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An Example Of The Absurd Subsidies And Distortions Present In Venezuela

November 23, 2014


As you all know, I go to Venezuela regularly. In fact, I just came back from there. Yesterday, right before going to the airport I had breakfast and, of course, I had to go to my friendly neighborhood arepera to enjoy the true flavor of nice local cheese and arepas, something I do at least once every single time I go. In my travels, it is incredible how I notice inflation from trip to trip. Even the chocolates I buy at the duty free store at the airport were up this time, a full 50%. They are no longer as cheap as they used to seem.

But going back to the breakfast, the picture above shows the menu I had: Two cheese arepas, a jugo de patilla and a cafe con leche grande. I was surprised at the cost, Bs. 402 for such a simple breakfast. Here is the breakdown:

Each arepa was Bs. 120

The juice was Bs. 80

The coffee was Bs. 39

Now, to get the right perspective one could calculate this at various rates. At the official rate of Bs. 6.3, it would be a scandalous US$ 63.8. At the Sicad I rate it would be a still expensive US$ 33.5, at the Sicad 2 rate it would be a still not cheap US$ 8, while at the parallel rate, it would be an very cheap US$ 3.24. Using a different perspective, the Bs. 402 represent 8.2% of the new monthly minimum salary, a clear outrage, as this is just one meal, breakfast, and there are 89 other meals every month. Which clearly show the absurdities of the Venezuelan economy.

But as I sat there reading El Nacional, the only daily left that can be purchased and has some true to what it says, I was amazed to read that Samsung had begun selling appliances, TV’s and the like, purchased at the Sicad I rate on Thursday and that people made long lines and even slept at the stores to get them.

Think about it, while people pay Bs. 402 for a simple breakfast, which is outrageous at the Sicad 1 rate, others benefit from the subsidy (and the luck!) of being able to buy appliances at that same rate. Note that this is simple populism, very few people actually benefit from the subsidy, but the image that the Government is doing something good for the people makes good headlines and many can only hope or dream that they can get their hands on one of these subsidized items. In fact, the Government makes headlines about this many times: when it calls for the auction, when it assigns the foreign currency and when the stuff finally arrives and gets sold.

Let’s try to put it into perspective, the clothes washer that El Nacional says was for sale at the JVG store, cost the equivalent of 31 breakfasts like the one above. That is, for a family of four, it is the equivalent of seven breakfasts. Cheap, no?

Which simply shows how screwed up the system is. Arbitrage is the rule of the day in Venezuela, you have to wonder how much of the stuff that arrived in Venezuela or is waiting in 243 containers at the port, will be sold and resold (or reexported to Colombia or Brazil) by those that are lucky enough to get their hands on one of these appliances.

Because in the end when you go to the store in Venezuela, you have little clue as to at what price something was imported. At Bs. 12,600, that clothes washer would be worth US$. 1,050 at the Sicad 1 rate (not cheap!), US$ 252 at the Sicad 2 rate (cheap) or US$ 101 ( a steal) at the parallel exchange rate. Thus, if anyone purchased this at the lower rate and tried to sell it for twice or three times at much in Bolivars, it would seem like a good deal and it would be the intermediary that was making most of the profit.

But the absurdity and the distortion is that the Government gives out money for this, which in the end is a “luxury”, in a country where there is poverty (and increasing) and people are having a hard times making ends meet.

Picture added from comments, sent by Ira, the Arepa Lady from Barinas at Walmart:



All The Wrong Things About Minister Jaua’s “Nanny” Affair

November 9, 2014


The Elias Jaua ¨Nanny case¨ has so many edges, that I have been trying to establish a hierarchy of the many things wrong with this case. For those who have been living in the Artic Circle, here are the basic facts of the case: Jaua, a former Venezuelan Foreign Minister, now Minister for Communes, went to Brazil, on an official/unofficial trip, reportedly on a private trip, as he needed to have his wife treated at the Syrian-Lebanese Oncology Hospital in that city. Reportedly, he then had his mother in law flown in, with the family Nanny, in a PDVSA jet and on a special flight. As they went through customs on Sao Paulo, a gun was found in the Nanny’s briefcase and she was detained. Later, the Government of Brazil protested, via its Foreign Minister, for Jaua’s “unofficial” trip, which included the signing of agreements with various Government (City of Curitiba) and non-Government groups (Movimiento Los Sin Tierra). The Nanny has been released, but awaits trial. Jaua argues his trip was perfectly valid and he told the Nanny to remove the gun from his briefcase, which contained documents which had little to do with his trip to Brazil. The National Assembly refuses to investigate the affair. Nobody in Government really wants to investigate Jaua.

How many things are wrong with this picture?

Too many in my opinion. Just too many:

-The one a lot of people have focused on, has been the fact that Jaua used a PDVSA jet for his personal use, or at most an unofficial use. This is clearly corruption, but this has become normal during the years of Chavismo. PDVSA has a fleet of planes that has been ready to fly anyone from Antonini, to General Carvajal, to Cuban officials anywhere they want, upon demand. Yes, it is illegal, it is corruption, but in the end, nothing new there, La Carlota airport has been closed to private traffic for 11 years, but you see the planes (PDVSA and Government) take off and land daily from it.

-How about that gun in Jaua’s briefcase?  To me, this is more interesting, a Government that claims to be disarming the population, because it is concerned with violence, but then a Minister carries a gun in his briefcase and it is hard to believe the Nanny, “forgot” or could not find the revolver in the briefcase. Hard to believe. What does this say about the mental and emotional state of these Ministers that not only go around surrounded by armies of bodyguards, but are also carrying? What for? What are they afraid of? Does Jaua know how to use the gun? Does he have a permit? Does he think nothing of bringing it to another country?

