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Dear Hugo (An Imaginary Letter)

June 27, 2014


Dear Hugo:

You know I don’t like writing very much, I prefer to talk, but since everyone seems to be writing letters all around me and you have not appeared again in the form of a bird since I got rid of your friend The Monk, I have decided to write this open letter which I hope you are the only that ever reads it. If my wife finds out about it, she will get really mad, because she keeps telling me to forget about you and start my own dynasty. But while I watched that TV  series when I was a bodyguard for the Venezuelan rich and famous in the 80’s,  I really don’t want to replace you and start a new anything.

In any case, you know I never wanted to be sitting here in this chair, but you insisted and look at the mess I am in now (Not to mention the country). I knew when you came back from Cuba for that last time, that you were really sick and not functioning well, when you told me that you had decided to name me your successor. While you dismissed my objections, I should have known your illness was getting to your brain. And for once in these fifteen years I was right, and you were wrong: The military does not like me because I am not one of them, the communists hate me, Godgiven thinks you should have picked him, the Garibaldis hate my guts because I am uneducated, the Francesitos look down on me and only the civilian jalabolas seem to like me. But they have little power and may not even like me.

So here I am.

But it is really hard to understand why you liked this guy The Monk so much. I still don’t get it. I know, I know, he was your thesis adviser, but like my wife says, you never finished your thesis, so why does it matter at all? While people think I got rid of him because he was disagreeing a lot with the rest of the Cabinet on what to do, the truth is that I don’t hold many Cabinet meetings anyway, they are long, boring and Rafael and your son in law want to talk all the time. I only like them when they are live on TV and  they end fast when Jorge’s (the other Jorge) sister says people are turning their TV’s off.

In any case, I got rid of him because he was really boring. He would come to Miraflores unannounced and sit outside my office waiting for me. Most of the time I would sneak out, but he would sit out there for hours waiting to talk with me. Even other Ministers began complaining that they would come see me and while waiting for me, The Monk would bore them to death. And the days I did receive him, he would just blabber and blabber about stuff I don’t understand, like social metabolism and the dimensionality of capitalism. And he would talk for hours. So much so, that I installed a switch so that when I pushed it, the Minister of the Interior would call me and tell me we had a national emergency, like another magnicide attempt. That is why we have had so many press conferences to announce them. I just needed to get away from The Monk.

The problem is that I am not sure what to do now. Everyone gives me advice, I am supposed to make the economic decisions, but what do I know? Rafa says we need to devalue, Jorge (number 3) says no way, inflation will hit 100% and I would be given #lasalida, Meanwhile the Monk’s buddy in Washington seems to agree with Rafa, but says we should keep the price of gas where it is.

The wife says we should do nothing. It has worked for a year, she claims, why not push our luck. But I really don’t know Hugo. I like being President. I can be very funny, talk for hours, just like you, but I don’t seem to scare anyone. And some of those Generals are really scary. I don’t like going to the interior like you. I am a Caracas kid, as you know. So, I stay put, Teresa Carreño is as far as I go.

And the World Soccer Cup has been a bummer. Everyone wants to watch the games with me, but they all go for crummy teams, like Algiers or Bosnia-Streptomagma, the one I can’t even pronounce. I like soccer, I wanted Spain to win, now I want Gremany, but apparently this is not politically correct, I am supposed to go for Brazil or Argentina. But I am mad at Dilma, and you know Cristina was never very friendly with me. You never minded that she wore too much make up, but I told her she did. She said that is something a Foreign Minister does not say to a Lady. Go figure, I was only talking to her. I was just trying to be constructive. The make-up never seemed to stop you though.

So Hugo, things are tough. I need some guidance. The first thing I am going to do is like what you used to do when things were tough: announce the restructuring of something. I think that if I say of the whole Government will be restructured, it will sound really Presidential, don’t you? I can do it while the World Soccer Cup is going on, so that people will not follow it in detail and in the end I will leave everything the same. Nobody will remember by then.

But I really need a hand. You really screwed up leaving this revolution in my hands, so you better help. I propose the following: Tomorrow at noon (ok, ok, 11:30 AM because of that fool Navarro convinced you to change the time half an hour, which totally confuses me), while everyone is watching Brazil-Chile, I will go out to the small garden in Miraflores with my Ouija board. You show up in your bird form and I will ask simple questions, like devalue, increase gas, fire someone and you just push the Ouija in the right direction. OK? It’s the least you can do for me, now that you got me into this mess.

Hope you are fine, wherever you are. If you see Sai B., please say hi and ask him to given me a hand if he can too. I need all the help I can get.



P.S. I am still curious why you picked me, maybe when we are at the Ouija board, can you try to tell me? Thanks buddy, Patria and all that!.

P.S. #2: BTW, all these years we admired The Monk because he was born in San Pedro de Macoriz, where all great Dominican baseball players come from. It turns out he is from San Francisco de Macoriz not San Pedro (Did you read the letter?), different towns, no Pedro Martinez from there! What a fake! I bet he is not even a monk.

Jorge Giordani Leaves Cabinet: So Long, Farewell…, But…

June 24, 2014


Jorge Giordani (also known as The Monk) has been such a fixture in Chavez’ Cabinet and now under Maduro, that the last time he was removed from the Cabinet, this blog had yet to be born. And this blog is now almost twelve years old. And even if there is no written record of that departure in May 2002, I do recall a feeling of relief that Mr. Giordani had finally departed. Except his absence did not last much and Chavez brought him back to the Cabinet, more powerful than ever. At the time, Chavez’ intelligence police must have been subpar, as Mr. Giordani held meetings on Saturday at his home with his buddies, where he mostly blasted Chavez, his collaborators and their policies. Then last week, as I was on vacation, Mr. Giordani was fired once again, which gave me an immense satisfaction and almost pushed me into writing something on the fly, but I decided this deserved some thought, as Giordani’s now infamous document “Testimony and Responsibility in Front of History“, not only gives us an unusual glimpse at some of the dynamics of the last few years, but deserves careful reading. Careful not only to achieve accuracy, but also in order to interpret the true meaning of the impact , if any, of Giordani’s departure from the Government.

