Archive for the 'Venezuela' Category

The Maduro Government Has Become Totally Insensitive And Cynical

February 27, 2015

20141105_TALC1_1_1_F1

When I began this blog, my objective was to show to those abroad how Chavismo’s claims were always exaggerated and inaccurate, how history was being changed and how Chavismo twisted the truth and the law just enough to get its own way to kidnap the State and its institutions. This objective of this message was achieved long ago, thanks to many people, blogs and institutions.

What Venezuela faces today is quite different. All institutions of Government, checks, balances and the rule of law are in the hands of the same ideological party and Government. Media is mostly controlled by Chavismo, and what little is not, is either being asphyxiated by the Government (Tal Cual is shutting down its daily edition today due to the lack of newsprint) or uses self-censorship in order to avoid confrontations with the Government.

But the level of paranoia and indolence exhibited by Government and PSUV officials has now reached levels of insensitivity that even after observing Chavismo for sixteen years simply flabbergast me.

Upon the death of a 14 year old school boy this week in the hands of a member of the national police, the Government machinery immediately began spinning the murder . The facts are clear, the kid was leaving school and was caught in the middle of a demonstration, he hid under car and a policeman pulled him out of  from under it. As the kid started telling the cop not to repress them, the cop simply shot at his head, with whatever type of gun he was using, killing him. As if this was not sufficient, the cops then tried to drag the body away with their motorcycle, but they were stopped by the friends of the kid and the protesters who simply could not believe what was happening.

Before any specific facts were known, Maduro, who was in Trinidad, made statements suggesting that Colombian paramilitary groups had infiltrated the country into San Cristobal (where the murder occurred) and that the kid belonged to a right wing sect…Yes, he was the member of a Boy Scout troop. Maduro also spewed out all his usual vile about the US wanting to overthrow him, the right wing opposition and the like.

Soon after that, the General Prosecutor said the cop had been detained and would be charged, among other things, with using an illegal weapon in the control of protests. This was clearly denied by both the “People’s'” Ombudsman and the investigative police, both of which said that the kid was killed with a gun that “only” shot plastic pellets. Witnesses said that the wounds the kid had in his head were not consistent with plastic pellets, as there were deep gashes and burn marks around them.

By now the Government in its cynicism, is portraying (The Prosecutor dixit) the cop and the kid both as “victims” of the right wing. Yes, the young cop is also a victim, but it is a victim of the hatred and indoctrination of the police corps, where human rights and respect are not promoted. Instead, it is a culture of repression and hate which is promoted daily in these organizations filled with loyal members of Chavismo.

And the Governor of Tachira State, gets all worked up because people are calling for the abrogation of Decree 8610, the same one that allowed the use of guns by the armed forces in the control of protests, because the murder of the 14 year old kid “had nothing to do with that decree”. Of course it does, when the Minister of Defense calls a decree which violates Human Rights agreements “beautiful”, the murder of this kid has everything to do with the culture and the atmosphere of repression created by Chavismo in Venezuela.

And to prove this point, in the last week, six young kids, all under 23, all near protests or protesting or detained during protests, were either shot dead in the head or found later shot in the head. All were students. none ever detained before.

By now,  the Government is giving, in some cases, “alternative” explanations to these deaths…

Meanwhile, the new media purchased by unknown foreign investors (not allowed by law, but who pays attention?) does not even report the death until hours later, suggesting the students were all attacking the cops or part of the demonstrations. Meanwhile, the “Dean” of Venezuelan Journalism, who presides over one of these, Ultimas Noticias, says he does not even know who purchased the newspaper, but they want to have a “different medium” and defends the concept that some sort of weird coup was indeed staged against Nicolas Maduro.

What a sad and cynical role this supposed “Dean” of Journalism and freedom of expression is playing in the Venezuelan tragedy.

And just as you think you have heard enough, Maduro tells the world (if it was listening) that the world’s powers have to “rationalize” the use of  oil. Funny point to make, from the leader of a country which has doubled daily gasoline consumption since 2001, by giving it away for almost free. But as if this was not enough, he called for the use of clean energies and techniques. I guess he is so concerned with the environment, that this is why he eliminated the Ministry of the Environment last year.

But the beat goes on for Chavismo. The lines at supermarkets are invisible, non-existent and just part of the economic war. The protests are led by USA trained and backed 20 year old students, inflation is not a problem and God will provide. They hope.

And as the family of the 14 year old that was murdered buries him, there are no words of condolences, no expressions of compassion. Just a warning that if the opposition gets pesky and the protests over the deaths, or shortages, or inflation continue, the Government may be forced to ban the opposition, so that it can proceed to have elections in democracy and peace later this year.

Such is the cynical logic of Chavismo/Madurismo today. There is no gray area anymore, just cynicism and insensitivity for all …

 

 

Venezuelan Government Flip Flops Between Pragmatism And Radicalism, But…

February 8, 2015

biceLines at a Government owned supermarket in the middle of Caracas, almost daily now

Some people have written to me, asking why I have been so quiet, when so much has been going on in Venezuela with the takeover of Farmatodo and Dia Dia and the jailing of its owners.The reason is simple, yes, there is a lot going on, but to me what happened to Farmatodo and Dia Dia is more of the same, going back to the takeover of the Coca Cola warehouse way back in 2003 and going thru the nationalization (and destruction) of Agroisleña, or the Dakazo, or so many takeovers, nationalizations and jailings that have taken place under the Chavismo Dictatorship.

After all, Chavismo took over Dia Dia, a company founded in 2005 only to serve the lower strata of the population, the sort of project the Government should back and promote and not destroy, which is all it is doing by taking it over. After all, it is merging it with the Abastos Bicentenario (and stealing its inventory) , which was created when the Government forcefully took a majority stake in Cativen and its Exito hypermarkets.

