Archive for August, 2011

Looking into Venezuela’s future: Miraflores, February 4th. 2013

August 16, 2011

(The following scene was prompted by a discussion in this post in Quico’s and Juan’s blog)

Miraflores Palace, evening of Monday, February 4th., the day the new Venezuelan President was sworn in. The President asks to be connected to Raul Castro and his side of the conversation goes something like this:

-Hello Sr. Castro, is President O from Venezuela.

-Thank you, thank you. It was a hard campaign and harder now, but ready to start doing things. In any case, I am calling you after the first Cabinet meeting, which ended about half an hour ago. We have looked at what we pay for your Doctors and will unilaterally change the terms starting tomorrow. Basically, we will pay US$ 400 per month per Doctor for sixteen months a year, which amounts to US$ 128 million and we will pay the Cuban Government a 20% outsourcing fee, for a total of 153.6 million a year, which we will pay at the end of each month to each doctor and we will transfer the outsourcing fee to you.

-Oh, yes indeed, US$ 400 per month is less than what a Venezuelan Doctor makes, so you do know what a Venezuelan Doctor makes? How interesting! Well, we provide housing and utilities for your Doctors Sr. Castro, thus the difference. As for transportation charges to and from Cuba, don’t worry, we will take care of that for you from now on, we have to create some jobs and that sounds like a good way to do it.

-I know Sr. Castro, we all have problems, imagine mine with the debt and the holes Hugo left all over the place. But just think, if I send back the Doctors, you will have 20,000 more mouths to feed, I am not sure you want that either.

-No Sr. Castro, I can not add US$ 10 million more to help you out. I mean, Haiti wants only US$ 5 million and I have to wait to decide on that. And they are starving there.

-Ok, good, I am glad you understand, we have a deal on the Doctors then. The second point Sr. Castro, is that we are suspending all oil shipments to Cuba, we have noticed you have yet to make an interest payment since 2003, you had two years grace period, but it has been now ten years without a single penny coming our way.

-I know, I know, don’t get upset. We have problems too, Hugo left US$ 150 billion in debt and we are trying to put the house in order. I know you need the oil, but we also know that Cuba does not use as much oil as Venezuela sends there. We are just asking everyone that is behind on the interest payments to pay, we can negotiate terms, but also all terms will be equal to all countries, except Haiti, of course. Essentially, it’s 50% within thirty days and the remainder in 25 years, but we will charge market rates for the 25 year financing, we have our own load to pay. As for the Cienfuegos refinery, we rebuilt it for free and we have been providing the oil you sell in the international markets for three years, so we really should own it. But don’t worry, we don’t plan to make such a claim.

-Yes, I understand I can not leave Cuba without oil, but we have to negotiate payment for 12 years of oil, if you want us to send some oil, send your Minister of Finance and I am sure we can find 10 o 20 thousand barrels a day to give you a hand temporarily until you can adjust.

-I know, things are hard everywhere, but just think, with these measures Venezuela will save some US$ 16 billion a year, which means we will not incur in any new debt in the upcoming years, except with multilateral organizations. With these loans, we will buy back some debt at cheaper rates and essentially have the macro part fixed, so we can work on the hard parts, the people, reconciliation and the financial mess at every local Government institution.

-Oh yes, your country has done a great service to Venezuela in providing health care. But I am not sure it applies to the case you mention. After all, he is not amongst us now, is he?

-Goodnight Raul.

Good Viral Ad by Leopoldo Lopez, Who Is Not Even a Candidate for President of Venezuela…yet

August 16, 2011

I like this ad by Leopoldo Lopez, who can’t even be a candidate because the Comptroller’s office banned him. However, he is appealing to the OAS Human Rights Committee so that they order that he can run.

The ad is positive, forward looking, it appeals to the young (and yes, those that have access to computers and the Internet, but that is a huge number by now), who understand well the games and images involved. Yes, it is aimed at only a segment of the population, but if you can get that segment involved, you may have a huge volunteer force with you.

Not Much To The “Move” in Venezuela’s International Reserves

August 15, 2011

I found this report about Venezuela moving its international reserves somewhat funny. Really. What’s the problem?

In reality, there isn’t much to move in the end and I would like to see if it is true that Venezuela will move back its 11.76 million Troy ounces of gold. To give you an idea, 11.76 million Troy ounces of gold happens to be some 365 Tons of gold. Since each Ton is about 907 Kilos, that is a lot to move back to Venezuela. About 150 armored trucks at each end. Moreover, strategically, having it abroad is better for the Government, they can sell it and nobody would even know.