-The unannounced visit. This is also quite interesting. The trip became an “official¨visit, only after the Nanny was caught with the gun and jailed. Except that the Brazilian Government knew nothing of the trip and complained after that fact via diplomatic channels and publicly. Jaua apparently met with groups and signed agreements, but reportedly this was an excuse brought up afterwards to justify the “Nanny’s” trip. Jaua has said little of what ails his wife, but he has also said little of what the agreements have to do with his Ministry or his responsibilities in Venezuela. He probably never expected the friendly Roussef Government to complain about his trip.

-The Nanny. Some Venezuelans justify Jaua having a Nanny. Why should not he have one if it is so common in the country? Well, to begin with, it is not as common as it used to be, because it is no longer as cheap and only wealthy people can afford to do it. But more importantly, Minister Jaua is not a wealthy bourgeois oligarch ( Or is he?), but a supposed leader of a radical “revolutionary” process. He is a self-confessed “Tira Piedra” (Stone Thrower) who has become more radical with time. But wait. the “Nanny” is not a recent addition to the family. She has been with the family for about ten years, when Minister Jaua was barely beginning his revolutionary career (He was actually doing a Masters Degree at the time). But more importantly, the “Nanny” goes everywhere. She is not stay at home Nanny, but a frequent flyer Nanny, needed wherever the family may be.It makes life easier for everyone.

Because in the end, the new revolutionaries are as bad as the old ones. Jaua may have become more radical with time, according to his own words, but more of an oligarch and bourgeois as time went by. In fact, his kids go to a well known private school in Caracas, where they mingle with the upper classes and since it is a “foreign school” they also befriend the children of diplomats and expats. Thus, Mr. Jaua’s radicalism and revolutionary spirit seems to end at the door to his home. Like so many others in the Chavista Government he hires his wife. That gives them a double salary hosuehold and I guess in their mind justifies the need for a Nanny. Nepotism is not a word used by Chavismo.

And while Mr. Jaua keeps accusing Miranda Governor Henrique Capriles of neglecting his duties, he goes around the world promoting the Bolivarian revolution and not doing his job. This is nothing new, Argentina once refused to accept him as Ambassador, because he seemed to be interested only in promoting the Bolivarian revolution.It seems this is his life, holding positions, but always just dong politics and promoting the revolution. As Minister of Agiculture, Jaua did nothing more than expropriate, but little to promote the use of the lands he took over.

And the briefcase had little of interest to Brazil or the Venezuelan Government. Most documents were about how to win next years election, revolutionary processes, the Government’s political agenda in Venezuela and how to stay in power. I guess Jaua really worries about losing his status as an oligarch. But never mind, his kids are now fluent in another language and he can always send the Nanny to accompany them if necessary.

But the deeper question is how these guys mutate from revolutionaries to oligarchs so fast. At which point did Jaua start betraying those radical ideas that took him to such important positions? Shouldn’t the kids of a revolutionary go to public school with el “pueblo”. How did he get away with sending his kids to this foreign school, while the same institutions were under fire from the revolutionary Government? How do his kids (now adolescents) perceive the world and their father in this potpourri of conflicting ideas? How many nannies does the Jaua family have?

There is something profoundly wrong about this sordid affair. These are the “radicals”, the tira piedras, the encapuchados of the revolution. Their revolution has the consistency of tapioca and their world is a an incredible farce in which they have become the new oligarchs.

And they know it.

Venezuela: Is Default Truly A Four Letter Word?

October 22, 2014


Whenever people mention the possibility of default for Venezuela, they talk about the dire consequences of such a possibility. Among other concerns, people always mention that trade finance shuts down, access to new borrowing in the international credit markets simply ceases to exist, assets abroad can be attached, there are long lasting effects on economic growth and default usually is followed by a period of political instability, including coups, if the population believes that defaulting will be a negative for them.

But how much of this is true and how much of it would apply to Venezuela if it defaulted? I have been looking at this question for a while and I will give you my conclusion right off the bat and later tell you why: Default does not appear to have in most cases the dire effects predicted, it does not appear to be the four letter word that most think it is. Not only are the effects of defaults varied, but in the case of Venezuela, after so many years of exchange controls the impact on trade may be much more limited. Unfortunately, the positive effects on exports that defaults have should largely be absent in the Venezuelan case.

Let’s look at each of these:

Assets Abroad

Let’s start with the most important factor that Venezuela would face if it defaulted: assets abroad. With PDVSA owning Citgo, refineries and tankers , it would be too risky for PDVSA (or even Venezuela) to default and not have investors go after Citgo’s assets in the US. Judges would be very sympathetic to the attachment of these assets which likely represent near half the recovery value of PDVSA bonds. This is perhaps the biggest obstacle to Venezuelan authorities even considering even the possibility of a default. It is also the reason why investors have been concerned over the possible sale of Citgo or parts of Citgo, as it likely eliminates the most significant factor why Venezuela would not consider a default. Thus, it is my view that PDVSA will not even think of a default until, when and if, these assets are sold, a process which could take at least a year to be completed. And it is likely that Venezuela would not consider it either, as Venezuela, being the sole owner of PDVSA, would also risk the attachment of PDVSA’s assets, or at least, extended legal action abroad over them. It would not be difficult to show that there is little difference these days between PDVSA and Venezuela.

No access to international markets

The second most important reason why Venezuela or PDVSA would not want to default, is because it would lose access to international markets. It could go the way of Argentina, and issue “local” law bonds, but this has proven to be very expensive. Venezuela already has to pay high interest rates, imagine what it would be like if it defaulted. So far, Venezuela has avoided paying huge coupons, using the perverse mechanism of issuing bonds in exchange for Bolivars at the official rate of exchange with a low coupon, which would trade at a low price in US$. Perverse, because in the end future generations have to pay the capital, while the bonds are issued to support an absurd foreign exchange system. Venezuela issues dollar denominated bonds to be sold at an artificial rate of exchange, but the country or PDVSA get no dollars  for the issuance, but rather create a liability down the line in foreign currency.