They have not been the same since and have lines as long or longer than those of the private sector.

Thus, there is really nothing much different happening with the events of the last few days or weeks. What is puzzling, and I don’t have the answer for it, is why Chavismo (or Maduro) takes this self-destruction route. If I knew, I would have written a post about it.

Because what the Government is doing is sending very mixed signals. On the one hand, it dollarizes airline tickets, airline cargo and talks about a new “market” (I doubt it!) for foreign currency at a higher price than Sicad 2, but on the other, Maduro keeps confronting, threatening and acting like a Dictator, despite the fact that his popularity is in the low teens, according to the latest polls.

So, what gives?

I don’t know. The Comandante Eterno used to do the same thing when things got tough, but he was Chávez and Maduro ain’t. So, either Maduro is getting bad advice or he is full of himself. Personally, I don’t think Maduro can last this way until the Parliamentary elections. He can last, but he will have to repress a lot of people in order to survive.

But we don’t even know whether Maduro is completely in charge or whether others are telling him what to do, including his wife Cilia.

But I am sorry to tell you, the Government is not acting as stupidly as many lead you to believe. To start, they got US 1.9 billion from the Dominican Republic, which purchased  its Petrocaribe debt at less than half price. Then Citgo sold US$ 1.5 billion in a 2022 bond at a yield to maturity with a coupon of 11.5% and borrowed an additional US$1 billion from banks by pledging terminals and its shares. Not bad, US$ 4.5 billion at the blink of an eye in Maduro’s coffers. Jamaica could do the same and then Maduro may decide to close his eyes and send the gold to London and problem solved for 2015. Yeap, just like that, we are thinking 2016 and not 2015.

Oil is a many splendored thing indeed! Except Venezuelans are in charge…

My guess is that Maduro is betting (hoping?) that oil bounces from here and PSUV can keep control of the National Assembly. A tough and balancing act, given that the country will only feel the under-50 oil prices in March and April. Lines could indeed be long by the time Easter week comes around.

Yes, they are likely to become longer…

But things are really paralyzed right now, as the private sector awaits a foreign exchange system that I don’t believe will be functioning before Easter. Yeap! Think about it. You need to change the Illicit Controls Bill to allow the new market to function. This is at least two weeks from the time of he proposal, since it has to be approved by the National Assembly. Then, you need to issue the new foreign exchange agreement between the Government and the Central Bank, which is just a decree, but it has to follow the the Bill approved by the Assembly. After that, you need to issue the regulations for the market to function. Given that in one week Venezuela and its Government will be paralyzed by the Carnival holidays, even Easter may seem optimistic for this indecisive Government.

Which in the end is the biggest handicap of the Maduro administration. It is not only indecisive, but it has no clear view that a really free floating fx system will be any better. Except someone has told them to stick with it. And they want to try it out, but not everyone agrees.

So, we enter a very uncertain period, with many surprises possible. It is truly uncertain territory with a very indecisive and flip flopping Government. But it is clear there is a short term strategy in place, hoping for the best in the long term. And it will likely fail, leading to uncertainty, chaos and social unrest.

Not a pretty picture…

 

 

Maduro’s New Script

December 9, 2014

PDVSA22

PDVSA 2022 bond in the last three months. It was losing 14% of its value today, with a yield to maturity of 31.4%

As Venezuela and PDVSA bonds were tumbling today (see graph above) on their worst day in memory, people were taking Maduro’s words about the country’s inability to borrow in jest. But think again.

For the past four or five days, Maduro has been following what is clearly a new script. He began by attacking the US Embassy, saying he would reconsider the relations between the two countries, as the local Embassy was a constant source of conspiracies against Venezuela. He followed up by insulting the Head of the IMF, Christine Largarde, saying she had spaghetti in her head and finished with saying rating agencies were conspiring to push Venezuela into default by giving the country a credit rating below what it deserved.

Last night, Maduro went back to the narrative, blaming credit agencies and saying that Venezuela was suffering from an economic blockade for political reasons that made it such that the country no longer had access to international loans or financing.

You may laugh all you want at what he says, but I don’t. He is making a very specific narrative out of all this and I am not sure where it is heading. It may be that he just wants to blame  the US for the intensification of the crisis in the next few months or simply, that he is preparing the ground in case there is no money to pay international investors. There is a one billion Euro payment in March, which looks doable, but there are much larger maturities in October 2015. But investors have so far believed that Venezuela had a “willingness” to pay, and the action in the markets today indicated some people were losing faith.

It did not help that Bloomberg reported today on a meeting with investors at a New York law firm, which actually took place like ten days ago. This meeting actually ended in a somewhat positive note, as many suggested that Venezuela and PDVSA could not get away with a restructuring below current prices for most bonds, as the oil cash flow would not justify it.

Meanwhile, the adjustment continues, very few things are being imported and long lines have begun appearing at gas stations, a suggestion that PDVSA may be importing less and gasoline is being selectively distributed.

gasolinera

But I would take Maduro’s words seriously, he is following the script, wherever he wants to take it…

 

 

Say What? Venezuela Sold What To Goldman Sachs?

December 2, 2014

fe

Most people ended up looking like the guy above when they read this morning the headline in the Herald : “Venezuela sells to Goldman Sachs part of its oil debt”, an article that is actually not that well written, as it says that Goldman Sachs “earned” 59%, which is incorrect, Goldman Sachs would only “earn” that if it waited 20 years for the Dominican Republic to pay the loans. Time is money and money earns money over time.