I had not looked at Venezuela’s gold reserves in a while, but a comment from a reader made me look and calculate again and lo and behold, Venezuela’s International reserves are roughly at the same level as Jan. 1st of this year, only because gold has gone up a lot this year. The graph below shows the value of the gold in the country’s reserves, where I have used the accounting of the Venezuelan Central Bank, which according to the auditors is that the price used is the average for the last 60 days:

As you can see, gold reserves have gone up from a bit above US$ 16.25 billion on Jan. 1st., to roughly US$ 18.4 billion on August 10th., for a difference of US$ 2.15 billion dollars. Given that reserves were US$ 28.77 billion that same day, this means that reserves have actually dropped US$ 1.47 billion since Jan. 1st (when they stood at US$ 30.24 billion) despite much higher oil prices. But since gold reserves have gone up by US$ 2.15 billion, it turns out that reserves are down even more than it appears at first sight, a total of US$ 3.6 billion.

But more importantly, of the US$ 28.77 billion, US$ 18.4 billion were gold, that represents essentially 64% of all reserves. Thus, the reserves that can really be moved, since I don’t believe the gold will be moved, is “only” US$ 10.37 billion dollars. I think gold reserves should be here anyway.

Except form that you have to subtract about US$ 2.08 billion of “special drawing rights” which Venezuela has at the IMF, which would only leave US$ 8.29 billion to move.

Then, the Central Bank bought US$ 1.7 billion from PDVSA in the PDVSA 2013 bond and was assigned about US$ 1 billion of the Global 2031 bond, that’s US$ 2.7 billion of Venezuelan bonds, which in the end it does not matter whether they are here or in Ruanda, we know the owners and the Central Bank needs them close and handy to sell into the SITME foreign exchange system. Subtract those US$ 2.7 billion and you have US$ 5.59  billion to “move”. Then there is Venezuela’s contribution to the IMF, about US$ 300 million and you have only US$ 5.29 billion.

There could be other things, but we don’t find out about them until its very late. The Central Bank regularly lends money to PDVSA, we don’t know when they do it, we know when it gets paid back. Suppose that’s zero right now and this “newsy” move would apply to about US$ 5 billion in investments.

Five billion? In a country where a US$ 29 billion discrepancy does not even make the news except in obscure blogs one and/or two?

Who cares if they move it?

Note added: Here is the “Punto de Cuenta” for the transfer of reserves. The proposal is indeed to transfer the “operating reserves” within two months. There is a longer term plan to move the gold back to Venezuela (What is not in Venezuela). However, it says this will violate the rules. Now, the reason seems to be to protect them form being frozen by the Federal Reserve. Whether they are in Switzerland (where 60% are) or in the US, if it is part of the compensation system and they are worried the funds can be frozen. This may have to do with the concerns about helping Iran and that the US imposes a financial ban on Venezuela. But it may also have to do with fears that Exxon will sue to freeze Venezuelan assets if it wins the arbitration case. I would bet is the former, not the latter, sovereign nations have protection from such suits.

Now, the US$ 5.25 billion figure is even lower, because there are about US$ 900 million more in there that is not that liquid that I had not counted, so we are talking about US$ 4.3 billion in the end.

The mystery of the “Narco Avioneta” captured in Western Venezuela

August 14, 2011

The bizarro world that Venezuela has become allows for everything, there are no longer surprises, least of all if our military is involved. The same military that has been talking openly about staging a coup, should Venezuelans choose a leader different than Chavez in the 2012 elections.

But the military does not seem to answer to anyone anymore in Chavezlandia. The latest bizarre episode already has a leading hashtag in Twitter: #narcoavioneta. You see, a small plane was captured in Falcon state full of drug, some 1,400 kilograms of cocaine was found in it.

Website lapatilla.com has raised numerous (here, here, here) questions about this case, including the fact that it is supposedly not registered in Venezuela, despite having a registration number painted on it and freely and liberally flying around the country.

Now, I don’t know much about the case and its details, whether it was or not registered, where the drug was loaded onto it, whether the two people killed were involved or not.

What I do know, is that according to all reports, the plane took off from the La Carlota airport.

Now, it used to be, up to 2005, that private planes could fly in and out of the La Carlota military base in Caracas. This was stopped in 2005, unless, of course, you were a revolutionary or related to one, or had a connection to one, as I showed in 2006.

So, how could this supposedly unregistered plane, take off from the La Carlota military base, with or without drugs last Friday? Who allowed it? Who approved it? Who was involved?

Oh, I know, it was someone high up in the military, but like Makled and so many other cases, we will never know. No wonder these guys are so nervous that the Government could change in 2013 via the ballot box, who do you think will be fired first and investigated?