Simply, there are too many inaccuracies in both the contents of the document, as well as in some of its interpretations.

If anyone has read Giordani’s document, it is fairly dense and obtuse. His writing is not the most organized and clear in the world and sometimes thoughts and ideas are not properly structured. Thus, one has to read it carefully in order to understand what the former Minister is saying. I have tried to do that in detail. Punishing work.

To begin with, Giordani clearly admits that the Government and him personally, repeatedly violated the law, when he says “that in order to consolidate political power as an essential objective to strengthen the revolution..we managed with a huge sacrifice and with a financial and economic  effort which took us to have access and use resources at extreme levels…”

Nothing new there, Giordani has never been one to follow the laws of the Constitution. In fact, when he came to power he ignored the law of the Macroeconomic Stabilization Fund, first not contributing to the fund what the law stated, which was followed up with the use of the resources in that fund for objectives different than those established by law. But in that simple sentence, Giordani states that he and his buddies broke many Venezuelan laws. Because you can’t use public funds to finance electoral campaigns and you can’t use funds for a purpose different that what they were budgeted for, both of which are punished with jail. The anti-corruption law would say that Giordani and other Government officials committed fraud, misuse, embezzlement, corruption, abuse of the position for political purpose and influence peddling.

Giordani and those Government officials responsible for this would get at least 5 years in jail. Of course, the “new” left, the modern, populist, socialist left, non-democratic left only applies the laws to its enemies. So, the revolution forgives him.

But the “principled” Jorge Giordani goes even further, because he talks about corruption in Cadivi (later Cencoex) and his suggestion to President Maduro that he become Head of Cadivi to stop corruption. Well, by law, Giordani as Minister was supposed to denounce this corruption to the Prosecutor and he is directly accusing President Maduro of covering it up, when he says that Maduro did not accept his proposal on corruption, implying Maduro also failed to denounce it.

And I use the term “principled” Jorge Giordani on purpose, because I have seen the term used referring to him both in Chavista and opposition circles since he was fired. Suggesting Mr. Giordani has principles, when he is confessing to violating the laws, diverting public funds and using public funds for political purposes is like saying any criminal that sticks to his methods somehow has principles of any sort.

And this lack of ethics extends to Giordani somehow avoiding to note that many of the irresponsible policies implemented were his responsibility. That the same funds that he suggests are being managed in a corrupt way, were set up by Giordani in such a way as to avoid controls and that the excess expenditures and that loans to PDVSA and the growth in monetary liquidity approved by himself as Minister of Finance, member of the Boards of PDVSA and the Venezuelan Central Bank.

And I can not forget the Fonden funds that are still unaccounted for and took so much space in this blog and others as some US$ 30 billion are still missing from the ledgers.

And despite using the word responsibility in the title of his document, Mr, Giordani is absolutely irresponsible all over the place. For example, he says that President Maduro gave him “new” responsibilities when he was named Minister of Planning, but Mr. Giordani never ceased being Minister of Planning since 2002, he just somehow convinced President Chávez to merge Planning and Finance into a single Ministry. There was nothing new in 2013 for Giordani, he was simply removed from the control of the purse strings in Finance and moved to the less important Planning Ministry to think long term.

But his selective memory is amazing in not recognizing how the same system of exchange controls he helped implement, generated the corruption that he now wants to fight so badly. And by starting the timeline at the time of Chávez last days, Giordani evades talking about the secretive way in which bonds were allocated in the numerous Venezuela and PDVSA issues, or how the Argentinean bonds were used to feed in a very non-transparent and corrupt manner the swap system. To say nothing of the infamous structured notes or the buddies and even brothers of the revolution buying banks under Giordani’s not so watchful eyes.

And his testimony conveniently starts right after Giordani single handedly killed Venezuela’s capital markets when he tried to pass the blame of not being able to hold the parallel exchange rate in 2010, jailing innocent people and destroying some 5,000 jobs in a process which was controlled by Giordani’s trusted men, many of which made fortunes in the process.

To say nothing of the money spent trying to replace that capital markets system starting the foolish Bolsa Bolivariana (still around?) and now, four years later after getting mad at the brokers for a 30% devaluation of the currency, the all mighty Giordani-managed-controlled system has yielded a 1,000% devaluation in that parallel rate, now called the black market rate.

Way to go Monk!

But if there is one puzzle to me, is the excitement by the investment community over the departure of the Monk. Somehow, it would seem as if he was replaced by a Venezuelan that just won the John Bates Clark medal for Economics, instead of a talibanic Geographer responsible for the only default (Sidetur) of a Venezuelan bond in the last 20 years. Somehow we are expected to believe that Giordani’s departure opens the way for the magic adjustment that the Venezualn economy requires.

But wait! Haven’t you read the letter? Giordani says he has been out of the loop essentially since Chávez’ health deteriorated and certainly since Maduro became President. So, if I may ask, how has he been an obstacle to the implementation of this so called magic adjustment program?

I can go even further, read the letter again. The style is obtuse, but Giordani says that six things will require to be “revised” going forward,  including the price of gas and other subsidies, reduce debt issuance, devalue and reduce subsidies to public companies. (This has been also noted by Victor Salmeron) In fact, Giordani says he asked for a reduction of public expenditures, PDVSA’s increasing debt should be revised and so should internal indebtedness.