But while everyone thinks of Argentina in 2001, when gauging the impact on access to international markets, people seem to forget that most countries have become serial “defaulters” and returned to markets. Russia defaulted in August 1998, but between Aug. 1999 and Feb 2000 it had restructured all its debt and has been back borrowing in international markets since then. The Ukraine defaulted in 1998, then again in 2000, with most bondholders accepting terms. The Dominican Republic defaulted in 2005, but restructured bonds with the same terms, but a five year extension, which bondholders welcomed.

The problem is that not all defaults are created equal. Some countries have liquidity problems, others know they can’t keep paying long term and finally, some countries simply decide they “can’t” pay. The last one, is political decision and it is a matter of whether they can or not survive with it. Some argue, that there is such a thing as an excusable default, whereby both the creditors and debtors need to renegotiate because it is the optimum solution for both. In Argentina’s case, that country managed to restructure its debts almost forcefully, appearing to gain a victory, but years later, it is still fighting that result.

But in the case of Venezuela, the biggest reason for not defaulting may be that its biggest creditor is China. And that country, or its banks, have expressed in no uncertain terms, that Venezuela should not default, can not default. China is willing to be flexible, but it repudiates default. In some sense, the decree on Oct. 10 th. changing the terms of the agreements with China, whereby Venezuela sends oil to China to pay for loans, represents the acceptance by that country that Venezuela is having problems paying the loans with oils. It wants to help, but it prefers to change the terms that even give the impression that Venezuela has defaulted with China in the sense of Hausmann and Santos. Politically, this may be the strongest reason for Venezuela not to default, but faced with a liquidity crisis, what would the Maduro Government do? Or any other one, for that matter?

Default creates immense barriers for trade

This is one of the dire consequences that is most noted when talking about the possibility of default, be it Venezuela or any other country. Except that things in Venezuela are unlike any other country in the world. In the “old” days, to import, you needed letters of credit issued or backed by local banks. But when you have spent ten years under a fairly strict currency control regime system, when banks are limited to 15% of their equity in foreign currency, the same banks stop issuing letters of credit that could one day ruin them. Thus, with Cadivi, the letter of credit system was replaced by cash at the bank, to pay Cadivi (today Cencoex) approvals, while your suppliers assigned you a credit line: They are willing to ship to you an x amount of money in goods, but if the Central Bank does not pay any “Autorización de Liquidación de Divisas” (ALD) corresponding to that amount, shipment will be suspended temporarily, until some ALD is paid to reduce the amount owed. Lest you think that this is not a cumbersome process, here is a diagram of the whole thing from a well known local bank (remember step VI can take place and VII may never happen, but the goods have been sold):

cadiviThis process could be slowed down in an event of default, but it is already so long and complicated, that it will be business as usual. In fact, some of the more sympathetic countries in the region will jump with joy, if they can intermediate or supply products that used to come from Europe or the US to Venezuela if the money can not flow through regular channels when the BCV pays imports. Recall additionally that the Government has become one of the main importers in the county too.

Venezuelan oil shipments should be considered separately. Absent the assets abroad, which will take time to get rid of, the only risk will become the shipping of oil in Venezuelan tankers, a fleet worth some US$ 1 billion. PDVSA could always export FOB to countries where there was a legal risk of being attached or impounded. The oil would then belong to the other party and thus immune to being impounded.

Logistics would, of course, become very difficult and many suggest the Government or PDVSA do not have the people to do this. But I have heard that argument before and the revolution is still going on 16 years afterwards. At each step, whether it was exchange controls, firing 20,000 PDVSA workers, not paying imports, or dividends or taking charge of businesses, people predicted the end of the Chavista revolutionary world. And here we are. There may be interruptions in oil exports, but a way will be  found and maybe, another revolutionary enterprise or magnate would have been born. Chavistas are experts at that.

Economic Growth and trade after default

This is the area where economists seem to disagree the most. While it is true that the years following a default are bad for trade and GDP growth, it is also true that in many cases, the years prior to the default were just as bad. Argentina had unemployment grow sharply before default and exports never wavered. GDP did contract, but never by the 8% predicted by economists and there was a boom from 2003 on, whereby GDP grew by almost 9% for at least four years.

But Venezuela is no Argentina. There would be little advantage to exporting given that Venezuela only exports oil. But at the same time, GDP is not precisely booming in Venezuela right now. The only true advantage to a default would be that the Government would be able to spend more, without control and for electoral purposes, the same movie that got the country to where it is today. Thus, Venezuela’s exports and the economy are unlikely to benefit much from a default, the opposite from what would occur in most countries.


In the end, if a restructuring or default were handled properly, it would not have the dire consequences most people think it would have. The country would function, exports would flow, imports would also continue flowing. But there would be little economic gain, given that Venezuela has little to export other than human resources and those are being exported en mass as we speak. But maybe it is too much to assume to believe that this Government can handle a default gracefully or intelligently. In the end, a default favors Chavismo in terms of politics, but as long as Citgo is owned by PDVSA and the Chinese have any influence, it sounds unlikely that the Government will dare to take such a difficult step. Watch out for both!

ExxonMobil Decision A Win For Venezuela

October 12, 2014

Finally the arbitration panel of the World Bank, the ICSID ruled on the compensation for ExxonMobil over the nationalization by the Venezuelan Government of its Cerro Negro and La Ceiba projects, in a 138 page decision published this week. That there would be compensation there was no doubt by now, the only question was how large it would be and whether the panel would say anything about the relationship between its award and that of the International Chamber of Commerce in New york, where ExxonMobil was awarded US$907 million in 2012, which was covered in detail in this blog.

