Archive for the 'Venezuela' Category

How Chavismo Has Ripped Off The Private Sector For Years

July 9, 2014

ripoff

There is an article today in the New York Times, which while factually correct, seems to me to be a little late to the game in explaining to its readers how Chavismo has “vanished” the profits (And equity too) of private companies, whether they are Venezuelan or not.

Chavismo has never played by the rules, whether international or national. It has ripped off the Venezuelan people by claiming to care for them, while allowing inflation to soar and wasting the oil windfall of the last decade on propaganda, incurring in new debt and  simply doing whatever was necessary to preserve Chavismo in power. And it continues to do so.

But to pretend this is a new phenomenon, or that it only has to do with the most recent devaluation in Venezuela, is to ignore fifteen years of Chavismo as well as eleven years of exchange controls. Not to mention the total lack of scruples by Chavismo to steal, lie, bully, ripoff and deceive multinational and national companies, accustomed to people being honest and respecting the laws and customs of business and trade.

When Chavismo imposed foreign exchange controls in February 2003, the Bs. 1.59 per US$ rate was established as a way of protecting international reserves and the Government promised to make that rate available to bona fide companies in import and manufacturing, as well as allowing people to buy at the controlled rate for some of their needs. The system and the controls allowed companies to repatriate profits and even capital, if required, you just had to follow certain procedures to make sure your needs and requests were real.

Since the Government imposed certain limitations, a parallel “swap” market developed immediately, as people realized that the Government had not banned exchanging two properties, such as a security denominated in Bs. for one denominated in US$. This market took a while to develop, as people discussed its legality, some companies were afraid to use it and the Government and the Government kept talking about issuing a Bill that would make it a crime to exchange money outside of the official controls.

But about two years after imposing exchange controls, the Venezuelan National Assembly approved the so called “Foreign Exchange Illicits Bill” which did penalize buying or selling dollars, but actually exempted “securities” from the Bill, essentially saying that it was healthy for a parallel market to exist.

This was a critical step in the development of the swap market (mid-2005 or so), as most companies started trading in the swap market to solve temporary foreign currency (or Bolivar!) needs and even to speculate with the currency.

But few companies used the swap mechanism to repatriate dividends. The argument was that why bother doing this, when the Government, via Cadivi, was going to give them the foreign currency for repatriation at the official rate of exchange.

By the time the law was approved, the official exchange rate was around Bs. 2.1 per US$, while the swap rate was maybe 20-30% higher.

But then things got complicated. Just as Chávez began using reserves for parallel funds, squeezed PDVSA for social spending and issued debt to cover shortfalls, the international financial crisis of 2007-2009 hit and oil prices went down. Since Chavez needed more and more funding for his exploits, Cadivi became stingy, giving less and less for dividend repatriation which mostly (90%?) ended by 2007.

The Government kept promising that it would pay and companies actually believed it. But multinationals home offices began pressing for some form of repatriation. There was one problem though. if you bought at the swap rate, you had to take a loss in earnings. Some companies started doing it, others not, they were worried about their reputation, I mean, what would happen if Chavez accused them publicly of using the swap market, whether it was legal or not. Their reputation was at stake.

Meanwhile, the swap exchange rate closed at Bs. 3.3 in 2006, 5.6 in 2007, 5.6 in 2008, 5.9 in 2009, as the Government began actually intervening in the swap market, while refusing to devalue until January 2009 from Bs. 2.1 to Bs. 4.3 per US$.

By now, Chávez realized that he could rip off foreign investors without much trouble. In January 2007, he “nationalized” telecom company CANTV offering to pay US$ 16.85 per share, despite Carlos Slim offering US$ 21 per share a few months earlier. Slim’s offer was never processed by the Government and the Government kept the fiction that it would pay a dividend before the tender expired, which never happened. It also took over Electricidad de Caracas, the partners that did not agree to be a minority in the heavy oil fields and even Chavez’ Argentinean buddies in Sidor. The first two got paid fast. The oil fields are still in arbitration and the latter got paid because of the close relationship with the Kirtchners.

Nobody has gotten paid since.