Sounds to me like Giordani was the pragmatist and not the other way around like markets seem to be suggesting.

In fact, what this all suggests is that the various factions within Chavismo can’t agree on policy going forward. The much needed adjustment, including raising the price of gas and at least removing the Bs. 6.3 per US$ rate is something that Giordani also wanted, and economic Czar Ramirez wants, but the military may not want at this time. What is clear is that the current Cabinet is as trapped in its own past and contradictions as Giordani is and was. The longer they wait the deeper in trouble they will be. The window to adjust, if you think politically, its short if you want inflation to go down way ahead of the 2015 Parliamentary election. But apparently they can’t agree on policy and Giordani’s departure may create more passionate stances, for and against.

Yes, it is good that Giordani is out because his thinking, as evidenced in his article, is retrograde and perverse. Giordani fails to recognize any of his errors. His radical pedigree going back to the Garibaldi unit is all he is proud about. He considers himself Caribeño, but seems to have more loyalty to his communist beliefs than to the idea of his own country, his Patria.

I am really not sure Giordani throws such an important monkey wrench into Chavismo. Unless he continues to speak up, his departure will quickly be forgotten, as those in control, many of which are in charge of the same corruption he denounces, will make sure his allies are silenced or else. Ironically, while he never publicly denounced corruption frontally, he was one of the few voices internally to speak up against corruption. However, in his mind the end justified the means. The survival of Chavez and the revolution was above all and thus he never spoke up publicly like he should have.

I continue to be very skeptical that a full adjustment is on the way. Giordani will not be missed, as the kids song goes: So Long, Farewell, Aufiderzein, Goodbye…Mr Giordani, you will not be missed, but your legacy of destruction and ideology will be really hard to erase.


Venezuelan Government Tightens Noose Around Its Citizens

June 12, 2014

photo(33)Somewhere where I have been recently. Any guesses?

I know I have been absent for a while. First, I went to Caracas and did not leave in a very positive note after all of the events of the last few weeks, but more importantly, I am on my yearly biking junket somewhere in the world, but before it starts I have been stuffing myself with the required protein for the task ahead.

As for Venezuela, things are getting worse. Not only worse in the sense of current events, but also in the sense that the Maduro Government has decided to do away with all semblance of democracy and in one swipe, it has extended the tenure of the members of the Electoral Board indefinitely. Recall that their terms expired a year ago, but now the Supreme Cort, using the same lack of judicial basis that allowed Maduro to become President, while Chávez was still alive, has decided they can stay there forever. Thus, Maduro and Chavismo have wiped their you know what with the 2000 Constitution, as we now have a Comptroller with an expired term by some three years, Supreme Cort Justices by one to two years and the all important Electoral Board by a year and counting. They could be there forever, as far as Chavismo is concerned.

Meanwhile, the Prosecutor (another one whose term will be extended forever?) not only continues to jail Leopoldo Lopez, goes after Maria Corina Machado and now, with her trumped up evidence, pretends that Interpol capture fellow blogger Pedro Mario Burelli, Diego Arria and Koesling. At the same time, the Prosecutor is asking student leader Gabriela Arellano to testify, together with human right lawyer Tamara Suju, all of which are suspected of conspiring against this dictatorial regime. Yeah, sure!

The case against Burelli, Arria and Koesling is laughable, as it is based on faked emails, Burelli has asked the Prosecutor to produce the headers for these emails, but of course, she can’t. Neither can she ask Interpol to capture people who have been cited only once, don’t know what they are charged with, have not been given the right to defend themselves and are obviously being persecuted politically. But more importantly, in the case of Burelli, he has not been in Venezuela in a while and last I knew, the Constitution only applies within the physical boundaries of the country.

But the strategy is clear, the Government is trying to intimidate everyone. And it does intimidate to think there is no law that can save you even if you are innocent and that you can be persecuted and prosecuted just because you fall on the wrong side of the authorities just because you have visibility or they feel like it.

And it plays well for the gallery, whether those in PSUV or those inside the Government that want to see Maduro being tough with the opposition.

Meanwhile, the Venezuelan media is being sold wholesale to the buddies of the regime with El Universal and Televen reportedly the latest casualties. And what this means is that most people will not hear about Burelli, Arria or Arellano or have an idea what it is all about as they swim in the sea of Chavista misinformation. Somehow, even if one can envision the end of this Government, it is harder to envision the dismantling of the media power built by the pro Government forces. The noose is working today, getting tighter and will be hard to loosen if this nightmare is ever over.

And in the corner of the world in which I work, I find it fascinating, if not perverse, that people actually find it positive that Minister of Planning Giordani was removed from the PDVSA and Central Bank boards. This is seen as a sign that the “pragmatists” are gaining power, as Minister of Finance Torre replaces him in the Central Bank.

Well, I find little encouraging in that for the first time ever, a member of the Board of the Venezuelan Central Bank is a former military with no economics and/or financial background. It is another step towards the military control of the country. But more importantly, Giordani remains, so far, as Minsiter of Planning, where his voice will continue to be heard. Until he leaves this position, I find it hard to be positive about the other moves. Giordani has always had an amazing ability to survive and resurface.

And in the end, this “pragmatism” that so encourages everyone consists of the creation of an exchange market, Sicad 2, which even President Maduro called a failure, or a  lack of success, this week. Given that Giordani opposed Sicad 2 and that it was the “pragmatists” that created it, I don’t see why next week Maduro may not decide to get rid of them too. In the end, Giordani was not in favor of the massive creation of money and his parallel funds are still around and the fight against inflation is no fight at all. In the end what is needed is new faces to come in. New people with some knowledge of economics and/or finance, as the “pragmatists” have never read more than a pamphlet on the matter in their lifetimes.