As expected, both sides claimed victory. The same way that both side fought with extremes during the case, Venezuela saying it had to give little to ExxonMobil in compensation and ExxonMobil asking for absurd amounts that people somehow took seriously in Venezuela. This has led many to believe that Venezuelan won huge, because in the end it will “only” have to pay a total of US$ 1,943 in compensation for ExxonMobil’s 41% stake in the Cerro Negro project. Exxon claimed victory and Venezuela said it was satisfied with the decision and that it would pay after November this “manageable” amount.

But the truth is that the number are not that far away from what analysts believed would happen and they are very far from what either side wanted. In fact, while most estimates were around US$ 10 billion for both ExxonMobil and ConocoPhillips (which is 2.5 times bigger than Cerro Negro), there were estimates as low as US$ 5.6 Billion.

But let’s look at the facts of the case prior to this week:

i) ExxonMobil was asking for US$ 14.5 billion in compensation (page 52 of decision), arguing that if it had not been expropriated, the 120,000 barrels per day (bpd) produced could have been expanded to 344,000 bpd by 2014. While this was feasible, the original project had a target of 120,000 bpd, there was never any authorization to expand it and it was clear none would not be given by the Bolivarian Government. This is typical over reach when you sue, you include everything asking for the moon, hoping the final award will be what you want. Dismissing this absurd request cut ExxonMobil’s claim by a factor of 2.4 to US$ 6 billion.

ii) On the opposite side, Venezuela was only offering US$ 353 million (page 57), based on a price cap set forth in the association agreement, from which the country would subtract US$ 238 million from the repurchasing of the Cerro Negro bonds by PDVSA.  The tribunal dismissed the price cap argument based on the laws that created the association, as well as subtracting the payment of the bonds. .

But let us also look at statements made by Venezuela on the case, which were purely grandstanding: “Venezuela considers the ExxonMobil case closed” said in 2012 Rafael Ramirez, the same one that claimed this week the decision was “just”. Or “the book value is less than US$ 750 million” said Ramirez on a different occasion and that is what would be fair to pay. But the best contrast may be what Hugo Chávez said in 2012 “From now on I tell you: Venezuela will not recognize any decision by that Ciadi (Spanish acronym for ICSID)”, which he said after Venezuela “won” the ICC case.

So, given this. Did anyone score a victory this week?

Let’s look at this week’s numbers and facts:

The ruling: The arbitration panel ruled in favor of ExxonMobil, deciding that it had no jurisdiction over tax increases to the participants of the project, but it did have jurisdiction over the remaining claims, including the imposition of an extraction tax, production limitations imposed by the Venezuelan Government and the actual expropriation of the projects.

No jurisdiction over tax increases means that there would be no compensation for that part. Subtract that from the US$ 6 billion requested.

The Compensation: The final award given to ExxonMobil and its affiliates is: a) US$ 9.0 million for the forced production cuts in 2006 and 2007, b) US$ 1.411 billion for the investment in the Cerro Negro Project c) US$ 179.3 million for the expropriation of the La Ceiba project. This amounts to a total of US$ 1.599 billion dollars plus 3.25% interest since the date of expropriation (June 27th. 2007) to the date on which payment is made. From this amount, the arbitration panel ordered the subtraction of the US$ 907 million awarded by the International Court of Arbitration (ICC) in December 2011, which has been paid in full.

If PDVSA pays this in November, as it has announced, I calculated the interest to be US$ 345.2 million, where I separated the interest due in the original US$ 907 million of the ICC decision, paid in early 2012 and the interest on the remainder US$ 1.1 billion since June 27th. 2007. This gives a total of US$ 1.943 billion for the award, minus the US$ 907, which would give a total bill due of US$ 1.036 billion, assuming PDVSA pays in November.

The award for La Ceiba is easier to judge. ExxonMobil asked for US$ 179.3 million. It was awarded exactly US$ 179.3 million for its half of the project. (The other half was owned by a Canadian company which accepted US$ 75 million in negotiated compensation). A small victory for ExxonMobil.

Obviously the award is on the low end of things, which is the reason that I consider this to be a slight win for Venezuela. But the actual reason the award is on the low end of things is quite ironic: Venezuela argued that country risk (it’s own!) was high and the discount rate used in the calculation of the payment should be near 20%. In the end, the panel used 18% versus ExxonMobil’s proposed 8.5% which made a roughly US$ 1.5 billion difference in the compensation.

This is what Venezuela argued:

“The Respondent (Venezuela) contends that the CAPM methodology is of little relevance in determining the value of an international oil project because it does not take into consideration the country risk. According to the Respondent, Prof. Myers has relied on a single, inappropriate method, whereas Respondent’s experts have used four separate methods, ICAPM and country risk survey (“market acquisition approach”), and backward- and forward-looking data (“make-whole approach”). These four methods resulted in discount rates “within a relatively narrow range”, which the Respondent’s experts averaged, yielding a discount rate of 19.8%”

Thus, the same Government that is always complaining that the markets demand such a country premium when it sells it bonds, turns around and cheers for the high country risk they have created by their mismanagement of the economy. .

Oh! The pretty revolution!

So, technically, ExxonMobil got less because the revolution has made the country so risky. Strange, but not only true, but also correct from a technical point of view. But I don’t believe analysts were using such a high rate in their calculations.

If ConocoPhillips was 2.5 times larger, then you can expect this decision to establish some precedents and that case will be 2.5 times larger, plus a bit more because that panel already ruled Venezuela negotiated in “bad faith” with ConocoPhillips. I don’t know how much that will cost, but say it takes it from 2.5 times to 3 times and ConocoPhillips will be awarded with interest around US$ 6 billion. This gives a total of US$ 8 billion for both cases, below the “average” expected by markets of US$ 10 billion between the two projects.