And while today’s NYT article would make you believe that it was the recent devaluation that screwed multinationals, nothing is further from the truth. Each time the Government has devalued, it has reduced its revenues in US$ and its earnings and since 2007, it has all been vapor profits, monopoly money, as almost no dividend repatriation has been approved by CADIVI, now Cencoex. Only companies that repatriated via the swap market before it was shut down in 2010, managed to salvage, yes, salvage, some of their profits.

Thus, companies took a 50% cut on both revenues and profits when the Government devalued in Jan 2009, a 46% hit when it devalued in February 2013 and a 63% hit when Sicad 2 was created.

And counting…

And counting, because it is all still vapor earnings, revenues and profits. The Government is not going to pay them at the Sicad 1 rate either. Thus, some companies mentioned in the NYT article have decided to take the loss. Because they can. You see, before Sicad 2 existed, accounting rules say they had to follow the Government foreign exchange rates, even if they knew they would never get the money. Once Sicad 2 was created, serious companies, like Brink’s, decided to take the worst case and take a hit of 80% on their earnings using the Bs. 50 per US$ exchange rate, versus the Bs. 10 or whatever Sicad 1 rate is.

Think about it, wiping out 80% of your revenues and profits…

They actually could have said 100%, we will never get paid…

The things is, Brink’s is a minority and most companies are still “wishing” and lying to their home offices or simply hoping they will get paid at a rate below Sicad 2, so that it does not look so bad and their bonuses don’t suffer as much.

But if I had to guess, most of them, if and when they get paid, will get paid closer (above even) to the current Sicad 2 rate than the Sicad 1 rate they are booking their profits at today.

And note this includes earnings for 2007, 2008, 2009, 2019, 2011, 2012, 2013 and 2014 and counting. We are talking eight years of Monopoly money, virtual profits for all.

Not exactly a recent event.

Nothing has changed, I wrote an article on this last December, entitled “Virtual Profits in Venezuela” in which I warned companies that they will get screwed yet again.

Companies seem to be getting the message, but many rely on “hope springs eternal”, particularly airlines.

Airlines are a very particular animals. They are not trying to repatriate profits, but revenues. This is worse. They sell tickets in US$ at the official rate of exchange and are supposed to received the foreign currency immediately or fast, as per IATA agreements. Except they started seeing delays in payment and they decided to increase prices as a hedge. But they still have not been paid, nor do I think they will be paid at Bs. 4.3, 6.3 or even 10, look north friendly airlines, you may get part of the debt paid above Bs. 25 per US$, but not all of it. You have been ripped off. Period.

Why do companies behave like this?

It depends. If you are a multinational you really believed that BS that you are in Venezuela for the long haul. Except you never thought the long haul would last so long.

If you are local, you want to survive. And you do, until you can’t, like the many companies that the Government has not repaid for their CADIVI imports at Bs. 6.3. In January 2014, the Government said, we don’t have enough money to pay you. So, they still hope. Another ripoff.

Or the oil service companies that accept PDVSA paying them in bonds, which implies a discount. At least they get something.

But the locals are the ones most screwed by the revolution. If they are not paid, they are dead. Most that have yet to be paid, will never be. The revolution has no scruples. They already screwed them with the devaluation in 2012, what´s another one? Chavistas thinks all private entrepreneurs are wealthy.

There are other cases, but you get the point. The point is, this is nothing new, the revolution has been ripping off the private sector for eight years and counting and there are those that still think they will get paid. And the international press is starting to notice. To say nothing of the regulators that have allowed financial reporting based on these virtual profits and fake exchange rates.

Clueless.

As for the long haul, sure, it will be a long haul, but only to take what is left of your stuff back home.

If any.

Lying As A Revolutionary Way Of Life In Venezuela

July 5, 2014

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Lying has long been a way of life for Venezuela’s Bolivarian revolution. The country is still unsure of when and where Hugo Chávez died, let alone what ailed him or what complications eventually killed him. He was reelected knowing his days were counted, but it did not matter, lying, cheating and ripping off the people and the country has been institutionalized as a way of perpetuating the leadership in power. Not the revolution, because the revolution has been dead for quite a while. Only the leadership matters.

By now, the lying is so blatant, that the Government and its representatives don’t even attempt to cover it up. They just simply don’t address those issues in which they are flagantrly caught cheating, deceiving and lying. They hope that their total control of traditional media will impede the exposure of the lies reaching their supporters. And they do get away with it.

