US Initiates A New Stage In Its Relations With Venezuela

July 24, 2014

396772_112525_1Image from Semana magazine

One of the puzzles over the last decade, has been the timid attitude of the US Government towards corrupt Venezuelan officials, who roam around the US enjoying their ill-gotten gains. In fact, it is known that some of them, have turned evidence in exchange for being allowed to stay in the US or not prosecuted. Despite this, it just seems as if over the years, it was all an intelligence gathering operation with no follow up.

That may have changed this week.

After an effort was apparently rebuffed by the Obama administration to impose sanctions on Venezuelan Government officials, the US Government has clearly and quietly gone on the offensive this week.

First, it was former Judge Benni Palmeri Bacchi, who arrived in Miami in a private plane (like so many current and former Chavista officials like to fly) with his family to enjoy two weeks of supposedly a pre-paid vacation in Disney World, Orlando. Instead, Palmeri was charged with protecting Colombian drug traffickers by allowing them to fly cocaine shipments to the US.

But the big fish, not to say the big chicken, was General Hugo “Pollo” Carvajal, who was detained in Aruba when he arrived, also in a private plane, purportedly owned by a relative, and tried to use one of at least two, if not four Venezuelans passports he was carrying (As well as US$ 20,000 in cash, that he obtained via no official source in Venezuela). You see Carvajal was nominated to be the Venezuelan Consul in that Caribbean island, but the Government of The Netherlands had yet to approve it, making his diplomatic  immunity non-existent. And adding to his problems the US started including Carvajal in its drugpin list in 2008, as you can read here.

And if Carvajal is ever extradited to the US, he is in serious trouble. While the news concentrates on his relations to drug groups, Carvajal was involved with drug/terrorist organization FARC and in the infamous Reyes computers Carvajal is said to have offered the FARC terrorist weapons, as well as lists of prominent Venezuelans to kidnap.

And if Carvajal is ever extradited, that is where his problems begin. Once he is in US soil, the charges could quickly shift from the drug angle to the terrorism one and Carvajal could be taken away from the DEA’s hand and Guantanamoed for the rest of his life. He could be jailed in a maximum security prison for more years than his life expectancy will allow.

And I say “if”, because many things  could happen to Carvajal. Maduro has already say that he fully backs Carvajal, who was “kidnapped” by Aruba’s authorities, threatening the tiny island with economic, energetic and commercial sanctions.

So, you can bet that right now there is a many front effort by Venezuela to get Carvajal freed, just the same way there is a full court press by the US and the Dutch Government to get him extradited ASAP.

The only question is who gets to or finds the weakest link first. The weakest link could be an official that can be bought, a Judge that can be influenced and voilà Carvajal could show up in La Carlota, Miami International or Schipol.

The US is likely to be applying lots of pressure to get Carvajal off Aruba as fast as possible. The island likely has the weakest links in the process, the question is whether it can pull the required strings fast enough.

It will be a very entertaining movie to watch the next few days. But no matter what happens, it is clear that the US has initiated a new era in its relations with Chavista Venezuela and that many a Chavista official or beneficiary of Chavista corruption must be trembling today facing the impossibility of enjoying their ill-gotten gains in Disney World. Their impunity in traveling around and moving funds around is over. From now on, each step has to be watched and considered.

Or else..


Maduro’s Empty And Bizarre “Sacudón”

July 15, 2014

When I first began this blog, I overused hyperlinks. My reasoning was simple: Some of the things going on were so bizarre and difficult to believe, that my credibility was at stake if I did not indicate the source of what I was saying was happening.

This is no longer the case.

The way Venezuela is run, the things the country’s leaders say or implement, from the Ozone tax, to President’s that talk to birds to 20 billion dollars rip-offs (twice), by now people have become accustomed to the bizarreness of the revolution.

But somehow, the Bolivarians never cease in amazing and surprising us. It would be entertaining, if were not so painful. Which it is.

I mean, when a President announces that he will make important announcements the next day, which involve the Sacudón (Big shake up?) of the structure of the State, the “misiones” and the economic and social offensive, you expect something. You expect even more, given the current state of the economy, with inflation running at 60-plus percent per year, 5,5% per month, shortages, airlines leaving, international reserves depleted, daily protests, Government losing popularity and fiscal and monetary distortions killing economy activity.