In the meantime I ponder on the high level of organization achieved by the societies that I am visiting, The infrastructure is awesome, most things function smoothly and there is respect for everyone, even if they think they have real problems.

They should read this post…

Notes from Caracas…

May 29, 2014


So much fun to go back to Caracas. You are excited when you arrive, but somewhat relieved when you leave. Some glimpses:

-Water. How easily one forgets about water shortages. It is so much fun to sleep in late on a Sunday, as you have nothing to do until later in the day. Stay in bed, read a book. Then, about 8 AM the pipes start making a gurgling noise, you realize that they are shutting off the water. Jump out, get under the cold shower. Shoot! You end up drying even the soap, not enough time. At least you feel clean…

Later in the week you go to the dentist. No water there either. Hard for a dentist to work with no water. His solution is simple, get a storage tank for his office. But it’s Catch-22, there is also a water tank shortage. Almost impossible to find one…

-Lunch and safety: Having lunch with fellow blogger Daniel from Venezuela News and Views. Small place within a nice Mall, where at least until now I have felt safe. Table next to the glass window. More tables outside the glass window. The lady sitting right outside the glass gets her handbag stolen. She screams  “Thief!”. Thief flees towards the parking lot. Shot heard from the parking lot. Daniel and I decided not to look into it. Better be safe.

-Rumor Merentes is on his way out of Central Bank. If the name I heard is the replacement, it is bad news. We shall see.

-Everyone talks about the airlines and the new prices and how expensive etc, etc. etc. Few talk about the lack of medicine supplies, basic pharmaceuticals and least of all, sophisticated ones. A paper reports that there are more amputations due to the lack of stents. Depressing.

-Maduro removes two opposition Mayors, elections are held to replace them and the respective wives of the removed Mayors win handily. VTV, the Government’s TV station does not even report the results. Bias? No way, would say anyone in Government. VTV did report the next day that PSUV accepted the results. What results,  would say a PSUV member that was distracted.

-And I refuse to write about the supposed conspiracy to remove Maduro, or the coup against Maduro or the “magnicidio” against Maduro. It is so silly and so faked, that in one of the purported emails sent by the conspirators, one of them was sent simultaneously from an iPad and from a blackberry device using T-Mobile. I did not know such devices combining both operating systems existed:

mailNot only do these guys fail to use Copy Paste properly, but you would think someone would check the work to be presented for errors and inconsistencies, such as this one.

Pretty cool though that the Mayor of Libertador talked about killing “President Machado”. Now we know what he is afraid of. Freud would be proud.

-And I am told that people no longer trust dolartoday as they used to do. Why? Friends suggest the real price is consistently Bs. 4-Bs. 8 higher than what that webpage is reporting. So, be careful out there.

-And Sicad 2 is becoming a daily sport for many. Go to the bank every morning to see if you get some that day. Get some, sell them at the parallel rate, go back to square one. Just don’t say you are buying in Sicad2 to sell higher. We have seen this movie before.

-Shortages: Many things are in short supply. Milk seems to be the most relevant one these days. Everyone in the office drinks black coffee now. Bakeries periodically have signs that say: No flour, no bread. But it usually lasts only a day or two. I did find Coca Cola this time around.


It’s not as bad as it sounds, the arepas are still delicious, so are the cachapas and this time around, it was Spondias Purpurea season, better known as ciruela e’huesito . Who can complain?

Another PDVSA bond…

May 18, 2014


This week, PDVSA announced yet another bond to be issued in the international markets. This time, a 6% coupon bond which matures in 2024, will pay one third of it in 2022, one third in 2023 and the final maturity in 2024. This is not your usual bond issue, PDVSA said that it would sell it to Government-owned public banks (which I take it includes the Venezuelan Central Bank) in exchange for Bolívars. And just like everything the revolution does, things get complicated, because with the many exchange rates in existence in Venezuela, the only thing we can be sure about is that it will not be sold at the parallel market rate, but one of the three rates sponsored by the Government, the Cencoex rate (Bs. 6.3 per US$) the Sicad 1 rate (Bs. 10 per US$) and the Sicad 2 rate ( Bs. 49.99 per US$ or some silly number similar to it, with decimals and everything)

You see, legally, PDVSA can not sell this bond at any rate different than the Bs. 6.3 per US$ rate to the Government owned commercial banks. That is what the foreign exchange agreements between the Government and the Venezuelan Central Bank (BCV) say. Under those agreements, PDVSA can sell dollars either at Bs. 6.3 per US$ or at Sicad 2, where it can sell dollars that did not come from producing oil. But clearly, this is not the case, PDVSA will not sell the bonds directly to Sicad 2, which is what it would need to do.

Thus, at first glance, it would seem as if the bonds will be sold to the banks at the Cencoex rate. Of course, Chavismo can simply ignore the law, it would not be the first time.

Now, PDVSA or the Government did not say anything else about the plans for this bond. Because, among many theories, the bonds could be sold in Sicad 1, Sicad 2 or they could be given by Cencoex to sell to those importers that are owed money from 2013. In all hypothetical cases, the bonds will be sold differently. For Cencoex, an importer would have to accept a discount. You see, the bond pays 6% per year, but Venezuela bonds trade at roughly a yield to maturity of say, 13%  around 2024, so that the bond in US$, if sold today, would trade around 60% of its face value. This means, that if someone was paid with it, they would only receive 60% of its nominal value.

I don’t know many importers which would accept such an offer, but you never know…

(It also means that the 30% payment to importers would go down to 18%, not an effective solution in my book to this problem)

Now, suppose you are a Government-owned bank and your bank is given US$ 50 million at Bs. 6.3 per US$. If you sell it at the Sicad 1 rate, you will get Bs. 10 per US$ nominal value. Your bank makes a tidy Bs. 3.7 per US$, you bought at Bs. 6.3, you sell at Bs. 10.  That is a nice 58% profit for doing nothing.