What the report claims is that Venezuela sold Goldman Sachs the debt that the Dominican Republic has with Venezuela, because PDVSA has been selling oil for years to this country, whereby, the Dominican Republic pays 50% upfront (which varies) and the remainder for 20 years at 2% interest rate (which also varies, but let’s keep it simple). After all these years, that country has a debt of about US$ 4 billion with Venezuela, which it will have to pay interest of 2% per year and eventually pay all of the US$ 4 billion. What the article claims is that Venezuela sold this debt for US$ 1.7 billion, or a 59% discount.

My understanding is that this is not a done deal, but it is close to being completed and that in the end the buyer is none other than the Dominican Republic itself. Let’s assume it is true and explain it.

Suppose you lend $1,000 to your buddy, you trust him, like him, much like Petrocaribe and Chavismo likes to have the votes of Caribbean countries. Thus, I tell you let’s do this: You pay me 2% (all of twenty dollars) per year and twenty five years from now, you pay me my $1,000. This means that at the end of the 20 years, I will get $500 in interest and my $1,000.

Except that in five years, I am in trouble, lost my job, but you can’t pay me when I ask and you have only paid me $100, still have to give me $400 in interest in the next 20 years as well as my original $1,000. So, I go to another buddy and ask him at what price he would buy this debt from me and you pay him the interest. My buddy says: “Well, I don’t know him, so, for me to be interested, I would have to buy it from you at 40% of its value, so that I get paid 5% per year (the same $20 per year) and in the end he gives me $1,000 for the $400 I paid you, that means I get $600 additional dollars at the end, or about 30 dollars per year additional in interest. I don’t know the math involved, but that is about $30 more per year, so that I got paid in this simple math I use, about $50 per year on my money, which is 12.5% in my dumb and simple math”

We close the deal.

This is what reportedly is happening. Dominican Republic owes Venezuelan US$ 4 billion. Goldman buys it for US$ 1.7 billion and now the Dominican Republic pays Goldman or whomever Goldman sells this debt to eventually. Well, 2% per year is US$ 80 million, so that Goldman will get US$ 80 million a year or 4.25% per year in interest, but at the end of the twenty years, Goldman receives US$ 4 billion or US$ 2.3 billion more, which comes out to US$ 115 million per year the debt was held. That’s another 6.7% per year, or a total of 11.95% (The actual numbers is 11.38% when you do the math properly).

Well, that is about what the Dominican Republic would pay for a twenty year bond. Except that, I am told that it is the Dominican Republic that is behind the whole operation (Your buddy sneaked around and asked the other guy to buy the debt from you). Goldman buys it, it issues a new bond for the Dominican Republic, and voila, the Dominican Republic has reduced its debt by US$ 2.3 billion and Goldman made commissions at every step.

Why would the Dominican Republic want to do this? Well, easy, the Dominican Republic has debt of about US$ 12 billion between bonds and its Petrocaribe debt and other international loans. But its GDP is around US$ 60 billion, that means its debt is 20% of GDP.  By doing this, they chop off US$ 2.3 billion off the total debt, so that it will be easier for that country to make payments in the future. In fact, investors may even decide that they can buy Dominican Republic debt at lower interest rates, since it has improved ts finances. It is win-win for the Dominican Republic.

What does Venezuela gain? It gets US$ 1.7 billion today in cash, and nothing down the line, it buys time without adjusting the economy and maybe losing an election.

This proves how idiotic the whole Petrocaribe thing was, except to buy votes at international venues. Venezuela, which has been issuing debt at yields to maturity of 10-15%, was lending money to countries at 2%, when most of these countries pay less than Venezuela in the international markets.

Think about it this way: we sold that could be sold at $100 at $50 (50% upfront) plus the remainder we only got  40% for or $20, i.e. we gave them a $30 discount per US$ 100 barrel.

Not great business.

In fact, of the top three Petrocaribe debtors, Dominican Republic pays the highest interest of the three. Jamaica and Bahamas actually pay much less. Jamaica pays 6.5% for its 10 year bonds and Bahamas pays 4.6% for its 2024 bonds. Bahamas is “investment grade”, a country with “adequate capacity to pay debt”, versus Venezuela’s “vulnerable position”. Thus, we are giving very easy terms to country’s in much better shape than we are. (In fact, Bahamas’ GDP per capita is close to US$ 22,000 per inhabitant, while Venezuela’s is US$ 14,000 at the official rate of exchange)

There could be additional operations like this with these or other countries, but remember, nothing has been confirmed yet, I just thought I would explain since people have asked so many questions. In fact, others like Jamaica and Bahamas, could yield higher percentages of their debt for Venezuela, as they represent much better risks.

Oligarco Works The Fascist Phone Line

November 20, 2014

call1

Last we heard from our friend Oligarco Burguesito, he was doing well, deep in arbitrage of all sorts, even if profits were down from the heydays of bond and travel money arbitrage in Venezuela. However, things have not gone well with Oligarco since then, travel quotas were sharply reduced, bond sales eliminated, so that his life has been reduced to arbitrage of all the basic products that are controlled by the Government. But even this has been limited, because many of the street vendors he sold the stuff to have moved to doing other things, mostly contraband. Thus, Oligarco moved to Valencia, where he does a bit of everything. Lately with inflation at 70%, even this is not enough and he has lost lots of money playing the horses and even betting on baseball games, thus he jumped at the chance to work as a supervisor at the call center for denouncing the traitors to the PSUV party, the so called fascist phone line. Is his first salaried job since before Chávez was elected.

This was Oligarco’s experience the first day:

First Call: Caller #1: Hello, is this the line to denounce traitors?