Yes, it is low, but ISCID awards have always been on the low side, this is after all, the second highest award ever after the Occidental Petroleum-Ecuador case. In fact, two weeks ago, the ICSID awarded Canadian company Gold Reserves US$ 730 million in its arbitration case against Venezuela in an award that surprised many by its large size. The company started asking for US$ 5 billion, was cut down to US$ 2 billion and was awarded US$ 730 million after investing some US$ 300 million in the Las Brisas gold project. Venezuela has not said what it thinks of this award, whether it will pay it or not.

Yeap, a slight win for Venezuela. But I get the feeling the real winners are the lawyers on both sides.

Puzzling Over The Events Of The Last Few Days in Venezuela

October 8, 2014

Anyone that tells you that they know what is going on within Chavismo and the recent events in which a PSUV Deputy was killed at home, followed by the Head of a “colectivo” being killed two days later by none other than the investigative police, is simply lying. To begin with, the death of the Deputy is as strange as it gets, with the Deputy sending his bodyguards home minutes before those that killed him showed up. There was no violence, it was efficient and barely noticeable in a neighborhood where the smallest anomaly is duly noted.

Then, there was the incredible noise by Maduro and his cohorts, blaming everyone from Uribe, to the US, to the opposition and threatening to reveal it all. Even Samper got into it.  Both Maduro and the Prosecutor claimed that the investigations were really advanced, the heat was on the opposition, when Maduro even blasted the new Head Of The MUD Chuo Torrealba. Then, all of a sudden Jose Odreman, leader of one of the Chavista “colectivos” is killed, no more than one hour and fifteen minutes after saying on TV that “Math never fails”, that they are after them and he makes the Minister of Interior and Justice “responsible” for anything happening to him and accuses the investigative police of killing someone that worked with him. In the now infamous video, Odreman threatens to take to the streets with other “colectivos” and one hour and ten minutes later he was dead:

Afterwards, the Head of the CIPC, accuses Odreman’s “colectivo” of “carrying out a number of murders in the greater Caracas area and…there were shots between the police and a number of former cops who were part of Odreman’s gang”

So, this is a chicken and egg problem: What comes first? the Deputy´s death or the war against the colectivos? Were the colectivos involved or was the Deputy, with his connection to the colectivos, part of the same story.

I really have no clue in this puzzle. All I know is that the Government allowed these paramilitary groups, the “colectivos” to exist. Chávez did seem to have control over them, but now they seem to have become a force of their own. They fight and criticize the police (they are mostly former police too) while going around the city armed to their teeth and act as if they are above the law. Meanwhile, the police finds these people a pain in the you know what, they are autonomous and untouchable. A veritable monster. Venezuela’s version of Colombia’s paramilitary groups.

The problem is that the actions of the colectivos is interfering with the President and his spin on things. He now orders an investigation of Odreman’s death, but the truth is that all of the ruckus raised with the Deputy’s death has died down. How can you blame the opposition when the whole thing stinks to high heaven of being an inside job within PSUV. And Maduro orders the investigation without saying a bad word about his Minister of the Interior (Las Matematicas no mienten, Odreman dixit) or the Head of the CIPC. Odreman thought his statements on video would protect his life. He was wrong, someone thought he had to go, no matter what even Maduro may think or do.

Complicated, no? A true and veritable puzzle.

Is the Government trying to placate the colectivos? Is this the military trying to get rid of Chávez’ creation because they have become a force within Chavismo that they don’t want? What happened to the big announcements that Maduro was going to make about the Deputy’s death? Did Odreman’s death stop them?

Meanwhile the opposition is as quiet as can be. When you don’t know what is going on, it is better to just shut up. The problem is that more and more Venezuelans die each day that goes by, pro-Chávez and against Chávez, in this macabre dance that Hugo left his successor to direct. And the colectivos are not controlled by anyone, as the last few days demonstrate. Which to me seems like a situation that the military would not like. Maybe absent Chávez, they decided to do something about it.

But who knows. With so many guisos and rackets in Venezuela, maybe this is just about money. Somehow in socialist Venezuela, money is always at the crux of things. The last few years have taught us that. Think money and you will have your answer.

But, who knows? All I know is that it is hard for me to get over Odreman’s statement. In a Government that does not believe in knowledge and numbers, he said it a few times: “las Matematicas no mienten” (Math never fails).

What was he trying to tell us?

That’s the puzzle…


Is There A Government In Venezuela?

August 21, 2014


The question posed by the title of this post is not rhetorical. You have to wonder if there is a Government in a country where decisions appear to be random, if and when they are made and when incoherence seems to be the norm, rather than the exception.

Take, for example, Rafael Ramirez. This guy is supposed to be in charge of like half the Government. He is President of PDVSA, Minister of Energy and Oil and also holds a position with the over the top name of “Vice-President for Economic Affairs”.

Now, for months, Mr. Ramirez has been proposing a unified exchange rate to remove distortions and in his own words: “It is very difficult to manage three exchange rates”. Separately, Mr. Ramirez has been the main proponent of a gasoline price increase, calling the current level of subsidies “absurd”.

You would think that with all his titles Minister Ramirez has some pull in Venezuela’s Government. I mean, he made all of these proposals at the PSUV Congress (Where nothing was voted, in the best Stalinist tradition). The people even stood up and cheered for most things he said.

Despite this, not only has nothing been decided, but Ramirez has changed his tune. He now talks about “convergence” of the exchange rate, which should be read as “more than one”, maybe two or even three. But the timing is quite fuzzy too. He now says that additional measures have to be taken first, mostly monetary measures. Funny thing is, M2 not only keeps growing at the same unstoppable rate, but Treasury Bill auctions were recently declared null for the first time in years and the rates were really stupidly low.