But there is a better deal. If you sell the bonds in the Sicad 2 system, you will sell the cash value of the bonds (60% of nominal value) at Bs. 50 or an effective Bs. 30 per US$ that you purchased for Bs. 6.3 per US$. That is a Bs. 23.7 profit per US$, almost 400%… (Who cares about decimals, no?)

Only in Venezuela…

So, what’s a bank’s President to do? Supposedly, they will follow orders, to sell x per cent in Sicad 1 or y per cent in Sicad 2. But do you really believe that this uncoordinated, mismanaged, every-man-for-himself Government will or can keep track on what happens to all these bonds? I don’t. I think there is an order to sell in Sicad 1, but soon every bank will do whatever it pleases its President, not Ramirez or Maduro.

But think about it. PDVSA, the issuer of the bond, is getting little benefit from it. It now has more debt at US$ 48 billion, but the apparent beneficiaries of the bond are the local banks and the BCV that sell it into Sicad 1 or Sicad 2. Moreover, PDVSA is issuing it with such a low coupon, that even if it is a bond issued only to satisfy the bizarre foreign exchange system of this Government, it only really generates about US$ 3 billion out of a US$ 5 billion issue in real money that can be used by importers.

But it does little to help PDVSA with its investments or its huge (and increasing!) debt with the Venezuelan Central Bank. Nor dos it help the company in its investments needs, it only allows the revolution’s stupid and increasingly dumb and complex foreign exchange system to survive a little longer.

In fact, think about it, PDVSA seems to be more worried about annual coupon payments, taking a 50% discount on it with the low coupon, than in the final payments in ’22, ’23 and ’24, which only take a 40% cut. Maybe they are not even sure they will be around to pay at that time,  and are throwing another Hail Mary pass at the revolution’s survival.

And thus PDVSA becomes the oil company with the second highest debt in the world (after Pemex) except that the money is in Bolívars and will have little impact on PDVSA’s production, as the debt is only being issued to help the revolution survive.

As to the debt, PDVSA’s or Venezuela’s, it has gone up too much for my taste.Foreign investors really believe there is some form of pragmatism in Maduro’s Government. If Ramirez is the pragmatist, God help Venezuela! I don’t think Venezuela or PDVSA needs to default, but you never know with these guys. I would wait again until yields get to 18% or so before buying. The bonds could lose 15% again at anytime like they did in February, given the Government’s policies. To get that risk and volatility, I have to get paid, 13% yield just does not cut it. There will be a good buying opportunity, Argentina does seem to have real pragmatists to park the money in the meantime.

Venezuela: Where Is The Money? (¿Donde están los reales?)

May 7, 2014

As foreign analysts talk up the “pragmatism” of the current Venezuelan Government and Venezuela and PDVSA bonds soar, one has to wonder where the money is. After all, with shortages and inflation at an all time high, you would think this “pragmatic” Government would make a huge effort to reduce shortages by giving our foreign currency to importers to guarantee supply.

In my mind, the moment is now, not 2015. With the Government’s popularity at 21%, this is the time to adjust an really  be pragmatic. Instead, the only “pragmatism” has been that the Sicad 2 rate was higher than anyone expected. The rest, is so far wishful thinking, from currency unification, to any increase in the price of gas.

It is a case of “Show me the money”. So far, I have seen very little.

Thus, bonds go up on three acts of faith:

-The Government is “pragmatic”

-Oil will not go down in price.

-The parallel funds have the money the Government says

(And there is a corollary: The political cost of defaulting is too high. Ummm, I have heard that before: The political cost of firing 20,000 PDVSA workers is too high. The political cost of jailing Leopoldo Lopez is too high and so on and so forth, you get the idea)

Meanwhile, let’s look back at Cadivi approvals  for imports in 2012 (no data for 2013):

2012The important numbers here is that in 2012, the Government gave importers in twelve months US$ 18.18 billion  or US$ 77.7 million per day.

Well, today, Cencoex released the number for the first four months of the year, and this is the same data for imports:

CencoexWell, this 2.827 billion in four months for imports, which is equivalent to US$ 8.481 per year, substantially below the US$ 18.2 billion of 2012. And if you think Sicad 1 or 2 explains this, let me remind you Sitme was around in 2012 at daily average levels near or above Sicad 1 and Sicad 2 combined so far this year.

That is a factor of over two difference. So, if you have felt the shortages this year, the quantitative explanation is right there: A third of the money, a third of the goods.  And shortages, of course, create inflation, as there is too much money chasing too few goods.

So, if the Government has so much money in the parallel funds and if oil is high and you have become ¨pragmatic¨, why not use it? What are you waiting for?

For the Government to reach 10% in popularity? Really?

Which only leads to the question Luis Herrera used to ask: ¿Donde están los reales? (Where is the money?)

I have absolutely no idea, it may not even exist…

Tales Of Bolivarian Inefficiency IV: Puerto Cabello’s Bermuda-like Triangle

May 3, 2014

One of the nice things about having faithful readers, is that I sort of get copies of videos, documents and papers (like this one) making sure that I seldom miss important stuff. Sure I get stuff twice or even more times, but it is an incredible source of information, so thank you all. Once in a while, readers write to tell me stories, many of which I would not know about in detail if it were not for them. Sometimes, these become a post. This is one of them.

Chavismo thinks that it can hide incompetence and inefficiency. But modern tools are pretty incredible. Chavismo also seems to believe that it can do anything, run any enterprise. Their infinite belief in the power of the State and their own ability is simply scary. Take imports. In its war against the private sector Chávez began importing stuff from all over, just to bypass the local private sector. In his mind, if there is no toilet paper, or corn, or wheat, it is just a matter of importing the stuff and magically, it will show up in the shelves of local stores.

