The Devil's Excrement

An electric door at the entrance of a neighborhood in Venezuela

I last wrote about the Brisas de Oriente barrio last year, its residents were protesting after a string of murders, the Government finally sent in the National Guard and after two months of no murders they left. Crime picked up again, but so far there has been only one murder since the Guard left.

Talking to my friend who lives at Brisas de Oriente, I was intrigued when he asked for monetary help to build fences and ramps. When I dug more into it, I discovered that poor barrios in Venezuela are now using the same techniques that fancy residential areas have used for about two decades: Neighbors are getting together, fencing around their houses and putting in a common gate to block the hoodlums from breaking into their homes or mugging them. Much like in the wealthier areas of Caracas and other cities, this creates small ghettos everywhere. In the fancy areas there are guards and electric doors and fences, in the poor areas there are fences, locks, chains and padlocks to keep crime out.

Thus, crime is turning Venezuela into a multi-layered ghetto. It began with bars in the windows and walls around homes, then came the fences around a group of houses, which my friend says is now becoming quite common in his and other barrios. everyone is looking for protection since the Government no longer provides any form of safety. After dark, whether in the barrio or the East of Caracas, there is democracy, everyone feels the problem, so you try as much to stay inside your ghetto, where you think and hope, you are safe.

The end result is terrible, a country privileged by the weather and the enviroment, but citizens have to close themselves in more and more, ugly bars on windows, huge walls that block views and stop air from moving.

Another failure by Government, from the same man that pleads for more time to do “more”. Sure, more damage.

As the Chavez administration has given billions to other countries and received billions in oil income, imposing new taxes and a new windfall tax on oil, it failed to budget to pay public employees their benefits. Given that most of these public employees are Rojo/Rojitos and march to the tune of the all-mighty leader, the wonder is how they stay loyal.

And as if that was not enough, now there is a proposal to take money away from all Venezuelans (the usual) and “pay” these debts to these workers using an instrument to be called Petrorinoco, which in the end should be called Petroripoff. Because in the end, what the Chavez administration will do is simply to pay only part of the debt to these workers, issuing this novel instrument.

The details are fuzzy (What else is new?), but if one puts together what Chavez, Ramirez and the press (particularly El Mundo) have said, it goes something like this:

The Government will give 4% of all of the partnerships of the Orinoco oil belt to a “Fund”. Between now and 2034, when the contracts for the partnerships expire, this 4% plus 3.3% in royalties and taxes that will also go to the “Fund” will generate about $18 billion in capital plus the interest.

Thus, the Government will issue about US$ 18 billion in bonds, about US$ 1.7 billion in Bs. and the rest in US$. The Bs. bonds will matures in three or four years, but the dollar bonds will mature in 2034.

Since the Government owes public workers US$ 18 billion in benefits, including severance, it will pay these workers with these bonds guaranteed by the “Fund” (It is unclear what the money in the fund will be used for in the meantime, but you can guess). Workers will not be able to sell the bonds for two years, but they will be able to do it after that. What this means is that the workers that sell after two years will only get part of what they are owed, because these bonds will likely have a low coupon and thus will not be worth 100% but much less of what the worker will be owed.

Sure the worker can wait until 2034 to get 100%, but he may not only be dead, but who knows what other trick will be played with the “Fund” before then. Because it is a funny mechanism to have the fund accumulate the capital until maturity, who will use those funds in the meantime?

Thus, the Government creates an instrument to rip off the workers twice, once, because they were not paid, twice, because they will be paid much less. To say nothing of the fact that this “money” will come from equity in these oil projects that belongs to all Venezuelans, not only to public workers.

Finally,I wonder if anyone in this inventive and creative Government has thought about the impact of US$ 18 billion in bonds due in 2034 hitting the market all at once when millions of workers sell their bonds after the two years have expired. As the 2034 bond drops, it will offer more yield than other bonds, bringing the whole Venezuela/PDVSA curve of bonds crashing down all at once.

Not pretty…

(The picture above is for illustration purposes only, it only has a vague relationship to the post and is placed here simply to provide an image of the topic for the contents of the post)

In the upside down country that Venezuela has become, rather than investigate water quality in Monagas and Valencia, the Government had a Court issue an injunction telling the media to act “responsibly”. So far, there has been no similar order for the Government to use “extreme responsibility” and prove that the water is safe to drink. Here is our report which complies with the order:

After the oil spill into Rio Guarapiche on Feb. 4th. XXXXXXXX remain XXXXX, despite the fact that Government officials say XXXXXX. The Governor of the State XXXXXX said that XXXXXX, creating a crisis after the Minister of the Environment said that XXXXX. This has been contradicted by XXXXX, who said that XXXXX. The Government is not investigating whether the charges are true.

Separately, an ecological movement (link withdrawn) said that the waters in lake Valencia present XXXXXXXXX and it reptresnts a time XXXX and it represents a XXXXXX and XXXXXX crisis. The Government denied :lake Valencia was XXXXX and said it would accuse the Governor of Carabobo for XXXXXXX XXXXX in the population. The National Assembly will wait a month before looking at the problem.

There you have it, a fully complaint post on water problems in Venezuela. Enjoy our democracy!

When you thought I was done talking about pet obsession Fonden, an eager reader sends me this intriguing document above, the report by the “Comisario” as of June 30th. 2011 for the fund. The “Comisario” is an independent overseer in Venezuelan companies, which acts independently of the Board and has to report annually on what the Board and the auditors say about the company or institution. Typically, these are fairly lame reports as “Comisarios” are paid by the Board, so they don’t want to give away the annual payment they get.