The lying and deceiving seems to be accelerating with the total impunity that reigns in the country. Comptrollers don’t control, Prosecutors don’t prosecute, People’s Defenders don’t defend, Highest Courts are lowly beings, the Supreme Command of the revolution forges and presents evidence against its enemies.

As it accelerates we see more and more cases, where the lack of scruples and deception prevail. This week as I was in Caracas was no different, with too many cases which dramatize the decrepit morality of the failed Bolivarian revolution. To wit:

–The faking of emails and evidence presented by the supreme command of the revolution.

The top members of the revolution, including the President’s wife who happens to be a lawyer, appear on TV, acting as accusers and judges, presenting “evidence” of a conspiracy to get rid of Maduro. The evidence is quite flimsy in that the texts themselves are not as explicit as suggested. The Prosecutor accuses a few days later, despite the accused suggesting the emails are fake. Then, one of those accused gets an order for Google to turn over the content of his emails in the company’s servers. Google complies. The text of the email is not what was presented by the Supreme command, others are not even present in the servers. The Venezuelan Government, all the way to the very top, has fabricated evidence as well as violating due process, the right to defense and all that.

The Government does not even bother to deny any of it.

–Ozone corruption

The Governor of Vargas State sets up a company to buy some equipment to purify air at Maiquetia airport with ozone. In order to pay for the equipment, a new tax of Bs. 127 has to be paid by each passenger. Never mind that this should be the domain of the Airport’s Administration and Institute. Never mind that Ozone has been shown to be harmful in air purification. Never mind that passengers are paying for a service that is not even in place yet. The system is implemented badly. The first day, the cash collected by the State is robbed after passengers have to wait in line a couple of hours.

Nobody explains, nobody apologizes, nobody answers the criticism.

–The Phantom buyers of El Universal

Imagine a country where there is basically no foreign investment. Where you can’t repatriate profits. There is no newsprint. Despite this, a phantom Spanish group owned by a phantom company, whose board is unknown, whose website was created recently and still is mostly empty links, decides to pay 90 million euros for Caracas daily El Universal. Never mind that owning a newspaper has become a terrible business. Never mind that the Washing Post was sold for about double this amount. We are supposed to believe that this invisible “investment” group looked at Venezuela and decided it was a good place to lose some money by investing in this newspaper. And despite the restrictive laws of Venezuela for media purchases, including a ban on foreign ownership of media, El Universal is the third media outlet, after Globovision and Cadena Capriles, to be sold with not even a Tweet by the Government.

Nor should you expect one.

–Suspected murderers go free, democratic protesters stay in jail

A student watching a demonstration is shot in the face by two National Guardsmen armed with pellet guns, similar to those banned in many places in the world to control demonstrations. The two suspects have been identified out of the group of twenty three controlling that demonstration. Yesterday, the two Guardsmen are released on their own recognizance, with the requirement that they have to show up at the Court every week. This is the same requirement that Teodoro Petkoff has because someone wrote an article in the newspaper he directs, purportedly saying that the Head of the National Assembly said something he did not. Meanwhile, according to human rights organization Foro Penal, there are still 113 students in jail for protesting since February 14th. of this year.

No one in Government will even try to explain this. It is called Bolivarian justice.

Dear Hugo (An Imaginary Letter)

June 27, 2014

carta

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.

Venceremos!

Nico

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.

Unfortunately, A Bleak Future For Venezuelans.

May 24, 2014

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Yesterday I saw a tweet that I knew was wrong stating that American Airlines had stopped selling tickets in both local currency and dollars, which sort of implied the airline was leaving Venezuela. I knew the tweet was wrong, as that same morning both my travel agent in Caracas and American Airlines in the US had called me to tell me that the airline had opened for sale tickets in US$ until the end of July. I checked in the website and indeed, for the day I was looking for a CCS-MIA flight in July, there was plenty of available flights and tickets, as promised, if you paid in US$. Thus, when I saw the tweet with information that I knew to be wrong I corrected it, mostly because I know the sense of anguish that many people with relatives abroad feel thinking that they may become isolated in Venezuela if the airlines leave.