Except in reality, the path is an extreme adventure in inefficiency. It starts with how much is paid for the stuff, as there are bribes and commissions at each step. Then, there is the problem of what to bring. Some bureaucrat in Caracas decides to import paper towels and corn and, in a few weeks, people are using the towels in lieu of toilet paper and making corn bread because there is no wheat.

Except that it is not even that easy, because to get stuff from say, Brazil, to the Venezuelan consumer, the stuff has to go through the Puerto Cabello Bermuda-like triangle, where ships don’t disappera, but they do get lost for a while:


You see the port responds to the whims of Chavismo, as it is run by Bolipuertos, which is 49% owned by Asport, the Cuban port authority. This is not an easy fact to dig out, as they try to hide it deep in the webpages, but go to slide 22 of this page, and it is clearly spelled out.

This means that if it is May Day, like yesterday, many of the dock workers are bussed to Caracas to participate in the Maduro march. That means tough traffic to get in and out of the port, little unloading and almost no cargo going in or out.

But Puerto Cabello is like a Bermuda triangle, where ships get lost in time, as they arrive, spend weeks and months waiting and then too much time unloading. And time, my friends, means cost and money for everyone involved.

What my friend and reader taught  me (let’s call him DD) is that in the maritime world you can’t hide. Each ship carries  an AIS (Automatic Identification System) which is sort like the black box that airplanes have, allowing all ships to be tracked. There are websites like this one or this one, where you can follow each step of what is going on. I actually subscribed to the first one for a while ,so I could go back 60 days and follow the ships. In fact, you can even add alerts to keep track of ships.

This, for example, is an overview of the part of the Caribbean where Puerto Cabello is from the first site I linked to:


The first thing you note is how much movement and density of ships there is near Aruba and Curacao (Ships moving look like little arrows, rather than diamonds, which are vessels that are not moving), while around Venezuela everything is so static. (If you go to the webpage, you can even tell how fast the ship is moving by putting your mouse on it). Obviously, comparing the size of the three economies, you would expect much more movement and density around Puerto Cabello. But such are the ways of the revolution…

In fact, you can zoom in and see how little movement there is inside the port itself  (Colors are what type of ship it is, tanker, (red), cargo (green), passenger (blue), etc.):


You can dig even deeper, blowing up the port to the level of street detail, if you know the port, then you know where the grain elevators are, for example. Thus, if you know your stuff, you can tell what type of ship is at each spot, even if the system tells you most of the time.

Here is a detailed picture of  what was going on in Puerto Cabello, yesterday May 2nd. 2015:


In fact, you can click on any of the ships and you can get all sorts of information on each ship. For example, if you click on the second green ship below the point in the middle, you get this window:


Note that you can check out the vessel’s track, history, itinerary. And in vessel details you can get even more pictures and find out this ship came from Norfolk Virginia, for example. If you are subscribed, then you can see when it arrived in Puerto Cabello, when it went to port and the like.

And here is where you find that Puerto Cabello has become almost like the Bermuda triangle: Companies send ships in, but they never know when they will come back. First, they arrive at port and have to wait for weeks, sometimes months, to get into the port to unload the cargo. As an example, last November, the 27th. to be exact, the M/V UBC Toronto left New Orleans loaded with corn. The trip takes about 8 days. Thus, it should have arrived in Puerto Cabello  around December 8th., the 9th., at most.

Well, on February 24th. this ship was still sitting in the same spot outside Puerto Cabello, waiting to be unloaded. We are talking more than seventy days later! It finally left Venezuela at the end of March (I did not follow its course and my subscription expired!), arriving back in the States on April 9th. that is a four month trip, for something that should only take three weeks, two traveling and one unloading.

This not only costs money, days inside the port cost on average US$ 15,000 per day, but think about it, this ship was loaded with corn at a time that Venezuelans are experiences shortages in Harina Pan to make their arepas!

Chavista management is clearly an oxymoron…

There was another ship, which arrived right before last Christmas, which was unable to go into port to unload until after two weeks anchored at sea. Well, this ship was still in Puerto Cabello unloading at the end of February, more than 8 weeks later. And it did not leave until the first week in March, which means that at $16,000 per day for roughly 60 days, the trip cost an additional US$ 960,000 for the trip.

Guess who pays for this?

So add it all up. In most of the world, workers unload, on average, about 5,000 Tons per day, from a vessel with peak rates of about 10,000 Tons in very efficient operations. In Venezuela, with luck, you may get to 1,000 Tons per day, but rates can be about half that much. This adds costs from US$ 10,000 per day, all the way up to US$ 20,000 per day, for up to two or three months. Given that a shipment may be worth US$ 10 to 12 million, this becomes a very expensive proposition. (Not to mention graft, overprice, commissions and the like)

Add it all up. This is the cost of the ports being under the inefficient Chavista management, under the advise of Cuban consultants, which not only charge for it, but turn out to own 49% of the company running the ports (They probably paid nothing for it). And, of course, being in charge of the port is juicy business, with Generals or whatever their rank may be, fighting for the top spot regularly (Last year, the port had four different Heads, with each new one requiring to learn the job from scratch, They probably never did, except to learn at which step you could charge something)

There are many other stories surrounding this. DD told me how a ship used in the oil business, costs about US$ 400,000 per day rental, US$ 230,000 if not in use. Just bringing it to Venezuela, if it is in Europe, for example, costs about US$ 2 million. Well, one such ship was brought to Venezuela last year from Europe. By the end of March it was still there, sitting around, doing nothing.

Chavista inefficiency at its best!