OB: yes

Caller #1: I wanted to denounce the traitors to the revolution and socialism that have authorized the import of natural Christmas trees at the Sicad  exchange rate. This is clearly another battle of the economic war. Someone has infiltrated the party and the Central Bank, authorizing dollars for this at a time that we don’t even have money for medicines due to the CIA conspiracy to bring oil prices down. This is clearly a boycott of our economy, to further weaken us with the promotion of something foreign to our country and a tradition that is not part of our heritage. This is a capitalistic tradition, promoted by the US, Obama and the Republicans and the other Marco, the one from Florida, as a way of undermining our own identity. I want this to be investigated and the person responsible for authorizing dollars at the Sicad rate should be jailed in Ramo Verde and sentenced to life in prison.

OB: Well, Sir, but this was actually a decision by the Board of the Venezuelan Central Bank, presided by Nelson Merentes, a loyal friend follower and supporter of Hugo Chávez and supported by the whole Board appointed by President Maduro, who allocated foreign currency specifically for this purpose.

Caller #1: Oh! Really! Never mind. (Hangs up)

Second Call: Caller #2: Alo! Can you her me! Can you hear me! Is this Nicolas?

OB: No, this is the PSUV line to denounce traitors.

Caller #2: I want to talk to Nicolas. I have something important to denounce

OB: Well, the President set up this line, but he has no time to answer it himself. You can tell me and I will make sure that he gets the information you will provide with total confidentiality.

Caller #2: I don’t know, this could be very dangerous to me. Because I want to denounce someone very close to this line, how do I know you will not tell the President or he will find out who I am and they will come get me.

OB: don’t worry, I assure you this is confidential and we have no caller ID, so I will never know who you are.

Caller #2: Umm, I don’t know. Well, umm, ok. I want to denounce that an extraterrestrial has infiltrated the traitor hotline

OB: What do you mean an extraterrestrial?

Caller #2: Well, many years ago I saw a movie about extraterrestrial beings that had invaded the earth and the same guy was the one that was on TV announcing and promoting the line. Clearly, this space invaders want to boycott the revolution and like Chavez said, capitalism destroyed life in Mars, now they are trying to destroy Venezuela and this guy has infiltrated us.

OB: I still dont get what you are talking about. Who do you mean?

Caller#2: I don’t know the name, but I saw him on TV and I am sure that it is the same guy i saw on the movie, but older. Do you have a cell phone? I could send you the picture of the guy in the movie and the one I saw on TV, so you can see what I mean.

OB: Ok, my cel is 0412-OLIGARCO, you can message me there.

Caller #2: Ok, here it goes, first the picture of the extra-terrestial, then the picture I took on my TV when they announced the hot line

cone

See, it’s the same guy, just older, see the similarity?

OB: Excuse me Sir, but this is Francisco Ameliach, he is not only an important and loyal member of PSUV, but he is also Governor of Carabobo and President Maduro has trusted him with this project.

Caller #2: Oh. He is not a conehead? Are you sure? I was sure he was. “&%$* I am glad you don’t know who I am, but now you know my cell phone, I must seem really stupid. (Hangs up)

Third Call: Caller #3: Hello, this is Yamijuli Maria Garcia from the Comuna for toy manufacturing Isidora Dolores Ibárruri Gómez in Altagracia de Orituco. Is this where I denounce capitalist infiltration into PSUV?

OB: Yes Yamijuli, what have you detected?

Caller #3: Well, I wanted to denounce the fact that someone has regulated the price of Barbie dolls at US$ 2.5 per doll. Even at the capitalist pigs exchange rate, it is impossible for us to compete with this here in my comuna, where we make true Venezuelan dolls We make dolls that are white, brown, black, any color, just like people in Venezuela, but we can not compete with this price, our dolls cost Bs. 400, which is much more than the new regulated price for Barbies. But this is not all, the Barbie dolls are all blond, so that whomever approved this, wants to promote gringo looking women and make the average Venezuelan women look different. Not only that, but it also promotes women dying their hair which is clearly not a very revolutionary activity. Mi Comandante spoke against this, but now someone is trying to undermine the Bolivarian revolution and sell capitalistic blond Barbie dolls, destroying revolutionary values and undermining the work we are doing at the Isidora Dolores Ibárruri Gómez comuna. This should be investigated immediately!

OB: Well Yamijuli, it was President Maduro himself that ordered the price of Barbie dolls regulate, so I don’t think there is really much to investigate.

Caller #3: I disagree, we should investigate Maduro then, because he is not being faithful to the Supreme Commander and Father of the revolution. Do you know if Marea Roja has a hotline to denounce deviations from revolutionary principles? Can you give me that number?

At this point Oligarco hung up, got his jacket and left the job that he thought would be so great…He lasted 5 minutes.

Idiocy And Airlines In Venezuela

November 4, 2014

inac

What is it about airlines that brings out the most idiotic logic out of Venezuelans? I have found the subject the most difficult to talk about even with people that understand markets and are fairly logical and intelligent. In the eyes of many, it was the airlines that became the bad guys in the escalation of ticket prices, later in abandoning Venezuela, as if Government policy (idiotic before and after Chavismo) had nothing to do with it. How many times did I hear the argument that a flight to Aruba costs half as much as a flight to Caracas? Duh!!! The Aruban (or Colombian) Government barely regulates how many flights can land in their airports, they don’t ask for reciprocity or try to regulate fares. You want to come to Aruba or Colombia, you have a good reputation? Come on down!

By the time airlines began leaving Venezuela, reducing flights and dollarizing airfares, at least some (not all!) people understood that airlines were not making a mint in Venezuela like they thought, since they could not repatriate their Bolivars. It was Monopoly money.

