Archive for September 26th, 2009

An Economic Plan by Chavez or random decision making?

September 26, 2009

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For the last few weeks we have been hearing about the new Economic Plan that Chavez’ “Team” was putting into place. First we heard that there were 40 measures and some fairly vaporous announcements were made, such as the naming of six Vice-Presidents and promises that CADIVI will allow more foreign currency to flow. But at last count, no more than six or seven announcements had been made, leaving everyone to wonder whether the plan existed or not in its entirety.

Everyone knew that issuing debt was part of the plan. Part of that was known, when this week the Official Gazette published the approval for the issuing of US$ 5.7 billion in local currency debt. This was all that the National Assembly had approved, thus either the Assembly had to rush to approve more or there would not be any dollar denominated debt issued, which is what everyone was expecting. In fact, market players were saying that the announcement woudl be made Monday or Tuesday.

Then last night, soemwhat late, Minister of Finance was quoted at the Agencia Bolivariana de Noticias (can’t find that link, here is another one) as saying:

“There will be no sovereign debt issues the rest of the year, there may be some buybacks and refinancing”

Rodriguez even explained himself saying that recent local issues had an effect on the swap rate, which has gone down 15% in the last two weeks.

Fairly clear, no? Not doing something which the Government has done frequently is in itself a decision and part of a “plan”, no?

Except that today in Margarita, Ali Rodriguez, the same one that last night felt the urge to say there would not be any sovereign issues the rest of the year said this time around:

“The Government will issue US$ 3 billion in (sovereign) bonds next week”

this is clearly a WTF moment in Chavista economic policy making, changing your mind within less than twenty four hours, definitely makes it sounds as if there is no economic plan and what you have is some form of random decision making process.

And while the decisions may not be random, they do have a random element, because the decision making process is quite complex:

First of all, none of those involved is an economist. Merentes is a Mathematician, Rodriguez is a lawyer and Giordani has a Bachelors in engineering and a Ph.D. in Planning (I understand in Urban Planning). To top it all off, the Chief Economist is Hugo Chavez, he has the ultimate decision making power in the whole process and makes the ultimate decision.

But add to this that the various teams disagree on what should be done. Merentes is the great proponent of issuing dollar denominated debt. He used it when he was at Finance and thinks it’s a great tool to lower the swap market.

Giordani on the other hand (and he seems to have Rodriguez on his side) is against these dollar issues sold for local currency. He argues (and he is right!) that these issues no longer have much of an impact on the swap market, They do help in lowering it, but the effect is only temporary. Furthermore, argues Giordani, how these bonds are allocated is not transparent and moreover does not get the foreign currency to the hands of those that need it. Additionally, Giordani is reported to have proof of the corruption involved in some of the Bs./US$ issues of the last few years.

I believ Giordani is correct in his assessment and interpreted last nights announcement as evidence that he had won the argument over Merentes.

But something clearly happened today and likely Merentes  made some argument with Chief Economist Chavez that changed his mind. Maybe the argument (this is PURE speculation!) was quite simple: It was too late to change to no bond, all of the important members of the financial bolibourgeois groups were positioned to take advantage of the bond. Canceling would not only give them huge losses, but by forcing them to go to the swap market and cover their short positions (They sold dollars they did not have ahead of the announcement of the bond), the swap rate would go back up next week sharply and part of the work done by the Government would be lost.

Which is true, but only because the privileged information that the bond would be released had been leaked to the friends of the robolution.

Unfortunately, every decision is made like that. Each group fights for its own point of view, Chavez has the final decision and in the end the policies of the plan are incoherent, making the whole process look and act absolutely random on the Venezuelan economy and our daily lives.

In the end the process is no different than throwing darts and/or picking pieces of paper at random from the floor.

And it shows…

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