What I got in return was tweets saying that I was  a minority with a credit card in US$, that I worked with the stock market, Cadivi rules and the like and beware about bond prices when American announces that is leaving Venezuela, which had nothing to do with my correction. Later the person apologized, but I think this demonstrates how charged and emotional this topic is.

But it also shows, how somehow people think that the Government is not paying airlines because it does not care, or, as some have suggested, this is all being done on purpose to isolate the country. People also blame the airlines for abusing the system. But the reality is much different, the airlines have been naive in thinking they would be paid eventually. And Venezuelans have yet to face the reality that, much like Greeks three years ago, the time is coming to pay for the errors of the Government of the past few years. The cheap travel, the Cadivi subsidies, all subsidies, have to be paid down the line with expensive travel costs and no subsidies. There is simply no money to pay the airlines.

Or the pharmaceutical companies, or the food companies, or the oil service companies…

Perhaps no headline describes this more clearly than that of the President of the Venezuelan Airline Association (ALAV) saying “The debt with the airlines is more than the operating international reserves of the country”

That simple statement summarizes the problem quite clearly, how can the Government pay its debts, when all of its operating (Not liquid, operating!) international reserves are not enough to pay the debt with the airlines?

But think about it, the Government also owes the pharmaceutical sector US$ 4 billion, and more billions here and there. And the days go by and it does not pay any of it (The debts actually increase). Why? Because there is no money to pay the debts. In fact, CADIVI approvals, which pay for current and future imports, were also sharply down in the first four months of the year.

The Government keeps trying to stretch it. But at some point, it will have to do something about it. It will have to stop subsides to Petrocaribe and Cuba, or not pay external debt, or devalue, or increase the price of gas, or some of the above or all of the above. But no matter which solution is decided on, it will be Venezuelans that will have to pay in the future for the errors of their Government. Someone has to pay the subsidies and the excesses and it will be all of Venezuelans, whether by paying much higher prices for everything, including flights abroad, or not having goods to purchase or reducing their purchasing power. It is a sad prospect, but it is reality.

Ask the Greeks, they lived through it three years ago, after years of living it up beyond their means.

And, of course, people worry about not being able to travel, but think of the horrors that people go through because they can not find pharmaceutical products to treat cancer, or diabetes or even simple antibiotics for infections. Or think about not having parts for diagnostic machines.

And if the Government is not paying either of them, it is because it does not have the money for either of them. Period. It is not even trying to choose one sector over the other, it is paying none of the debts. In fact, this week PDVSA announced with “bombos y platillos” (drum rolls and cymbals) lines of credit with three oil service companies. These are really no new lines of credit, they are simply converting the money PDVSA already owes these companies into formal lines of credit, so as not to affect the balance sheets of these companies that are owed money.

And the longer the Government tries to stretch it, the worse it will be in the end. The numbers just don’t add up. Unfortunately, the future is bleak for Venezuelans, unless oil dramatically jumps up. Oil has saved the day before, but this looks unlikely at this time.

Adjust accordingly.

Venezuela’s Dictatorship No Longer Cares About Appearances

May 13, 2014

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For two and a half months, the Venezuelan Government had been extremely careful with the students and their protests. While it was aggressive and repressive at attacking those protesting in the streets, it had been respectful of the student camps set up in various parts of Caracas and other cities. The strategy by the students had been clever, they could not be accused of being violent, while camping near where many of the protests were taking place, allowing them to “feed” into the protests and retreat back to the camps when required. Moreover, the camps were in front of the United Nations in one case and near the OAS in the other. It seemed improbable that a Government involved in an internationally mediated dialogue would attack the camps. It would simply damage the image of the Government and tell the world what an outlaw Government Maduro’s has become.

Except it did not work out that way. Instead, the Government or someone decided to attack and raid the student’s camps. And the raids had many surprises:

-It was a military operation led by the Minister of the Interior Rodriguez Torres.

-It was an illegal raid, as the Prosecutors office was not only not informed, but had no representatives present at the raid, as required by law.

-The military raid arrested everyone in the camps, those sleeping on the streets and/or the sidewalks, with no legal justification for those that were simply protesting, without blocking the way, as guaranteed by the Constitution.

-Students were held incommunicado for longer than twenty four hours, without the Government releasing their names, allowing them calls or legal representation while they were mostly accused as a group, without being individually charged.