But somehow, the idiocy over airline policy continues. This week, the institute in charge of air travel, the INAC, started by stopping airlines like Aserca, which flies within Venezuela and nearby destinations, from selling new tickets until they would improve their online performance. (It also stopped Government woned airline Conviasa) Now, the first question I would ask the guy from INAC is: Where were you and your 2,000 “agents” for the last sixteen years?  Creating their Facebook page? I mean, I have swore like three times in the last decade that a particular wedding in Margarita island was the last one I would attend, because flights to that island were regularly delayed at least two hours. And I reported my travails last summer when I was forced to go to Venezuela via Aruba for the simple reason that there was no other way to get there. So, where has INAC been all these years?

But more importantly, how does banning the sale of tickets “protect the users” or improve the on time arrival of planes? Obviously, the fewer passengers that fly, the easier the airlines can fill and empty airplanes and improve their on time record, but is that the point? And how are you protecting passengers when you ban the sale of tickets? When you do that, you limit the already severely hampered accessibility of flights, inconvenience people and really accomplish very little.

But as I was wondering over these issues, today INAC suspended the sale of tickets for five international airlines, who they are is irrelevant. What is relevant, and even more puzzling, is that the ban on the sales of tickets is only for Maiquetia airport…

Say what?

You are banning the sale of tickets to those that show up at the airport to buy a last minute ticket? Given how few empty seats they are, these are probably the neediest and the people most desperate to get somewhere. How are you protecting or helping them?

And last I heard, most airlines have websites, which allow you to reserve and buy tickets even with your telephone. So, what exactly is INAC accomplishing with this idiotic policy and ban on the sale of tickets?

I have no clue. (And please, get rid of those red vests on INAC personnel)

But if it is hard to understand these Government officials and where they have been for sixteen years, it is even harder to understand a certain Roberto Leon Parilli, President of ANAUCO, which is a private organization that is supposed to defend consumers. What Mr. Parilli did, was to ask the Government to intervene because airlines are selling airline tickets in foreign currency, which is illegal in Venezuela.He wants the Government to stop this practice.

Well, airlines are not selling tickets in dollars in Venezuela. Airlines are selling tickets to those that have a credit card in foreign currency and use it to buy a ticket online or via a travel agency (which place the order abroad). And if this path were blocked, the consumers that you are supposed to protect Mr. Parilli, would not be able to fly out of Venezuela. Because, Mr. Parilli, the Venezuelan Government has no money to pay its debt with the airlines, unless it devalues all exchange rates to around Bs. 70 per US$.

Got it? I doubt it!

In fact, the black market, which you are correct in denouncing Mr Parilli, would flourish if the Government somehow (I don’t see how it can do it, other than banning airlines from coming to the country) managed to stop the sale of tickets in foreign currency. Venezuelans would simply be trapped. Thank you Roberto!

In fact, if you want tickets to be cheap and readily available (in any currency) what your would need to do is to ask the Government to invite all major international airlines to add an unlimited number of flights without any restriction, including in which currency people can pay, eliminating reciprocity, quotas and the harassment of foreign airlines at Maiquetia airport.

The rest is simply being idiotic and clueless about what the consumer wants and how the market for airline tickets operates in the world.

Maduro Adds Fuel To The Inflation Fire

November 3, 2014

inflation

For eighteen months, Nicolas Maduro has refused to make any adjustments on an economy suffering from all sorts of distortions, for fear of losing popularity as well as the lack of clear advise from anyone close that grasps economic theory. To Maduro and his Ministers, economic policy has been limited to decisions on controls, foreign exchange policy and salary increases, as inflation and  shortages increase dramatically and the limited funds available are shifted to cover the immediate needs of the Government.

And after firing in September the only Minister that had some sense that adjustments should be made, we spent four weeks thinking that no adjustments were forthcoming. Then, statements by various Government officials suggested that something may yet happening. Nothing dramatic, a small devaluation, a small gasoline price increase, less deficit spending, monetary measures and the like. Instead, Maduro goes on TV tonight and bombastically announces that he has approved a 15% minimum salary increase starting December 1st, such that the minimum salary will become Bs. 4,889 a month (US$ 776 at Bs. 6.3, US$ 444 at the Sicad I rate, US$ 97.8 at the Sicad II rate or US$ 47.66 at the parallel rate). Maduro also boasted that Venezuelans have the highest minimum salary in Latin America, as he used the impossible to get rate of Bs. 6.3 per US$, when the reality is that it is the lowest minimum salary in the region at the other extreme and likely at the Sicad II rate too. Maduro was very proud that with this increase, the total increase in the minimum salary for the year is now at roughly 68%. It will never occur to him that inflation being at 70% and the increase at 68% have any relation whatsoever.

Just to make sure the fire keeps burning, Maduro also increased the “food tickets” given to all employees every month by “only” 50%.

No other measures were announced…

So, at a time that the economy is really screwed up, Maduro simply decides to add fuel to the fire, with no accompanying measures to mitigate inflation, reduce scarcity or reduce the deficit. In fact, at a time of falling oil prices, this forces the Government to print even more Bolivars, as it was clear that it had no Bolívars to finish off the year.

I guess Maduro read that Wall St. analysts were beginning to predict triple digit inflation and decided to make sure their predictions become true.

But more importantly, what Maduro is doing is guaranteeing triple digit inflation, with 50% shortages, a sure recipe for social unrest.

And a huge devaluation…and unrest.

And I am not exaggerating, it is difficult not to envision some form of social unrest with 100% inflation, Chávez dead and  a rudderless leadership. While many think the Government is in control, I disagree. With Rodriguez Torres’ departure, the hoodlums have taken over. Dario Vivas, Freddy Bernal and the Colectivos are up, everyone else is down. The “military” takes over PDVSA and you know nothing good is going to come out of that. Meanwhile, Marea Roja is being shunned, forced into becoming a party and becoming “opposition”. As if the opposition was not diverse, an extreme  left Chavista party may be soon part of it.