Meanwhile, maritime operators tremble at the thought of having to send a vessel to Puerto Cabello. It is the Bermuda triangle backwards. Your ship always disappears when it goes into the area, you just don’t know when it will reappear!

And these guys think hey can keep doing this!

(Thanks to DD for the tip and the info)


Tales Of Bolivarian Inefficiency III: Chávez’ Frozen Cuban Dream

April 30, 2014

Despite all of the problems at Ultimas Noticias, the reporters there keep turning out some of the best investigative pieces in Venezuela. This time, it was the turn of Lisseth Boon in her excellent piece about Helados Coppelia, which can also be entitled Chávez frozen Cuban dream.

To put it in perspective, Chávez was such a Cubanologist that despite the long tradition of ice cream in Venezuela (Tio Rico, Efe, Castellino, Crema Paraiso, 4D, Versalles), rather than promote local brands, Chávez did the opposite, trying to promote and bring to Venezuela the Coppelia brand, his hero’s Fidel Castro’s creation. Castro created Coppelia in 1966, much like Chávez, it was his idea, nothing was done in Cuba that was not Fidel’s idea. Well, Efe and Tio Rico and Castellino (which made killer frozen lemonade) were around in Venezuela well before then. I can prove that Efe was here before 1966, in the only picture you will ever see of The Devil in this blog, here is the Devil eating Efe ice cream circa 1951 or 1952 (Vanilla, of course!):

efe(Saintly, no?)

Yes! I am proud of my ice cream heritage and taste!

Chavez was not…

Instead, Hugo went to Cuba and brought the Copellia brand to Venezuela. In 2012 Chávez inaugurated the Copellia plant and called them “the best in the world”, which clearly showed he was not much of an ice cream eater.

And because every project in Venezuela since 1999, was Chávez’ project, despite his  keen interest in it, Coppelia, much like the rest of the projects, did not work out well. In fact, barely three weeks after the inauguration, the plant was closed. Somebody told Chávez something was wrong, he even suggests that Fidel called to complain. Then, on nationwide TV Chávez complained to everyone:

and the then Minister of “Efficiency” (today Minister of Defense, clearly a justified promotion) Carmen Melendez, told Chávez then, that the plant was closed because a machine broke down, there were not enough supplies and they did not have a sufficient number of containers to put the ice cream in.

Chavista planning at its best! We are talking only three weeks.

Long term in their attention span.

Well, as Ms. Boon reports in Ultimas Noticias (kudos to her!), things have not really improved much. There is only one Coppelia ice cream parlor (Gradillas a San Jacinto) in Caracas and some 72 spots where you can supposedly buy the stuff.

Except sometimes you can’t

Compare that with thousands of places you can buy Efe or Tio Rico or Crema Paraiso and I know at least five 4D ice cream parlors, with even one in Miami Beach.

But much like anything else, Chávez preferred to promoted foreign ideological stuff, even if it was ice cream, than successful Venezuelan ones and enterprises.

Chávez initially promised that Coppelia ice cream would be made with Venezuelan products and supplies. Milk products from Lacteos Los Andes (now practically bankrupt), sugar from CVA Azucar (now shut down, see first post) and orange, guava, mango, peach and coconut.

Well, 18 months later and now Chávez is dead, Coppelia produces ice cream, mostly creamy flavors, in irregular and limited fashion. Raw materials and supplies are all imported. Forget about all those fruit flavors, but its manager says raw materials come from Lacteos Los Andes, which is practically shut down.

Go figure!

But, a different raw material, money, is not in short supply for Coppelia. In March the plant received an additional Bs. 12.1 million in Venezuela. This adds to the funding in 2012 and to the US$ 4 million given to the Cuban Coppelia in 2013 to “increase its production”

But, in 2013, the milk came from Nicaragua, while powdered milk was imported in 2013 to the tune of 187 thousand Tons. But ask the manager, and it is all Venezuelan. As for the fruit juices, the same manager of the plant said almost a year ago that “in a few weeks fruit flavors will be on the street”

But we are still waiting.

So, much like the Bolivarian revolution, Chávez’ frozen Cuban dream is just that, an ill-conceived dream, a Presidential and Bolivarian whim, with little to show for it.

I wonder who the Minister for Efficiency is today? Just asking…

Next:  Tales Of Bolivarian Inefficiency IV: Puerto Cabello’s Bermuda-like Triangle

Tales Of Bolivarian Inefficiency II: The “New” Venezuelan Steel Industry

April 28, 2014


Continuing on this short (or long, maybe) series of Tales of Bolivarian Inefficiency, this time we look at something that you may have missed during Easter or Holy week, as the Chinese Vice-Premier came to Caracas and signed a bunch of contracts with various Government institutions. As usual, the details are scant, but the steel and aluminum agreements are certainly intriguing and appear to be a waste of money.

The “New” Venezuelan Steel Industry

While many people were on vacation or resting over the Holy Week holiday, China’s Foreign Minister Wang Yi was in Venezuela and is usually the case in these visits he was accompanied by a number of representatives of Chinese firms and institutions to sign cooperation agreements.

Two of the agreements are loans, which are part of the Joint Chinese Venezuela Fund, which were signed by none other than Diosdado Cabello’s brother Jose David Cabello, who mostly announced them via Twitter. But there was a press release and as is customary in topics relating to Guayana, Damian Prat was on top of it.

The steel project is perhaps the strangest one. This contract with China Minmetals Engineering Co. Ltd, Chalieco, involves according to what little has been informed, to purchase and install a continuous smelter for round products in order to continue diversifying the steel products that Sidor produces. Supposedly, this will allow for the production of an additional 700,000 Tons of steel products. This steel will in turn allow for the production of pipes in a new plant.