This report is sort of strange, it basically seems to take snippets from the auditors report and comments on them. What is even weirder is that it has material about stuff that did not happen in the period covered, which I don’t quite understand. Here is a summary of what it says:

-The first thing that is different, is that despite having used “official sources” for contributions to Fonden, including the Central bank and PDVSA, for some years my “OLD” table in this post, had errors of as much as one billion dollars, small change for the revolution. Here is the summary from the report above (page 4) and the comparison. Totals and differences are in red:

Of course, my “OLD” table only included up to 2010, this includes up to June 2011. Note the size of the errors, a billion there, a billion here. That is how the revolution works, it is a perverse dance of billions.

-We then find out that the development fund Fonden, seems to have as one of its main purposes, contributing to other funds.  Indeed, the Fondo Simon Bolivar is funded by the returns of Fonden (page 5)

But more interestingly, in the circular world of Chavismo and the Bolivarian revolution, there were two 2 billion dollar contributions to the China Fund and US$ 2 billion in projects that also came from Fonden (page 6) One was in 2008, the second one for US$ 1.955 billion in 2008 but it appears the “projects” were transferred, then in 2009, another US$ 2 billion was transferred to Bandes for the Chinese Fund.

Note that this is in part how Chavez becomes like Jesus Christ in multiplying the fish and the bread, each one of these is an announcement (or many), but in the end it is the same billion here or there, it just gets recirculated around in the dance of billions.

-We then come to investments:

In point 1) The “Comisarios” note that Fonden has money in Commerzbank, Barclays, Deutsche Bank and Emerald Capital.

Hello? Emerald Capital? WTF?

All I could find about this company in such distinguished company was a report by Businessweek that textually says: “does not have significant operations. The company is searching for assets and businesses to purchase that would provide significant shareholder value.”

Jeez, aren’t we all? I guess they found some assets and someone made some juicy commissions. Emerlad’s business plan seems to be starting to work at Fonden’s expense.

But it gets better, in point 2) (page 9) Fonden purchased US$ 86 million of Republic of Bolivia Bonds, a country that has not issued bonds to public markets, according to Bloomberg, since the 1920′s. Nothing like being a pioneer investor.

But it gets even better: In point 4, Fonden purchased some Republic of Honduras bonds, which somehow wanted to exchange later. I guess Zelaya left and they no longer were interested.

Now it really gets cool and capitalistic with Fonden investments. Remember this is the money to be invested for the country’s future. But in point 6) page 9, you can read all about how Fonden had US$ 876 million in none other than your friendly neighbor financial organization, Lehman Brothers, which just happened to go bankrupt in 2008. It says here that somehow, Fonden managed to exchange this for a Note backed by Venezuelan instruments and Fonden made US$ 5 million. There are no details of who was the fool who did such a transaction, but somehow, I think there were Bolivars involved in the middle.

To cap the investment track record of Fonden, the fund invested in Ecuador bonds (point 8) These are the same Ecuadorian bonds that country defaulted on (Shucks, you can’t trust the comrades) Somehow Fonden, exchanged those defaulted bonds and somehow in the end supposedly made a gain on some part of it. Lots of commission in the middle. I guess someone was truly “developing” his or her future with all these deals. But not much happening in Venezuela.

Finally, (page 11) Fonden “invested” US$ 366 million in buying 49.99998779% of Russian bank Eurofinance Mosnarbank, another giant step in Venezuela’s economic development.

-Where it gets interesting is here: The document tells us how Fonden distributed the money. Remember the missing US$ 29 billion? (Plus or minus a billion, to use revolutionary nomenclature). Well. it turns out that they just did not want to show that the money was not “invested” in projects, but just recirculated around.

Quico sent me his spreadsheet (Thanks!) in which he added all of the projects Ministry by Ministry of what Giordani told Deputy Ramos had been assigned to projects. Below find the original table, corrected with the new data (You can click on it to see it better):

It is very interesting, the largest share of the “missing” money is in the Ministry of Finance, a difference of “only” US$ 10.8 billion dollars. Clearly, since that Ministry does not execute projects, that money was used as needed, sort of a billion dollar petty cash fund, whenever Giordani, who not only runs Fonden, but is the Minister of Finance and Planning, needed a billion or two, here and there.

After that, there is a US$ 6 billion difference with Energy and Oil, once again, PDVSA gives money to Fonden, which Fonden sends right back, as needed, in a sort of vicious and virtuous circle at the same time. Add Agriculture and Transport and Communications and you have already found US$ 23 billion of the “missing” money.

In fact, “differences add up to US$ 34 billion, more than we thought was missing, because this includes the 2011 (first half) contributions, which were not part of our accounting.

Ironic, that in this merengue of billions, the number one problem in the country, crime, gets a puny or miniscule US$ 25 million via the Ministry of the Interior and Justice. That is roughly 0.034% of all the money spent by Fonden. Amazing!

-Finally, it appears that (page 13) Fonden has lots of things in Banco del Tesoro, but that bank failed to provide proof of the instruments, but these are numbers in the range of a billion or so, fairly uninteresting by Fonden standards.

There you have it. Please, if you have access to additional information we would be delighted to receive it, analyze it, mutilate it and process it. It’s simply priceless to read how these people are destroying value and moving billions like there is no tomorrow.

Maybe there isn’t…for them…