But what worries me is that despite all of the controls, all the media manipulation and all of the intimidation, people will simply explode when things become untenable. Because in the end, the only solution is an adjustment, an extremely strong adjustment. An almost impossible adjustment that would bring down any Government. But few people are saying how bad the adjustment has to be. In fact, I was disappointed at Voluntad Popular calling today for a 45% salary increase across the board.

What is this, a contest to see who is more irresponsible?

Anyone wants 100% increase?

What I fear is that we are going into a period of chaos, where the Government will have trouble maintaining order, unless it wants to resort to brutal repression. A period of instability and uncertainty never before seen in the country´s recent history.

And Maduro might not only have thrown some fuel into that fire, but he may just have ignited it…

Sorry for the optimism… :-(

In Search Of Good News In Venezuela

September 28, 2014

BU9X_GOOD_NEWS_107650040

I know, I know, I have been away for too long. I agree. Somehow this happens now every time I am in Venezuela. It is not writer’s block, it is more like information overload. Everything is a story, but in the end nothing appears to be one. The lack of information and the lack of transparency, in the presence of a thousand daily headlines, makes it impossible to understand most things. Let alone write about them.

I spent the week trying to find good news. Not that I am a masochist, but I figure if I can find something positive to write about in Venezulea, that alone will make it a good story. Everything seems to be so negative. But good stories are hard to find, every time I think I have one, I find a wrinkle in it, some orthogonal feature that makes the good news somewhat iffy.

Take Chikungunya. Before I went looking for experts on it, I learned to spell the word, I didn’t want to be like Maduro and call it something else. I talked to a couple of people that suggested that something was up in Maracay, but.. It is the but that gets me intrigued. The but is that there is so little information that it is not clear whether it is the Ch. word or it is dengue that is to blame for what is going on. That is certainly good news, until I am told that the number of dengue cases is ballooning to levels not seen in the country’s history. To top it all off, people who either get dengue or the Ch. illness need Acetaminophen, which is in lvery ow supply in Venezuela. It seems like Chikungunya is not the good news story I am looking for, even if I learned how to spell it.

I then turn to the release of political prisoner Simonovis, who has been been given house arrest instead of jail for health reasons. This is certainly great news, at last the Government seems to have shown some compassion for someone in the vast array of injustices that go from political prisoners, to crime, to persecutions and to human rights abuses. But then you start to see the wrinkles in the case. The measure is only temporary and he is taken to the hospital shackled and treated like a common criminal. But worst of all, you see the dark side of Chavismo in the outcries of the radical Chavistas who find this humanitarian measure incomprehensible, filled with hate, unable to have even a the slightest empathy for human beings. Unable to even consider, not only Simonovis’ role in the affairs of 2002, but to realize how Chavismo got away with murder and murders in the 1992 coup attempts. They were all forgiven. They got away with it. From Chávez to Arias Cardenas, to all of them. Many of them rule the country today.

What happened to Venezuela and Venezuelans, that hate and politics became more important than humanity and compassion? How can sending a very sick man home become a subject of protests and revolutionary symbolism? As if this was not enough, a friend explains to me why Simonovis was finally given house arrest: Don’t believe anything you read, Maduro was just worried that he may die in jail. It was a political move, nothing more. Another good story dies at this point.

I then turn to shortages.  I go to the market and see milk, margarine and even toilet paper.  Surely this is good, no? Except that now you can’t find diapers or cleaning products. It is the rotation of priorities. The Government devoted all of its efforts to make sure there was toilet paper, but forgot about diapers, it imported milk, but forgot about margarine, and there had never been shortages of cleaning products, so the Government did not even understand they could be in short supply.

The worst part is that by now, the shortage mentality has taken over the population. There is milk in the shelves, but you don’t know how long it will last and take home as much milk as they will sell to you. The fact that there are limits, people reason, must mean that there isn’t enough for everyone. Everyone hoards whatever they give priority to. The end result is that it will be quite difficult to bring inventories up, it is sitting in people’s homes..

Take water, for example. It is raining cats an dogs in Caracas. The dams are 70% full. Reportedly, the Government is punishing middle class neighborhoods limiting their water supply. But the shortage mentality has taken over residents too. Water is rationed even when there is plenty of it. In my building, they cut it off at the usual time mid-morning, despite the fact that the tank is half full and water is coming in. This means that everyone will be ready at 12:30 to wash all the clothes, fill all the pails, pots and pans and shower again just in case. The end result is more water consumption, all clothes are clean all the time and most people (like me!) take extra showers, just in case.

Hard to break this vicious cycle. Shortages are definitely not a good story either.

And then there is Convenio Cambiario #30, some analysts hail it as a sign of further “adjustment”. A positive. But all I see is a decree allowing Pdvsa to have total freedom as to whether it gives Bs. at three different exchange rates, to opacity-ladden-Fonden, so that Maduro may have more funds at his convenience, simultaneusly creating a new perverse mechanism for printing money: Pdvsa exchanges with the Central Bank at Bs. 50 (Sicad 2 rate) but the BCV can turn around and sell those same dollars at Bs. 6.3 per US$. All stages of this may be done with total discretion and no disclosure. Sorry, not a positive, another negative.

And the I notice something. The new President of PDVSA has been talking only about oil since he took over the position. First, he said that he will reactivate one thousand wells to increase oil production. He talked about modernization, met with managers and talked about increasing production by 60 to 70 thousand barrels of oil a day. He then intervened the marketing division of PDVSA, where Maduro said there were “mafias” involved in the commercialization of products. Finally, yesterday Del Pino called for making investments in the Orinoco Heavy Crude belt a reality. After years of his predecessor announcing projects and projects but little happening, Del Pino wants it to become reality saying “it is time to go beyond the presentations to financing and building the projects”. Wow!