-The students were all subjected to drug tests, without any legal reason for it. In fact, only a small number were found to have traces of drugs.

-Minister Rodriguez Torres, who acted as prosecutor, policeman, investigator and judge in the operation, accused the students of being armed, despite them not using weapons once, including the night of the raid. Contrast this with the paramilitary groups who support the Government are usually seen publicly with their weapons.

-Most students were eventually released, those that were kept in prison were simply accused of “leading” the protests via intelligence evidence gathered prior to the raid. There is nothing illegal about being a leader of a protest.

While all of this is going on, Maduro keeps trying to talk dialogue, while Diosdado Cabello makes wild accusations against opposition figures, many of which are members of human rights ONG’s or are involved in the dialogue process.

So, can anyone understand what is going on here?

Well, I am not sure I can and that is why I have been silent on the whole process for so long, because the change in strategy not only took me by surprise, but I truly did not believe the Government would go and frontally attack the students like it did.

The question is whether the Government changed its thinking and decided on a new strategy, or whether this was an individual act by Rodriguez Torres. Or whether there is agreement on which strategy to follow.

My interpretation is that this was not a unified strategy, but that Rodriguez Torres acted on his own, after many discussions not leading to anything within the Government.

The camps had actually been quite successful. Within the Government there were, and are, large divergences on to how to handle them. Not doing anything was to many simply a sign of weakness. Doing something was an act of future intimidation to others, which was badly needed. While Maduro favors the dialogue that he agreed to internationally, he also believes that intimidating the opposition is the way to go, while Diosdado does not believe in the dialogue at all.

Thus, Rodriguez Torres acted on his own or tried not to involve Maduro in the whole operation as a way of having the President save face, and his image, while at the same time acting in the intimidating fashion that he had always favored. As the leading enforcer of the Dictatorship, Rodriguez Torres cares little about appearances, as his raid clearly demonstrated, while defending the empty revolution is all he cares about.

Meanwhile Maduro can welcome the Foreign Ministers arriving on Thursday and argue that he was unaware of the plan as there had been no agreement on strategy, but the protests had created an untenable position for him.

Of course,the raid and the way in which it was carried out completely (and finally!) destroys the image that Chavismo has tried to build and defend over the years of a democratic Government, respectful of the rights of others, while twisting and perverting the laws and its interpretations to have its way. To the UN, it was an unexpected slap in the face. And now Maduro will try to blame the break in the dialogue to the intolerant opposition, something that the Unasur mediators are unlikely to buy, but Chavismo believes that it can sell anything to what they think are the naive Foreign Ministers of Unasur. (After all, they have so far)

Unfortunately, this bodes badly for the Venezuelan opposition, whether students, MUD, anti-MUD, pro-Salida or whatever. Rodriguez Torres stepped over the line and got away with it. Next time he will push further. And the one after that even further.

Dictatorships are like that. They push the line and then they push it again, until they find themselves at a point where human rights abuses and appearances are simply irrelevant. Where the important thing is, as Rodriguez Torres said, the survival of the Bolivarian revolution, however failed it may be. And if next time it requires jailing dozens of opposition politicians, so be it. Or killing a few dozen protesters. Oh well! they were being too violent. An explanation will be found and we don’t care if you don’t believe us, we are a sovereign country.

There are too many games being played at once within Chavismo, that of appearing as a Democratic Government respectful of others, is simply no longer a priority. Human rights are simply not a priority for the revolution. Not even the appearance of respect for them. Neither are the students, the universities or the young.

You have been warned!

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:

Bolipuertos

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:

marinetraffic1

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.):

marinetraffic2

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:

Maritime3

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:

ship

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)

 

A Premature Look At The Nascent Sicad-2 Venezuelan Foreign Exchange System

March 26, 2014

Sicad2

It is premature to judge the Sicad-2 system yet, but I think it will be premature to give judgement on it for quite a while, so it is worth talking about what has (finally!) happened with this nascent foreign exchange system.

First of all, I clarify what I tell everyone that wants to listen: this is not a trading system for fx, as has been reported in the international press. This is a system by which the Government allocates foreign currency to those that request it, with the Government exercising a significant discretionary judgement in the amounts and levels at which people are allocated the foreign currency.

