Archive for March 5th, 2010

A rant about how little happened in Venezuela this week, but what a week!

March 5, 2010

(I order you to stop!)

Sometimes, living in Venezuela can be a very bizarre experience. As you probably noticed, I have not posted much most of this week. A lot happened, but how many times can you write about Chavez-Farc-ETA? Or how many times can you write about the electric crisis? Or the economy shrinking? Or the Government’s lies? Or Chavez going in Cadena?

It does get boring, but at the same time it has become our every day life. I spent part of the week considering various scenarios if Guri should collapse. We don’t know if it will, but the probability that it happens is finite and significant. While Chavez talks about 100 days for the critical level to be reached, because there are 14 cms. to go and 14 mts. to that level on January 12th. the Government said the level was dropping by 9 cms. daily. Thus, it is not a linear phenomenon, like Moses discussed in the comments at the time. In fact, today El Nacional is talking about days in which the level dropped by 16 cms. this week.

Yes, it may rain before May, but reality is that this planning is not virtual it is quite real and absurd at the same time. But while planning for work is complete, I have not planned for my home. I do have a couple of UPS’s around that may last a couple of hours each, but when you meet someone that knows about electrical networks and he tells you that he installed a power plant in his home two years ago, the term “inside information” truly acquires a new meaning in your life.

And while Quico still has the stomach not only to watch Chavez, but even Tweet about it, I don’t. Chavez is clearly campaigning for something while the country falls apart. But he is definitely as cynical as can be. First, he announces that a tiny power plant will now be used to power the town of Guanta. The plant was part of Cemex’ nationalized cement plant. From there, he goes to Barinas, where he has the guts to go and visit CAEEZ, a monument to the corruption and incompetence of the Chavze Government. But hey! The CAEEZ project included a small power plant which uses residues from sugar cane processing, so he can’t help but show it, even if CAEZZ is such a symbol of the economic and production failure of Chavez’ whatever-you-want-to-call-it project.

And if that was not enough, he announces the nationalization of Turboven. But wait! Wasn’t Turboven nationalized three years ago?

Well, yes, the whole of Venezuela’s power generation industry was nationalized three years ago, but after an initial letter to Turboven, nobody followed it up. EDC was nationalized, Electricidad de Puerto Cabello was Nationalized, the Government overpaid for Seneca, Margarita’s electric company. But in an incompetent and inefficient Government, everyone forgot about Turboven. Until yesterday…

So yesterday’s Cadena was about an irrelevant power plant, a symbol of the Chavze Government corruption and incompetence and and after thought…That is how little Chavez has to show for eleven years of bread and circus.

Very little.

And then, the Central Bank, after a three week hiatus comes back and sells US$ 50 million in zero coupon bonds to bring the swap rate down. It moved down all right, from Bs. x.9 to Bs. x.8 per dollar, while the Central Bank sold dollars at Bs. 4.8 per dollar, if you got any. Is this policy? You could have fooled me. Giving away dollars is perverse and inmoral, but what else is new. As Chavez said ” We can’t bring down the swap rate down in one week, it takes months to do it”

Yes Hugo, but since you announced that you were bringing it down to Bs. 4.3 per dollar, all it has done is move up and it flirted with Bs. 7 per $ this week. In fact, the joke is that CADIVI is not functioning, because at Bs. 4.3 plus commission to get your dollars, it is almost the same as going to the swap market, without the paperwork.

And in closing this rant, I have a message to those that say or think the Government has so much money to spend ahead of the September elections: While it is true, in theory, it is not quite right. The Government devalued from Bs. 2.15 to Bs. 2.6 and Bs. 4.3. PDVSA, the only supplier of foreign currency for all practical purposes, will have to exchange 70% of its dollars at Bs. 4.3 and the rest at Bs. 2.6.

But it so happens, that last year, the parallel swap market was heavily intervened by both the Government and PDVSA at levels above Bs. 5 per US$, so while PDVSA and the Government will have “more”, it will not be a huge amount given that PDVSA and the Government sold some US$ 13-15 billion above Bs. 5 per US$.

Moreover, there is a huge difference between selling into the swap market and selling to the Central Bank at Bs. 4.3 per US$. When PDVSA sells US$ to the swp market, it absorbs Bs. that are already in existence. When it sells them to the Central Bank, the Central Bank “creates” Bolivars, which go into the monetary base and are inflationary unless the monetary authority sterilizes them, which it has not done very efficiently in recent years.

Finally, I have bad news and good news. The good news is that the Constitutional Hall of the Venezuelan Supreme Court reinstated the Mayor of the Sucre municipality in Zulia State. Don’t interpret too much into this, it was so absurd and irrelevant that it was reversed. Naming the Mayor that lost the election was simply stupid. The bad news is that economists think that 2010 will be better than 2011, unless oil prices shoot up, which nobody thinks they will.

And thus, I end my rant, nothing happened this week in Hugolandia, but what a week!

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