The best part, Del Pino seldom mentions the party or politics, even if he can’t help mentioning the almighty Hugo. He apparently wants to be President of PDVSA and see if he can increase production of oil in Venezuela. What a concept! He is praising the company’s workers, trying to improve moral. For now, I will give Del Pino the benefit of the doubt. He is saying the right things and concentrating on what he should. And that, in the current Venezuela is a HUGE positive. And that, my friends, is the GOOD NEWS!

And now that I have given you the good news, here is the bad news. One Bolívar fuerte is now worth less than a penny. That is not even bad news, it is simply depressing:

bolfA true tribute to the success of the revolution!

 

 

 

 

 

 

 

 

 

S&P Downgrade Of Venezuela’s Debt To Add To The Noise

September 16, 2014

As if there was not enough noise around Venezuela’s and PDVSA’s debt, credit agency S&P downgraded Venezuela to CCC+ this afternoon, citing concerns about the economy, inflation and increasing risk. This announcement will certainly add to the confusion of the last week or so, where the default opinion piece of Hausmann and Santos, has generated so much discussion and interpretations of what was said, creating such a stir that President Maduro ordered the Prosecutor to ¨take action¨ against Hausmann for seeking to destabilize the country.

One has to wonder what Maduro will say about S&P now.

But in reality, the announcement by S&P is not surprising, because the rating agency already had placed Venezuela on “negative watch“, suggesting that it was considering downgrading Venezuela’s sovereign debt. (So far, the downgrade only applies to the Republic’s debt, but a similar downgrade of PDVSA is likely to follow base on the criteria usually followed by credit rating agencies that no risk can be higher than the sovereign one)

According to the definition by S&P, this downgrade to CCC+ means that Venezuela is “vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments.” S&P is not suggesting that there will be a default anytime soon, but that things are getting complicated. But we are sure that the announcement will be misinterpreted.

And I say this, because during the last week, there have been many misinterpretations of statements made by a number of people (including me) and in both Twitter and blogs, terms have been confused.

As an example, I made statements in Twitter that I did not recommend investing in Venezuela and PDVSA bonds at this time, which was taken by some as an indication that I thought Venezuela would default. As I made clear in the previous post, I do not believe that Venezuela will default in October, or that Venezuela is likely to default in 2015 or even in 2016. What I am saying is that on a risk adjusted basis, the return on Venezuelan and PDVSA bonds are just not high enough for the  lack of transparency on the country’s numbers, the political uncertainty and the volatility that these bonds exhibit.

Take, for example, the PDVSA 2022 bond, one of the people’s favorites because of its high 12.75% coupon. Today that bond was yielding about 16.1% per year if you held it until 2022 and had a “current yield” of 14.66%. The latter means that if you buy the bond today at around 86% and in one year it is still at 86%, you will make 14.6% on your money. This is what that this bond has done since the beginning of the year:

pdvsa22

As you can see, it started the year at about 92%, dropped in six weeks to 75%, bounced back to 104% only to drop to 80% once again with all the default talk and recovered some to close today at 86%. That is a 19% drop, a 38.7% rise and a 23% drop in the space of less than nine months.

To me, this is too risky, too much volatility, given that I am paid less than the last two drops for holding the bonds. Imagine you are a fund or you have a client that buys at 100% and you have to tell him or her, that the bond is down 23% since the purchase. If it stays down there (nothing guarantees it will bounce back) the fund or your client will lose money over the first year and a half of the investment.

Now, if the price comes down below 80% again, I might be intrigued for aggressive investors (including myself). In fact, I did that when it started bouncing back in February, but sold when the yield became too low again for the risk I perceive. (Again, this is my personal perception of what the risk/return should be)

Add to this, what the Government has done (or not) in terms of giving negative signals to make the bonds even less attractive:

-It invited foreign investors to two meetings in New York with then VP for Economic affairs, both meetings were cancelled.

-It said it wanted to sell CITGO

-It has said nothing about whether or not it (or PDVSA) had significant amounts of funds in Banco Espiritu Santo or its affiliates.

-It has said a few times that all foreign currency in parallel funds will be added to international reserves, but Maduro only mentioned US$ 750 million. Analysts believe that there should be much more than that in the parallel funds

-It has done little in terms of the exchange rate and/or gas prices and moved sideways the only Minister proposing changes.

-There was a report that Venezuela was storing heavy crudes in Caribbean islands, while PDVSA “reviewed its pricing structure”. This was never clarified.

None of this gives you any confidence in the strategy of the Government or the bonds.

But whether you invest or not, has nothing to do with believing in default or not. That is a separate question and I don’t think that there will be default this October, even if I understand that this is a political decision in the end.

But I also think that the discussion has become somewhat circular. When I read Hausmann and Santos, I read: “If the authorities adopted common-sense policies and sought support from the International Monetary Fund and other multilateral lenders, as most troubled countries tend to do, they would rightly be told to default on the country’s debts”

This is an extremely hypothetical question, as the current authorities are not considering this even remotely. In my mind, what Hausmann and Santos said was a number of truths to warn investors not to be so complacent about the country’s debt. ( I also think that an IMF agreement and some adjustments would provide ample funds to avoid default)

In the same manner, when Francisco Rodriguez answers back that the real problem is that Venezuela is selling ten dollar bills for one dollar and it should really just change that, this is another highly hypothetical question as the last year and a half under Maduro has shown that there is no intent to sell the $10 bills for ten dollars, but at most for $2 or $3 dollars, which really solves nothing.