The same ones that protect and benefit from the mysterious “Narco Avioneta”. Bet on that!

Chavez’ evidence that Venezuela is immune to the crisis

August 12, 2011

You had to laugh last night as Hugo Chavez provided via telephone his evidence that Venezuela was “shielded” from the crisis in Europe and the US:

“All of the world stock markets went up two days ago and Venezuela’s was up”

Never mind that this is the same stock market he killed over the years, to finally give it the kiss of death last year.

But more importantly, let’s look at the numbers:

If Chavez was talking about Monday, the day markets around the world dropped sharply, a total of 13,269 shares were traded that day in the Caracas Stock Market. The leading stock? Dominguez y Cia. which traded a whopping 10,919 shares at Bs. 5 each or Bs. 54,595, which at the official rate of Bs. 4.3 represents all of US$ 12,696. To put it in perspective that is 2.5 10^-6 times the GDP of Venezuela. Big Deal!

If he was talking about Tuesday (stocks went up around the world that day, I don’t think he was) that day the leading stock in the Caracas Stock Exchange was Government controlled Electricidad de Caracas, which had 100,000 shares traded at Bs. 0.18 per share for a grand total of Bs. 18,000 or US$ 4,186 or 8.37 10^-7 times the country’s GDP. Irrelevant!

Hopefully, nobody will tell Chavez that the Caracas Stock Market has seen increased activity in the last two months, it has gone from about US$ 2 million to US$ 3 million a month in volume.

The reason?

Some people are betting small amounts that Chavez will not be around in a year or two, the stock market will be revived and the local shares, which have been languishing, will soar.

The Fonden Papers-Chapter I

August 10, 2011

You all know about Fonden, the “development” Fund that Chavez created and uses as his sort of petty cash fund for immediate needs. I was reading something or other the other day and found that Deputy Carlos Ramos had sent Minister Giordani a questionnaire about Fonden.

Naive that I am, I looked up this Deputy who I don’t know, and lo and behold, I found out he is an Economist, has a masters in Political Science, has been a Deputy before and has been budget Director of Merida State and General Manager of the Alcaldia Libertador. Better yet, he even has a webpage.

Naive that I am, I believe in democracy, open information and stuff like that, I got Deputy’s Ramos’ email from his website and wrote to him telling him I am interested in Fonden, saw his press conference and was wondering if he could send me the material he talked about, promising I would let him know if I found anything interesting. (And that I would write about it in my blog, of course)

Within a couple of hours, I had a response and a promise that the material would be sent to me. The next day, his Assistant sent me all but the Minister’s response, which I am promised would be sent soon.

I really haven’t found anything earth shaking yet. Certainly nothing as significant as the US$ 29 billion discrepancy between what the fund has assigned to projects and what has been disbursed to 140 projects, but the Fund certainly does not have such a large amount of money today. That’s Chavista math for you, a US$ 29 billion discrepancy.

So, as I await for Giordani’s response on this “small” US$ 29 billion discrepancy, I find that 12% of the development investments have gone to Defense, essentially buying weapons, 11.6% to projects of the IXth. “Mixed Cuban-Venezuelan Commission”, 19% in PDVSA projects* and half a billion Bolivars to Bandes projects and drinkable water around the Nation.

Now, I really don’t know, or understand, what that “mixed” Cuban-Venezuelan Commission has to do with Venezuelan Development, or why there is this circular relationship in which PDVSA gives money to Fonden and then part of it gets sent back to PDVSA for unnamed projects. It sounds to me as illogical as most things Chavismo does.

To say nothing of fancy weapons being part of “development”, but I guess you have to keep the military happy and satisfied with new toys like Russian Jet fighters (US$ 2.5 billion) or a bunch of helicopters (Only US$ 483 million).

But the juicy story seems to be in the “missing” US$ 29 billion, equal to the country’s international reserves, for which I will have to wait for the Minister’s response and hope there is a Chapter II to this story.

And, of course, thanks Deputy Ramos!

Clueless in Caracas: A Tale of Two Ministers

August 8, 2011

It’s easy to be concerned about Iris Varela being Minister for Prisons, what she says is easy to understand and as Quico says very dangerous. But in part, it is because the extreme nature of her statements is so non-sensical and in language easy to understand that makes her her now infamous statements shocking:

1) 40% of the prison populations should legally be out in the streets.

2) If a Judge does not release a prisoner, I call the President of the Supreme Court.

3) Ordered that no new prisoners be admitted in any jail in Venezuela.