Thus, it does not appear as this very powerful man has any power in Venezuela, as he has been preaching at least “reasonable” measures for months, but no decisions are made and his proposals change over time.

Of course, Ramirez has a boss, President Maduro. Thus, in the end it is your boss that decides things, no? But at the same time, you don’t go out publicly with anything without running it by your boss first, no? That is what organizations do, from the Girl Scouts, to companies, to Governments. They discuss, talk about it and run with the conclusions. Sure, sometimes in politics you float balloons to see how the public reacts, but these balloons don’t last six months.

But Maduro behaves much the same way. He says one thing one thing one day, only to promote the opposite later.

Take the whole issue of using fingerprint machines at supermarkets to control smuggling. The whole thing is absurd. Are you going to impose a system on the “people” you always cry you care about, given that it is hundreds of Tons of stuff that gets smuggled out of the country all the time? How much does this system cost? Who will run it? Who sells it? Who maintains it? Who profits from it? How do you implement it?

Even worse, just last week, one of Maduro’s powerful underlings, the Head of Sundde, declared the”war” on lines at supermarkets. Do you really think that implementing a fingerprint system with restrictions to boot, will help ease them.

Imagine the dialogue:

Cashier: “Sra. please move your finger. Ok, Ok, dry your finger before you place it on the scanner. Great, finally. Well, sorry you are limited to two bags of Harina Pan, two cans of powdered milk and one kilo of sugar, so we have to take it our of your cart.”

Sra: “But please, I have four kids, I need the milk. Even if I come tomorrow you will not give me any additional milk. Etc., etc., etc.”

Meanwhile the line backs up even more. People get upset, start complaining and who is going to come calm them down. The Sundee? Sure.  Most likely the National Guard.

But the worst part is that Maduro said a year ago that he was against this type of system. In fact, he ordered that Governor Arias Cardenas of Zulia State stop any form of rationing, arguing that producing stuff was the only way to go.

A year later, Maduro is the king of rationing and the surely corrupt biometric systems. As I tweeted, it would be much cheaper to put a voice transmitter on every military officer in the country, in order to stop them from charging commissions at every step, including all the flow through the borders.

Just watch this video from  this blog, and even if it is in German, you understand the guy is bribing the Guards to get thru and make a lot of money smuggling. So, are you going to check the cars or the Guards? Same idea applies to foodstuffs.

I mean, if as Ramirez says 100,000 barrels of gasoline get smuggled out of Venezuela, does Maduro believe it is one barrel per car? Or maybe it is like 500 barrels (80,000 liters) per truck and a few national Guardsmen helping out. And “colaborando”, wink, wink.

But going back to the title of the post, who then runs Venezuela?

I am starting to think nobody. This is a collection of individuals with no apparent command or direction, led by an indecisive man. I don’t think Maduro went to Cuba to receive orders. I believe he went to Cuba to ask Fidel which of the many proposals he should follow. And Fidel likely told him to just hold tight, try to sell Citgo, see how long they can last. And if they can’t sell Citgo, you can make very tough decisions, like hold payment on debt, borrow somewhere and try to ride it out. But Nicolas, Fidel likely told him: You are not Hugo.

And so the country drifts into som sort of economic black hole. Today it is fingerprint scanners, tomorrow it will be some different imaginary battle. But it will always be about attacking the consequences, not the causes. Those, they will not touch. Maybe a small adjustment in the price of gas. Maybe move the Bs. 6.3 per US$ rate to the Sicad 1 rate. But that’s it. In the absence of Government, there will be no decisions. No real policy changes until 2016

At the earliest.

What Government Control Of The Media Means In Venezuela

August 15, 2014


You would think from the headlines of El Universal, El Mundo and Agencia Bolivariana de Noticias shown above, that the Government had scored a big victory in signing a collective bargaining agreement with Sidor workers and managing to appease Venezuela’s steel conglomerate and its unions.

Except that the information is fake. False.

There is no agreement. This is just a staging of the signing of a contract.

There is no legally signed or approved contract. It has not been approved by the Assembly of workers, nor has it been signed by the Executive Committee of the union. This is simply a media operation by the Government taking advantage of its almost total control over all the print and broadcast media. For more than 15 million Venezuelans, the Government won in its fight against the “right” trying to destabilize it using Sidor. When and if there are more protests in the upcoming days, the Government will remind everyone that a contract was signed and the workers can’t go to work because a small group of “right wing” union workers (I would like to meet just one!) decided to boycott the agreement. You and I and others that read Tal Cual or Damian Prat will know it is not true. But it does not matter. The Government does not care about Sidor producing or union workers having rights. All it cares about is its image, which it can control via its control of the media.

Orwell would have been proud of them.

Some reader made a comment saying that what I posted is not from today’s El Mundo. I have no idea what he is talking about, but here is the front page of El Mundo today

mundoand here is page 14 with the story


Venezuela Should Increase Gasoline Prices Sharply

August 10, 2014


I am behind on writing about Venezuela. There are so many things to write about and I do have many opinions on them. And there is little time. But the subject of the gasoline price increase is at the top today. In this supposed “adjustment” that Chavismo has claimed it will do for the last eight months, the discussion began after the regional elections in December with precisely the price of gas. But then, much like the so called “unification” of the exchange rate (now called the “convergence”), there was a lot of internal opposition within Chavismo to the increase of gasoline prices.

Now things have been turned around, there is a lot of opposition to the convergence of exchange rates internally, so all of a sudden Minister Ramirez revives the subject of a gasoline price increase. It seems Ramirez only wants to find a way to have PDVSA improve its finances, rather than improve the country’s fiscal balance.