Now, as Prat points out, this makes little sense. The Chavista Government nationalized in 2008 the Tavsa pipe plant and immediately proceeded to shut it down, in order to start importing the same pipes from China. the question is then, where is this new plant and why instead of starting a new project, doesn’t the Government revive Tavsa, which has received no funding and sits there languishing after six years.

But more importantly, where is the steel going to come from? When Chávez nationalized the Sidor plant, it was producing 4 million Tins a year of steel. Today, six years later, it is expected to produce less than 1.5 million Tons, the amount produced in 2013. This is insufficient to satisfy the demands of the Venezuelan market, let alone to supply any new plant. Why are they building something new, instead of using the money to restart Sidor and Tavsa and invest in parts and supplies to get them going?

What is most ridiculous is that, much like in the case of the sugar processing plants, Cabello, who is new in the Ministry for Industries said: “Recovering companies that were abandoned has been a characteristic of the Bolivarian Government. We will work as a team to fulfill this …”

Well, we don’t know what other companies he is referring to that have been recovered by the fake revolution, but in this particular case, it was his idol Hugo Chávez that nationalized these companies, which then began receiving no backing, no funding, no financing and were mismanaged. This is why they are  in the deplorable state they are in.

But the mystery remains about the new pipeline plant that Cabello referred too, as nobody knows of such plans. So, even if ture, if the new plant does not exist, what is the point anyway.

Separately, Cabello also announced a contract with Challieco for US$ 500 million (how easy they throw these figures around!) to recover production in Venalum. The same company was hired in 2011 to build parts in China for Venalum, which for forty years had been built in Venezuela. The debt was incurred, but as far as anyone can determine, nothing was ever installed and it is unclear what happened with the U$ 403 million.

In the meantime, this financing has to be paid someday by future generations and the revolution is deaf to the questioning about the projects. Where is the money? What was it used for? Did someone pocket it? Who made money when Tavsa was shut down and its production replaced by Chinese imports? Who is responsible for this disaster?

You can’t ask these questions because largely, the same actors that were in charge then are in charge now.

I wrote earlier about the book by Prat Guayana: The Upside Miracle, the destruction of Tavsa and Sidor is all documented there. But the decimation of the country continues in the name on the revolution. And nobody in Governemnt does or says anything. In fact, they continue the destruction and the mindless indebtedness of the country.

Next: Part III: Chávez’ Frozen Cuba Dream



Tales Of Bolivarian Inefficiency I: Sugar Processing Plants

April 26, 2014


Coming to Caracas, one is bombarded with stories. Just watching Maduro in his now almost daily tirades on how he will restart the economy and save it from economic war, would give enough material for what has become a truly bizarre dictatorship, presided by someone who has no ability to diagnose neither the problems, nor the solutions to the mess created by the revolution.

But one area that has caught my attention is the ability by the Bolivarian revolutionaries to disregard or dismiss the many failures of the revolution and describe how they will certainly fix things going forward. Sometimes they don’t even bother to acknowledge that the mess created is their own, talking as if some other Government or group of people was responsible.

Maduro is the first one to talk like this. This week, he has talked about a “new economic model” and the launching of a new age of powering local production, as if it was some Martians that replaced local production with cheap imports subsidized by cheap foreign currency, while the private sector was obliterated, persecuted and nationalized by the Bolivarian revolution.

But there were some announcements this week or during Holy week, or stories, which simply need to be told as they perfectly exemplify and describe the inefficiency and improvisations of the Chavista revolution.

Part I: Sugar Production and Processing

Sugar and sugar cane processing was one of the first areas in which the Chavista revolution decided to intervene some thirteen or fourteen years ago. The Government did two things: It nationalized existing sugar processing plants and imported others from Cuba and under Cuban “expertise”. The argument was not only that the Government could do a better job, producing more and cheaper sugar, but that it would eliminate monopolies and stop the exploitation workers.

Move forward thirteen years and Government plants barely produce 26.7% of the sugar in Venezuela and the companies were losing so much money that the Government last year decide to “restructure” CVA Azucar, the holding of the processing plants in order to make it more efficient. Except that was simply an excuse. By eliminating CVA Azucar and replacing it with the “new” and improved Corporación Venezolana del Azucar (Coincidentally also CVA) what the Government is doing is bypassing its own decrees, which do not allow you to fire anyone. Unless, of course, the company is being shut down.

Thus, the Government that wanted to eliminate the “exploitation” of the workers, is using this legal subterfuge to fire workers and eliminate unions, as both the unions and their leaders were part of the now extinct company.

Nice trick, no? You fire workers and get rid of unions all in a single and somewhat fictional stroke!

Oh! The pretty revolution!

And this is all happening because these companies, which were emblematic of the Chavista revolution, became bloated by cronyism, inefficiency and disregard for productivity and profit.

In fact, General Wilfredo Silva, the President of the recently created new and improved CVA, defended the practice and described how inefficient these companies were. All said, as if the original companies had been bloated and created by a different Government.

The General gave the example of how in Brazil, a sugar processing plant which processes 9.6 million Tons a year, does it with only 390 workers. In contrast the Central Portuguesa plant, which processes 3.6 million Tons, does it with almost twice the number of workers with 700. Or the Sucre Central, which processes 288,000 Tons also has 700 workers.

But there is no remorse. According to the General, the Socialist system under the revolution is the correct one and under his new management, which may last just a few months if experience is any indication, what has not happened in 14 years will magically happen now. There is no reason to return the expropriated plants to its rightful owners to continue “exploiting” the workers.

Sure General, because we can think of so many successful examples under the revolution of successful enterprises, except we can’t really recall the name of a single one…

Next: part II: New Steel Projects…The “New” Venezuelan Steel Industry


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