All three of these violate the rule of law, common sense and are easy to understand by anyone who has some inkling as to how societies function.

But is Ms. Varela any more dangerous than Jorge Giordani who has been the “economic” brain of the revolution since 1998? (Minister of Planning 1998-2002, Central Bank Board member 2001-today, Minister of Planning 2004-today, Minister of Finance 2010-today, member of the Board of PDVSA 2011-)

Take for example what Giordani said after issuing the recent Global 2031 bond:

-We are removing Bs. 18 billion from the liquidity or 40% of it. (This is supposed to be one of the “good” things of issuing the bond)

First, it is 40% of excess liquidity, not liquidity, the latter stands at Bs. 354 billion. In fact, liquidity (M2, the amount of money in circulation) has gone up by 17% so far in 2011 (or has been allowed to increase by that much), which is the main cause for inflation. But even worse, Bs. 18 billion takes total liquidity back to what was present in the system on June 15th., only six weeks ago.  That is, the amount of liquidity that this US$ 4.2 billion (!) bond removes from the economy just takes us back six weeks to the money created by this Government. Wouldn’t have been easier not to print that money?

But Giordani does not seem to understand the role of liquidity in the system. When Chavez got to power, there were some Bs. F. 10 billion in circulation. Today there are Bs. F. 350 billion in circulation. This is Giordani’s Baby, one way or the other he has been around at each step of this monstrous creation of money.

Now, just so you get an idea, the Venezuelan economy in those same twelve years that Chavez has been in power has grown a total of 31.4% in real terms, but the amount of Bolivars out in the streets has gone up by 3,900% in absolute terms. Do you see the problem? It’s the new money creating the inflation, too many new Bolivars chasing just 31% more goods. It is not a chicken and egg problem, you control the number of Bolivars, you control inflation. Ask Paul Volcker, who stopped inflation cold in the US in the early 80’s.

In fact, let’s compare it to the US during the same period. GDP in the US has increased by 35%, slightly more than Venezuela, but monetary liquidity has increased by only a factor of 2, or 100%. And you probably have heard about the “problem” in the US with all that new money that was thrown around in QE1 and QE2 to stimulate the economy. Well, Giordani has done a factor of 35 more in money printing, thus the lower inflation in the US. But note, Venezuela had its main product for export, oil, increase by a factor of 10 in price during that period, and the US economy managed to grow more in that period, despite the fact that there was a huge financial and housing crisis.

So much for capitalism being dead, Hugo!

And to complete Giordani’s trifecta of danger, there is the infamous “excess” international reserves concept, in which every year “excess” US$ in the Central Bank (as defined by the Government) are transferred to Chavez’ petty cash fund the Fonden. So far, US$ 67 billion have been transferred out of the reserves.

In 1998 when Chavez got to power, there were US$ 14.2 billion in international reserves. Oil was around US$ 12 per barrel.

Today? Today there are US$ 29.2 billion in reserves, but oil is topping U$90-100 per barrel.

Put another way, in 1998 there were Bs. 0.53 for each dollar in the Central Bank in international reserves and the exchange rate was Bs. 0.574 per US$. If all Bs. were converted into dollars, there would still be dollars in the Central Bank.

Today there are Bs. 12.12 per US$, but the exchange rate is Bs. 4.3 per US$. If all Bs. were converted into $, the reserves would be wiped out and there would still be almost Bs. 240 billion around.

But imagine if the US$ 67 billion transferred to Fonden were part of the Central Bank’s reserves. Venezuela would have US$ 97 billion in reserves or there would be Bs. 3.4 per US$ in reserves, if all Bs. were converted to $, there would be plenty of dollars left.

Thus, Giordani has been in charge of a no-growth, inflationary economy for twelve years and at every step it has been his policy making that has screwed up things.

Amazingly, he is still in charge! And very dangerous!

What would you prefer twelve years of Iris with the crime rate doubling or tripling again or another 1,200% of inflation?

You Pick!

Hugo Chavez Defines His Tired, Failed Presidency And Revolution

August 7, 2011

In the interview of Hugo Chavez by Jose Vicente Rangel, shown today, but taped on Thursday, the Venezuelan President attempts to describe the successes and failures of his Presidency. In so doing, Chavez shows how tired and failed his revolution and his Presidency are. The “successes” are mostly old or in the end, failures, while the failures are mostly old too, remembrances of his most heroic days:

Successes:

-Constituent Assembly which opened the doors to the new Constitution and Socialism

Well, this happened long ago (11 years to be precise) and he is changing history, the new Constitution, which he just ignores and violates lately, did not open the door to socialism, had nothing to do with socialism.