I did have my expectations down. I know the various factions in Government differ on how to solve problems. I know there are no economists in or near the Cabinet. I know the Government worries more about losing popularity (and power) that about making things better. But I expected at least some form of vaporous announcements, half defined measures, watered down policies.

But I really did not expect a rambling Maduro announcing essentially nothing. Zip. Zilch. Nada. Niente.

First we had the nth. eulogy to our Comandante (“Our biggest difficulty is to have lost Him”), followed by a love fest. Love for all, but more particularly and more importantly, love for and to the military. Particularly, loveless Gen. Lopez Padrino, who apparently did not receive much love after his July 5th. speech, where he pledged allegiance to Chavismo above all. Lopez Padrino, according to Maduro, is supposed to represent the “new” Venezuelan military “thinking”. It does not get more oxymoronic than that.

Subconsciously Maduro also said how much the country misses Hugo, because he has no clue, I guess, he really wishes Hugo was here. Or there.

We then got the usual blast on the capitalists, opposition, speculators, who are responsible for inflation, shortages and all of the ills of the economy. Next sentence: But the Venezuelan economy is healthy (Never mind we have the highest credit risk in the world)

So, is there a problem or not Nico?

He seems to be in no rush to fix anything.

Next, the only “announcement”, we are ready for the fiscal revolution. Except the way it sounds is that they will control fiscal spending. Except that “fiscal” in Spanish, also refers to taxes. Thus, what it means is that they after impoverishing the productive sector, they will now try to tax it to death, so that “they” can keep spending.

Get it?

At this point it was important for Maduro to clarify: “We will make announcements”. No idea of the timeline at this point.

Then we saw the clueless Maduro: We now have to check what imports we can substitute. How Cepalese can he get? Does he understand any of it? (I don’t miss Chávez, how could he leave us with Maduro in charge?)

Again: we will make some announcements…

In between he had a guy who has been Chavista like three times and opposition twice in the last fifteen years, tell us how wonderful agriculture is doing and the VP, Chávez’ son in law, tell us how the Government will be turned inside out or outside in, don’t recall the order.

We were also told at some point and at length how wonderful and “democratic” the World Soccer Cup was. (Democratic my foot, the best team won, the rest suck!)

We then heard a blast against those that stole the US$ 20 billion via Cadivi/Cencoex.  Except that those that asked for $3,000 have been asked to prove their spending in the thousands, while not a single one of those that got the US$ 20 billion for imports has yet to be called. The Prosecutor says she does not want to interfere with the investigations, I say, she does not know who she will find behind each rip off, so she wants to be careful.

Then we come to the highlight of the day:

Maduro: “We worked really hard yesterday…like four or five hours”

He thus insulted , 95% of the working population of Venezuela, which I don’t want to guess how many Maduristas/Chavistas/Bolivarianos it includes, but it can’t be many.

By then, it was clear, there would not even be vaporous announcements like I predicted:

vaporososright after betting there would be no announcements relating to gas prices:

gasolinaBut I was very wrong. There no announcements, other than:

“We will make the announcements on August 11th.”

Yes, in the end, that was the only announcement of the “announcements”

And the we were shown a video of the one year anniversary of Nicolas’ marriage to Cilia. In another Fruedian slip, he said she was the real boss. As if we did not know…

It does not get more bizarre than that…but I will not listen on August 11th, I will be on vacation in September, when he will likely make some announcement.

Or maybe not…

 


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.


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

June 24, 2014

giordani

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Way to go Monk!

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

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

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

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

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

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

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

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

 


Venezuelan Government Tightens Noose Around Its Citizens

June 12, 2014

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

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

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

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

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

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

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

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

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

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

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

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

They should read this post…


Notes from Caracas…

May 29, 2014

agua

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

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

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

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

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

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

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

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

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

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

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

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

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

NoHayPan-600x320

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


Unfortunately, A Bleak Future For Venezuelans.

May 24, 2014

Qatar-Pharmaceuticals-470x230_01

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.


Another PDVSA bond…

May 18, 2014

bonos-PDVSA-2024

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

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

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

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

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

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

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

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

Only in Venezuela…

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

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

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

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

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

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


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