Archive for August 18th, 2007

From conucos to failed bond issues the Venezuelan Government shows its ignorance and lack of scruples

August 18, 2007

One of the most amazing things about Chavismo, is the total disregard for knowledge, studies and experience. In the handbook of Chavismo, anyone can do a job, even if they have bsolutely no qualification in the field or related fields. Even worse, they dare give “expert” opinions and make plans without having much idea of what they are talking about, sometimes either ignoring available knowledge or evidence, or going against what is known.

This somehow originates in Chavez’ need to have only loyal subordinates in key positions, which has led to a mathematician with no financial background being named Minister of Finance, an Urban Planner Minister of Planning and the use of active or retired military officers in a myriad positions for which they have no qualifications and the rotation of non-experts with no managerial experience from one position to another in very dissimilar areas.

In time, some of these same Government officials get so cocky, that they begin giving opinions as if they were experts and concocting explanations that are either outright lies or go against what is known, whether facts or studies, about a particular subject. It is linked somehow to the lack of scruples of Chavismo, as well as the feeling of power that they feel at being part of the robolution. They parrot what the autocrat says, lie in order to please him or to simply to justify their mistakes.

This all comes to mind because of a two events that took place this week that have left me simply speechless in this respect:

The Supreme Court President and the conuco: The President of the Venezuelan Supreme Court was not precisely named to her position because of her track record as a jurist. But she supports the “process” and the President and thus “earned” her position. However, this is not enough as other member of the High Court are always jockeying for position and conspiring to be named to that position. Thus, besides being loyal, he has to show it. Yesterday, as an example, she automatically gave her legal opinion on a case that may come in front of her Court, that anyone with any legal and ethical knowledge knows should not be done. But we are so used to that anyway, that it does not even shock anyone; I don’t think I have seen anyone criticize her for saying that if the proposal for a new Constitution is approved, Chavez’ Presidential term would automatically be extended by one year.

But yesterday, at a seminar on “A framework for sustainable development for agricultural food supply” Justice Morales went beyond belief when she irresponsibly stated “The conuco is the most perfect form of (agricultural) production and the only free model to insure the feeding of the people”.

There is so much ignorance in that compact phrase that Justice Morales should be ashamed of even thinking it. A conuco is the name given in Venezuela traditionally to the family plot of land. Originally, it referred to the fact that large landowners would give peasants the land surrounding their house to grow crops. Now, there are dozens of studies which show that the conuco is insufficient to provide for a typical rural family. It does not provide enough food or the variety of food needed and represents a fairly unstable unit. In fact, el conuco historically was used as a complement to the payment made by large landowners to the workers.

In fact, that is why people migrated to the cities, as technology became available, the conuco became even less competitive driving families to the cities. Thus, Venezuela today is 90% urban, the rural population barely represents 10% of its population and there is no turning back for this. Within this framework, how can anyone even begin to believe that the unit that is not sustainable for a single family will have the capability to feed ten of them?

But this is all part of the lore of Chavismo, promoted by the autocrat himself: Talk about land reform and giving land to the people, a very emotional issue in a country where the issue in reality only affects a tenth of the population. It is an example of populism at its best, take an issue which people relate to strongly even if it is irrelevant to their lives.

And the Head of the Supreme Court parrots the official line, but goes beyond it just to please the autocrat and protect her position. Does she know how wrong she was? Was she being cynical or ignorant? My feeling is that she knows little about the subject and improvised on this, going beyond the official line.

Who cares? It sounded good, sells the “process” and earns her brownie points with the autocrat which is all that counts.

The Minister of Finance and the failed Bono del Sur 3: Analysts had warned that the timing was wrong for the Bono del Sur 3. But the Minister of Finance is under pressure in particular because he had promised Chavez he could control inflation and the parallel rate and has not been able to do so. Thus, the Ministry rushed the issue to market on Monday and had to withdraw it. The decision was obviously wrong, it is hard to defend, so you might as well leave it at that.

Instead, Minister Cabezas holds a press conference to blame it all on the international markets and using lies to defend the point:

“There would have been no problem if it were only a Venezuelan issue, Venezuelan markets have not suffered, the Caracas Stock Market has not been part of the volatility. We had orders for US$ 1.5 billion already”

Once again, how can someone include so many lies and deception (ignorance?) in a single sentence? Let’s see:

-Venezuelan markets have been an intrinsic part of the volatility. The Venezuelan Global ’27 bond has gyrated even more than all emerging market bonds in the last two weeks, save for Argentina. But Argentina’s larger volatility was reduced to only the issue included in the Bono del Sur, precisely because it was part of it.

-The Caracas Stock Market is already down 22% for the year and 30% from its high. Moreover, because the Government forcibly took over two of its most important components in the first quarter of the year, it removed the only Venezuelan stock listed in the NYSE, isolating the local market to world jitters. More importantly, since Chavez took over daily volume in the Caracas Stock Exchange dropped from the US$ 10 million level to less than US$ 700,000 per day. Just as an example, in the month of June a single stock generated 70% of the traded volume.

-If the Bono had only been a Venezuelan issue, it would have required that it have a dollar denominated and traded component, since this is what investors are really interested in: Obtaining foreign currency. This would have required the cancellation of the issue also, since Venezuela’s sovereign bonds that trade abroad also dropped sharply on Thursday.

-The Minister refused to admit any criticism about the way the bond issue was handled, but there were many mistakes made, some out of ignorance: 1) There was bad timing, both seasonal and due to market jitters, and the Government had been warned about it.  (This blog said it before it was canceled and had said it before it was announced and can prove it!) 2) The Government increased the planed size of the offering by US$ 500 million, which made no sense if the issue could have faced problems. 3) The Ministry of Finance simply ignored the fact that the so called TICC indexed bonds counted as part of the quota that banks may have in foreign currency. This is sheer incompetence!

-The Government did not have US$ 1.5 billion in orders. Broker offices were empty and most of them were recommending their clients not to buy it, the numbers were just too clear. Moreover, no broker or bank had yet placed an order with the Venezuelan Central Bank.

Even worse, the Minister of Finance, rather than showing some humili
ty because of the errors made, replied to the criticism by being cocky and using language more in line with that of street bullies.

But we have become accustomed to Chavismo lying and bullying us around!

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