-Taking over PDVSA

Again this happened 8 years ago and so far all eh has managed to do is reduce the company’s ability to function, destroy its human and technological capabilities and reduce production.

-Socialism

Again, he said we were going into socialism long ago (2005?), but has yet to define it or even implemented. Socialism is not taking over companies and destroying them, nor taking over farms and abandon them. Socialism is not having a President wear fancy watches and buying armored Bentley’s to take him around. Socialism is not the creation of a wealthy “bolibourgeois class” that lives of the Government importing everything or the financial transactions it invents.

Thus, in his successes, nothing is recent, nothing is real, just smoke and mirrors of old political “victories”

On the failures:

-Having an “orthodox” economic policy in the first few years of his Government

Well, that is also old, but if he thinks the non-orthodox policies have been good, he should look at July’s CPI, a 2.7% increase, giving a 25% increase for the last 12 months and 4.8% increase in food prices in July alone.

-Lack of efficiency of his Government

The only constant in his failures, twelve years of consistent inefficiency.

-Having respected military hierarchy up to 2003.

Once again, something that happened long ago. Nothing would have changed if he had done it earlier, just the destruction of institutions would have been accelerated.

Without desiring it, Chavez has define, in both what he thinks were successes and failures, how tired his empty revolution is, he draws on a distant past. Nothing from the last six years, except the continued ineffectiveness of his Government.

Hugo Chavez Proves He Is No Democrat

August 4, 2011

While I have never had any doubt about Chavez’ democratic beliefs, today he proves he is no democrat and does not believe in democracy, saying that in 1998 he had doubts about whether the path for his revolution was a peaceful and democratic one or not. And to make the point complete, he then goes on to say these doubts resurfaced in 2002.

As if we did not know. Two coups in 1992, decided to run in 1998, has always threatened with his weapons, has used his weapons against the “people’ and often, including April 2011…

Another one for the record, another one for the trials, he will have doubts again, he is no democrat, he will not relinquish power via democratic means.

Nine Devilish Years, which makes me feel…exhausted!!!

August 4, 2011

A friend and reader sent me an email today and reminded me that my blog has been around one of these days for all of nine years. I checked and indeed it was born on Aug. 4th. 2002, exactly nine years ago today. Which makes me feel, when I think about it, like the picture above…

Exhausted!!!

I thought this would be short and sweet, a two to three year project, which turned into a nine year night job…and counting…

But hey! See that tree at the end of the road, there is still hope! And I happen to be very stubborn and tenacious (Yes, I was born in late April). So, I will be around for a while.

Here is that first post:

Banana Republics 101 Part I

Most people who live in or are from underdeveloped countries take offense when anyone refers to their own or, for that matter, any other country, as a Banana Republic. The term originated in the Central American countries were the United Fruit Co. operated, but has come to signify countries which may not even qualify to be called countries because of the way they are run. I do feel like I live in one, when I try to explain to my friends from abroad any of the following:

-For the first time in ten years Venezuela has economists in both the Minisitry of Finance and the  Ministry of Planning. In the past, we have had a Mathematician, a Sociologist, an Urban Planner and an engineer, to cite a few. (Not true anymore in 2011, thyey got rid of the Economists, brought back the Mathematician and Urban Planner)

-Venezuela is part of OPEC, where it gets together with its most important competitors to decide how much each country should produce per day. Interestengly enough, Venezuela is the OPEC country, other than Iraq for different reasons,  that has reduced its production the most in the last thirty years. Despite this, few Venezuelans are convinced we should split from OPEC. Thats ok with me, but don’t you think we should even discuss it? (Still the case in 2011)

-There were mudslides in the coastal zones near Caracas in Dec. 1999. Estimates are that close to 40,000 people died. The US Army Core of Engineers offered to rebuild the coastal highway (for free!!) an send ships to Venezuela. The Government refused to accept the aid and the ships  turned back. To this day, three years later, the highway has yet to be completed. (Parts of it were rebuilt, some are a mess today in 2011)

-We say we live in a democracy. Despite this, only one candidate in the last ten years was elected in a primary of his party. He lost. (Still the case in 2011)

-There were riots this week in Caracas. Government supporters rioted for two days, shot people, blocked streets and created chaos in the city. The Government announced today that it had asked the Attorney General to investigate the abuses of the police when they used tear gas from a helicopter. The President has banned the flying of police helicopters over the city. There has been no call to investigate the rioters, where they got their weapons or who leads them. (Nothing ever gets investigated in 2011, except to screw the opposition)

Hate to see what a Banana Republic would be like…..

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