The Government took quite a while in implementing the system and it is still not fully functional, but I guess it was getting to be somewhat embarrassing to announce that it would begin operating so many times and having it postponed for almost a month.

So, the first good thing to say about Sicad-2 ,is that it is here! Finally!

The bond part of the system is not functional, but should be up and running soon. Basically, right now you are just given cash. At some point in the future you will be told that you were given the equivalent of the amount allocated to you, but in the form of a bond at the price of that particular instrument in the international markets. There will be uncertainty in the final price as the bond will be sold in two or three days.

So far, only banks are part of the system. The regulations for brokers are not out yet and they have not been authorized to work in the system. Many banks have yet to begin operating with Sicad-2, essentially because they have not given the system an urgent priority and are taking their time starting operations. Other banks, you can even place orders via their webpages.

The second good news is that the Government wisely decided to operate a a price higher than apparently many people expected. This is good for reducing the distortions, it will improve the fiscal balance, create incentives for foreign oil companies to invest in the Heavy crude projects and help with PDVSA’s cash flow. According to the President of the Venezuelan Central bank, foreign currency has been allocated between Bs. 50 and 61 with the average price each day at Bs. 51.84 and Bs. 51.58. Apparently, no order above Bs. 61 has been filled.

The parallel market went down to Bs. 55 before Sicad-2 began operating, but is being indicated at Bs. 75 today already. Either people sold a lot of dollars ahead of the start of Sicad-2 or they were expecting much lower levels for it.

Reportedly, individuals are being assigned, so far, small amounts, even if they requested large ones. Similarly, many company orders are allocated a large fraction of their order, but not all. The Government is not reporting total amounts.

Demand has been slow. On the one side, those requesting dollars may not have an account in dollars in Venezuela or in the case of companies, they are still looking at the legal issues surrounding Sicad-2. On the financial institution side, not all are ready for it.

In the end, the big question remains how much is the Government planning to sell via Sicad-2. This is what will determine its success. We believe that it will only work if part of the foreign currency allocated to Cencocex at Bs. 6.3 per US$ or the Sicad I at Bs. 10.8 per US$ is moved up. Perhaps the fact that Sicad 1 was lowered to Bs. 10.8 per US$ implies that the Cencoex  dollar will be moved to the Sicad 1 rate. There are indications that this is what the Government has told some industries in private, but it will require increasing regulated prices significantly.

Thus, the conclusion is that it finally started, foreign currency is being sold at a good level to make the system successful but we don’t know yet about whether the Government will sell daily average amounts that are ample to satisfy demand and make the system a total success.

Despite the cartoon above, it is looking well, but we reserve final judgment until wee see the dynamics for a coupe of weeks.

To Those That Think Maduro Is Not A Dictator: ¿Qué Pasa en Venezuela? by Foro Penal Venezolano

March 14, 2014

I am still amazed by the number of people that are still saying we should wait for elections, bla, bla bla. The video above proves beyond any doubt that Nicolas Maduro has become the Dictator of Venezuela. He has to go. Period.

And if you still have doubts, read Gustavo Coronel’s article “Approaching the Unthinkable” about Venezuela importing oil and you will realize that indeed, under Chavismo, all that oil underground will always stay there.

Si-Cad Or So-So-Cad in Venezuela’s new fx system?

March 11, 2014

BifYRUcIYAASg43

Almost eleven months ago, Nicolas Maduro was elected President and since then, the Government’s economic team has been telling us about the new foreign exchange system (fx for short) in the works, which was almost ready. Today, everyone wants me to write about the “new” and “improved”  fx system, called Sicad 2, but there is not that much really that I can say about it. The Devil is in the details and we still don’t know most of them.

Meanwhile, Maduro keeps thinking that talking and not working, is the way to survive as President. He now has a new program (above), While that may have been something good to do for his former boss, he just does not foot the Bill. I mean who wants to listen to Nicolas give us his usual BS that half of Venezuelans are right wing fascists oligarchs, and the other half pure PSUV socialists? If that were true, there would be hope for Venezuela, not because we need more oligarchs, we have enough with Chavistas, but because there would be more market ideas, which does not seem to be what the opposition is proposing either. But Nico sounded nostalgic tonight, maybe he has been reading too much Dieterich these days. Eight weeks left of this nightmare? First time I am rooting for a Chavista prediction!

