
weeks that it would use the electornic notebooks. Their main argument
was that the voting machine itself did not keep the sequence, because
the order of the voting was randomized when it was placed in the memory
of the system. However, last week in a trial run, in the presnce of EU
and OAS observers, technical people helping the opposition in the audit
of the process discovered a file called “last MFT midification time”
that did indeed contain the sequence of voters.

While the electronic notebooks were eliminated in the negotiations
between the opposition and the Electoral Board, there will be only a
small scale trial of their use in this elections, the fingerprint
machines will be there and one could easily correlate each voter with
his or her vote, despite the earlier assurances by the CNE that this
was impossible.

Yesterday the CNE met and came out swinging. and so did Sumate.The CNE said that under no circumstances would the fingerprinte machines not be used, that it was impossible to know the sequence and that this was yet another attack on the institution. But the report
of last Wenesday’s audit is quite clear: “it is possible to reestablish
the sequence in which the votes originate if the flash memory or the
hard disks used by the machines are analyzed with a view and recovery
tool of the NTFS file system which keeps the information of the moment
(time) in which the change to the file was made”.

Why the arrogant defenseof the process in the face of a technical
report that the President of the CNE likely does not even understand?
Why the continuos effort to limit the transparency of the electoral
process? If the Governemnt is so popular, why does it have to deny,
block, violate the law and limit the verification of the results? Why
insist on the use of the fingerprint machines if reportedly the AFIS
software (which is supposed to compare them so that nobody votes twice)
is reportedly not functioning?

You tell me.

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