Let me state first, that I am absolutely and totally in favor of the gasoline price increase. I find it appalling that people oppose it, condition it, question it and dilute it it in an absurd discussion of what they want or don’t want the Government to have or do.

The gasoline subsidy in Venezuela is a disgrace, it is wasteful, it is absurd, it is bad for the environment, it generates contraband, it is regressive, it is unfair, it is unjust for future generations, it generates traffic, it distorts policy making and it is simply irresponsible.

In fact, I find it amazing not only that the opposition has so many reasons to object to it, but that the Government is thinking of a small adjustment like to Bs. 2 per liter, if not half of that.

Gas is so cheap (free really) in Venezuela, that it is difficult to talk about how much a liter costs. So, we go back to a picture I posted in May 2011:


I filled up my tank down in Caracas with 43 liters of gasoline and paid Bs. 4.2 for he whole thing. Bs. 4.2 for 11.43 gallons of gas, which at the Sicad 2 rate happens to be 0.082 dollars for a tank of gas. All of 8.2 cents of a US$.

I use the Sicad 2 rate, because it is the highest accepted by the Government and the only one “real” people have a small chance of having access to it.

So, currently in Venezuela, filling a tank of gas up costs 8.2 US$ cents, let’s round up to ten cents for the sake of the discussion.

Now, as you can see in the picture above on the right, I used gas that cost 0.097 Bs. per liter. The Government wants to increase it to either Bs. 1 or Bs. 2, depending on who you believe. This means that the Government wants to increase it to around one or two dollars a tank of gas.


To me, that is the same as leaving it is where it is today. It will have no impact on contraband, waste, PDVSA, fiscal accounts, etc, etc., etc…

Furthermore, with 70% inflation the effort of convincing the population that the increase is good, doing it and implementing would be wasted very fast.

Thus I think the Government should target an increase that is large. Say to US$ 20-40 per gas tank. (50 cents to one dollar a liter, still cheap. Or FOB export price, which is the most rational to do) and maybe do it over a year. Similarly, they should schedule further adjustments whenever they devalue, so as to maintain the price at the same relative level to international prices as the adjustment.

All of the other arguments are simply irrational and spurious. That you don’t trust the Government and what it will do with the money? Nobody trusts any Government and what they do with your money. It is the same arguments why people don’t like or want to pay taxes. But the bills have to be paid and in the end it is a vicious circle. The same with the argument that the public transportation is terrible. It is a chicken and egg problem.

Finally, there is the Cuba and Petrocaribe argument. They are valid, but you can’t tie one to the other. The opposition should raise a stink and point out that we give Cuba and those countries very cheap gasoline. In the case of Cuba, the Government of that island sells it at international prices and makes money. But that should not stop us from supporting the price increase. In fact, if anything, the oppsoition should attack the increase because it is not large enough.

Until policy is not discussed seriously, Venezuela will never advance. Chávez introduced the absurdity of an overly subsidized gasoline prices, if this Government wants to take a small step into some semblance of sanity in its policy making, it is absurd in my opinion to oppose it. Otherwise you are promoting the same type of irresponsible Government you object so much too.

I know this will not be a popular post, but I do believe that in politics, one should have certain essential beliefs and principles and that one should stand by them and not turn them around and debase the nature of the discussion just for politics sake.


Venezuela Drifting Further Away From The World

August 6, 2014


I was in Caracas last week. Almost did not go for the simple reason that it is quite difficult, besides expensive, to find an airline ticket out of Caracas. Venezuela is simply drifting away, further and further apart from the world.

In my case, my trip, more like a saga, began when I found a ticket Caracas-Aruba in Aserca to make a connection to a US airline in Aruba. Plenty of time between the two, Aserca was leaving at 11:30 AM, the other flight leaving at 3:35 PM. Given that the flight to Aruba is 35 to 40 minutes, there should be no problem. On top of that, I had only hand luggage.

Chop half an hour from the time between flights, thanks to now banned Chavista genius Navarro, as I did not take into account (my fault) the half an hour difference between the two countries. I did show up at the airport a three full hours before flight time. Seemed like a good precaution, as Aserca has no line for those without luggage.

Well, when I showed up, there was a huge line for the full flight and all but four passengers were in line in front of me. Fortunately (or maybe I should have worried about it) there was a sign that check-in would close at 9:30 a full two hours before the flight. That meant, that the line would only last one hour.

And it did. With about three minutes to spare.

In the line, I learned a number of things from the ladies ahead of me. For one, they bring their food to Aruba, you know, they told me, food is so much more expensive there. Thus, they bring their food, hiding it under the clothes, so that Aruba customs does not take it away. That happened to me, said a different lady. They also discussed how bringing lots of food is good, more space to bring back the stuff they buy in Aruba, which turns out to be paper products (toilet paper and diapers are favorites), food (not fancy ones, those you can get in Caracas. It’s all the stuff he government controls or imports that they bring back) and cosmetics. Cosmetics, like soap, shampoo and similar things, lest you think that they bring back expensive things like perfume. I also learned you have to stay a full week in Aruba in order to get the full US$ 700 from Cadivi. Better to go to Aruba than Miami, said a third lady, the ticket is cheaper and you get the same amount of money. Besides, I bring my kids, they don’t cost as much and I can ask for US$ 700 for each.

I trust I am not passing bad information, I haven’t checked it. But on how to squeeze the Chavista foreign exchange/travel system, these ladies seemed like true experts.

To my surprise, right before check-in there was a guy that would actually ask you if you were connecting to another flight. I thought I was the only one. How wrong I was. There were people connecting to my flight and to at least four other ones. In fact, looking over his writings on the reservation list (the only thing that was respected all day) about half the flight, including many kids, were making connections to the US and/or Europe. There were twelve connecting to my flight. I should have gotten worried when the agent told me that Aserca was not responsible for any of my expenses if I did not make the connection. I actually expressed confidence that there was plenty of time between flights, to which he answered: “Well, yesterday one passenger did not show up and it took an hour and a half for the National Guard to allow the removal of the baggage belonging to that passenger. The plane left with a three and a half hour delay.”