But going back to the new fx system, the so called Sicad-2, which is what people want to know about, all I can sayis , so far it looks like So-So-Cad, more than Si-Cad in my opinion. And I do hope they change my mind in the upcoming days. I would love to be proven wrong.

But let me be clear: Sicad-2 is a huge and positive step for Chavismo. First, it is a significant break with their ideological straight jacket, which has tied them for so long, and it it is very positive step for PDVSA, which will improve its cash flow by selling dollars at a much higher rate than the official Bs. 6.3 per US$ or the Sicad-1 rate of Bs. 11.8 per US$.

End of positives.

Because in Sicad-2, the Government has not created a foreign exchange market, but as usual, a complicated auction-like system, in which it is not clear who will win and how much you win. This is typical Chavista thinking: They spend eleven months thinking of what to do and come up with a Goldberesque system for fx trading.

To begin with, what is the fixation with bonds? Why can’t people trade Bolivars for US Dollars, Euros, or Yuans?  (or vice-versa). Remember that bonds were introduced in the fx system as a pantomime to mask the true fx rate at which things were being done. The Government made it a criminal activity to buy or sell Bolivars for dollars or vice-versa, unless you used securities. You could not even say at what equivalent price transactions were being made.

But now, neither how you do it, nor saying the price is illegal. You can even say the price of even the black market, it is no longer a crime. Remember all those brokers jailed in 2010? The case against them has been dropped, as the new Foreign Exchange Illicit Bill, decriminalized everything they were accused of doing.

So, why not forget about bonds? The Venezuelan Central Bank will actually state at which rate each batch of dollars will be sold on average.

Anyway. The new and improved Sicad-2 will begin operating…soon. We still need the rules and regulation. But if we are to believe the authorities, it will work something like his:

You go to your friendly bank, where you will say you want to buy x dollars and you given them a range of prices at which you want to buy (or sell if you are deranged enough). (You need an account in Venezuela and in dollars first)

Your bank, will create a spreadsheet with all its postures, which it will send two or three times daily to the Central Bank. You can only place a single posture per day. Unlimited, in amount or price.

The Venezuelan Central Bank will come back to you and say Si-Sicad for you, or No-Sicad for you, without explanation, after “matching” buying (bids) prices and sell (offer) prices. At the end of the day, the Central Bank will publish only the average price of all dollars sold.

So, this is not a market, it is a pseudo-auction system, where only the Central Bank will know bids and asks and what it does with them.

Fairly opaque in the details.

The system has no upper bands, limits and is flexible, but nothing says there will be unlimited offer to all the bids. In fact, I am sure there will be limited offer only. Nothing says that if you want to buy 1 million dollars at Bs. 100, they will give it to you. In fact, they may give it to you cheaper, as the Government has the right to intervene to keep the price down.

So, it is still is unclear. My opinion is that the Government has very limited resources for this market. Thus, initially there may be some optimism, which will fade fast. No matter what you may have heard, the parallel market (it is no longer black) has barely budged, suggesting some level of skepticism with the new Sicad-2 system.

At the same time, there will be little demand at the beginning. The large buyers (multinationals) will have to review the foreign exchange agreement, the regulations and the Foreign Exchange illicit Bill before they can even begin to operate in this new Sicad-2 market. The small buyers (you!) will have to open a dollar account in Venezuela, which is apparently one of the requirements to participate.

So, it may be on Maduro’s first year anniversary as President in mid-April (which falls in the middle of Dieterich’s prediction) before Sicad-2 shows its true dynamics and whether it is a real positive or not. In my humble opinion,there will be too many exchange rates, not enough transparency and too many limitations. The Government in trying to solve economic distortions, simply creates more and more, without understanding the true implications. To begin with, a new price for the dollar, which represents a huge devaluation, implies allowing prices to rise in the middle of 56% inflation per year. The Government has yet to understand that a foreign exchange market is not economic policy, but a transactional part of the economy. If it does not create other rules and regulations, it will all be a waste of time.

But if Sicad-2 is all they could come up with in eleven months, there is little hope for the rest of the policies. Thus, maybe Dieterich is right.

I just find it hard to be that optimistic.

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