And now to make things even more confusing, people will certainly over interpret and confuse what S&P said today. Which, by the way, will not help the prices of the bonds tomorrow or for the next few days. Neither will it help if they announce they sold Citgo or parts of it, nor if they announce little in terms of correcting the distortions in the Venezuelan economy.

The amazing thing is that some simple steps, like talking to the market (not cancelling meetings), moving assets to international reserves and addressing issues like Espiritu Santo, would have done wonders to calm investors down. Even if you lead a “revolution”, if you want financing, issuing debt becomes cheaper the more transparent and communicative you are with investors. In the end, not doing so, becomes very costly for the country and Pdvsa to issue new debt. Ramirez seemed to have understood that, but currently, it appears as if we are back to Giordani’s days of not talking to those that provide your financing.

And in the end, all Venezuelans will have to pay for it.

Venezuela’s Economic Adjustment That Never Was Or Will Be

September 8, 2014

a-scary-debt-default-could-be-the-best-thing-to-happen-in-china-right-now

If there is one thing that surprises me about people’s reaction to the Maduro Non-Adjustment, it was that people were surprised. For seventeen months then Minister of Energy and Oil and later VP for Economic Affairs had been telling us about the adjustments coming, but nothing ever happened. He proposed a system that would break the back of the parallel dollar, but all he did was recreate SITME at a much higher rate, creating a useless system once again, that did nothing but dispense, as usual, foreign currency arbitrarily. Ramirez also suggested regularly that prices of gasoline and certain products should be raised. Not much happened in this front either.

The problem was that we were hearing only one side of the debate taking place within Chavismo. Never the others who talked quietly among themselves. Ramirez tried, unsuccessfully, to gather support for some form of adjustment, fearing that not doing so would be worse than the alternative. In the end, Ramirez did not seem to convince too many people, others banded together and convinced Maduro to get rid of a man that had been a constant presence over oil and energy policy in Venezuela for almost ten years.

Yes, he did stay at another position in the Cabinet, but his lonely voice over the need of an adjustment becomes weak now. At the same time, giving him some perks and keeping him close, allows Maduro to insure that Ramirez will not play a Giordani on him, writing letters, criticizing or renewing his crusade for an adjustment outside the Government.

I have always been very skeptical as to the probability of a significant adjustment taking place. I always believed that it would be too little, too late. Not enough to mitigate the many distortions of the economy. Thus, the outcome of just nothing is not even a surprise, even if later we may see some small adjustments. Maduro has always acted like he is a man without concerns about the economy. This is likely to his ignorance or the existence of a plan B (Everyone in Venezuela has a plan B). It could be due to both too.

But by waiting so long, Maduro not only made an adjustment more difficult in terms of getting results before next year’s elections, but he also gave time to those opposed to a partial or a full adjustment to get together and create groups. Thus, those benefiting from the rackets oppose any form of adjustment, those that ideologically oppose the adjustment began accusing Maduro of betraying the revolution, those that thought the adjustment would be worse than not doing anything, also sided with the non-action.

In the end, in the absence of economists in or near the Cabinet, Ramirez was a lonely voice. The outcome is the one expected, even if it is remarkable that no measure has been announced, not even moving the Bs. 6.3 per US$ rate to the Sicad 1 rate of Bs. 11, the only measure I expected. (I also expect some very symbolic increase in gas prices).

So, what now?

Well, I am not in the camp of those that think there will be a default. But I think nobody knows if there will be a default. With Ramirez out of the Economic Cabinet, the probability of default is higher. He understood some of the consequences, particularly for PDVSA.

But think about it, Venezuela has to pay US$ 6.3 billion in the last three months of the year between two maturing bonds (PDVSA 14 and Venezuela 14) and interest on all bonds. Thus, don’t you think that in a world with falling oil prices some “cabeza caliente” (There are many!) in the Maduro entourage has not suggested defaulting? This is, after all, a revolution…

Did anyone think they would fire 20,000 PDVSA workers? Did anyone think they would expropriate and not pay? Did anyone think they would allow corruption at the levels they have? Do you know when and of what of Chávez died? Scruples is not a common word among revolutionaries.

People talk about default as if it would have catastrophic consequences on Venezuela. Defaults come in many flavors, look at the latest one from Argentina. Countries default regularly and few of them have catastrophic consequences, particularly if you have an oil spigot that will provide you with cash day after day, as well as trade partners that will support your default and who happen to be the ones that are sending the most food to Venezuela.

But I digress.

By now you have all heard or read the Haussman-Santos paper on default and Venezuela. They forgot to mention one detail: Venezuela already stopped paying the Sidetur bonds and it had absolutely no effect. Of course, a wider default would. But it could be selective too. Say you are willing to pay, but can’t. Keep paying interest in all bonds. Pay maturities on only some. The creativity of investment banks is unlimited. You just need a good one.

But for now, we face the adjustment that never was or will be. A sort of: what will happen now type of scenario? They will keep pushing their survival as far as they can. People die, sick patients can’t get their medicines, and there are food shortages. But the revolution is alive and well.

And they will try to keep it that way. Subsidies to the Caribbean can be removed. Even subsidies to Cuba can be stopped, if things get bad enough. But you can bet the choice is clear: Cuba comes before Wall St.

Defaulting is a political decision. If economic policy continues this way, it is inevitable. But for now, it can likely be pushed to 2017. Maybe oil prices will rebound by then.

As I have said before, Venezuelan bonds are not paying enough, given the risk you are taking. Maybe, just maybe, they will get there soon. But you don’t want to play Russian roulette, no?

Meanwhile, I continue on vacation…

Follow

Get every new post delivered to your Inbox.

Join 12,450 other followers