But I am a lucky devil, no pun intended, so I went to immigration confident that  there would be no problem.

Think again!

We were told to be at the gate at 10:30 AM, so I drifted towards Gate 22 at 10:15 AM not that I expected the flight to leave without me. Gate 22 must be the gate from hell. It is a combination of Venezuelan organizational planning, combined with Venezuelan military organizational planning (A true oxymoron).

You see, when you approach Gate 22, there are two signs: Gate 22 in the back and gate 17 in the front. If you are dumb enough to follow the Gate 22 sign, you reach a corridor, blocked by cardboard. Thus, you have to go back to gate 17. That is Gate 22. Obvious no?

There are no signs in gate 17 ( or 22). Just an escalator going down and stairs coming up. Given that there were four flights waiting to use Gate 22, the upstairs lounge was completely full, since it did not even have capacity for a  small commercial jet. Downstairs is different. It is empty, there are seats. But even though you have just passed security once, the chairs in the waiting lounge are blocked and you have to go through the National Guard security in order to get to the lounge and eventually on to the buses to the plane.

A not so pleasant looking Guardsman comes up to me and tells me to go back up until my flight is called. Up the stairs I go, not before he gives me the explanation: Your gate number could be changed (I should have paid more attention at this point), for example, and you would be down here.

Sounds perfectly logical, but I still don’t understand why flights that required a bus, need double security.

I go back up. During the time I was there, I saw some two dozen people go downstairs and then trek back up, including a pregnant lady with two kids.

Order (ha! ha!) was restored when the Aserca people showed up, roughly at the same time as the La Venezolana staff (different flight). This happened about ten minutes after the time we were supposed to be at the gate. Then began the placebo explanations of the Aserca staff. The plane is being filled with gasoline. Next customer up, the plane is in the national terminal. Next customer, if the plane is brought here we will leave from a different gate. (Told you I should have listened!)

As I am getting impatient, a passenger says: “We have to be very patient, this is Venezuela”. I feel like telling her why I don’t want to be patient, but I shut up. About an hour later, we are told the plane is full of gas (Cheers!), but it will be brought over now to the international terminal (Booo!). This means we have to go to Gate 28. (Which is actually Gate 28)

A real gate! No second National Guard check up of our hand luggage. Makes sense, no? Just kidding!

At the gate I meet a lot of fellow “conectees” worried about time. I meet a guy who is connecting to my flight. I tell him I only have hand luggage and have my boarding pass printed. I explain that the airline closes the flight 45 minutes ahead of time, thus, if we are further delayed, he will not make it. He does the check in in his phone. (He is the only other person that made the connection: “Thanks Devil” this guy should say. You are welcome!). There is a family going to San Francisco, a girl to meet her Spanish fiancee in Scotland. A guy who is moving to the US. Another getting his visa soon. Another bought a fish business. And finally, an Arubian/Venezuelan (Doctor, builder, grandfather and tool smuggler into Aruba) who clearly has done this many times and explains at the gate and on board exactly what obstacles you will have in Aruba to make the connection. (Thanks buddy!)

We finally board. A little disorganized, but hey, Germanic compared to everything what went  on before. We might yet make it.

As we are sitting on the plane, the Captain apologizes for the delay and says…we will have another delay, because the truck to start the engines is in the National terminal and has to be brought over. (Why did they move the plane then?)

It looks tough now. Very tough.

As we wait, the stewardess asks me to check if my seat has a life saver underneath. It does. Two mechanics come on board and start checking for life savers around my area. They are all there, but there is a report that one was missing. Finally it is determined, that it was the seat of the girl going to Scotland, sitting behind me, that did not have one, it was an empty bag under her seat. How would she know. She is given a life saver to put in the pocket ahead.

To my surprise the two mechanics that boarded the plane to check the life savers, stay on board. I don’t even want to ask why. They are seated in front of me, this must be the safe area of the plane, I tell myself…

We finally move at 1:45 PM Caracas time, which is 2:15 PM Aruba time, my flight is at 3:35 PM. Looks bad.

Flight goes well. I am seated close to the front. I leave the plane and start running. I get to Aruba immigration and the lines are huge, like 50 people deep. The not so considerate gentleman organizing the line tells me to get in any line, he can’t do anything for me. My new friend follows. We ask the people in the next line if we can go ahead of them. they say sure, they are vacationers going to Aruba, we look stressed. We bypass a bunch of people and when I am called, the immigration lady  I got is given a pack of eight passports to process ahead of me. “You can stay here, she says”

I smile.

And then I run. Remembering the instructions by the Aruban/Venezuelan guy on the plane, I exit the terminal, take a left. Then another left to departures. I keep running, O.J. Simpson style  (dated joke, last time I did this was in 1977, still recall the analogy). Then I do Aruba immigration and security. I keep running. Then I do US immigration and security. No lines, thanks God. Nice agent.

Then I run more, My plane is at the last gate at the airport. gate 8. I show my boarding pass. Lady says: “Mr. Octavio, I thought you were already on board”. I run, get in the plane, sweating by now, sit down and the stewardess offers me a glass of water and some paper towels (Thanks Veronica!) . She then turns around and closes the door to the plane.

I made it, but I realize that Venezuela is slowly drifting apart form the world. It is further and further away every day in all possible senses: Physically, intellectually and cronologically. And this increasing remoteness is true for both those abroad like me and for those who still live there.

What a tragedy!



Am I crazy?

August 4, 2014


No expert, just a little bit crazy. It has now been twelve years writing the Devil


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