Archive for the 'Venezuela' Category

Violence And Death On The Campaign Trail In Venezuela

November 27, 2015


No sooner had the campaign for Venezuela’s Parliamentary elections began that acts of violence began. There have been at least seven acts of violence during campaign events. Curiously, all of them have been against the opposition. These are not simple threats or side shows. As shown above, one of these incidents involved hooded activists, most wearing the emblematic Chavista red shirts, some of them holding machine guns.

Then, two nights ago, as an opposition rally was winding down, the Secretary General of Accion Democratica in Guarico State, Luis Manul Diaz, was shot death. This was no ordinary rally, the wife of jailed opposition leader Leopoldo Lopez, Lilian Tintori, was present and close to the shots, there were over three thousand people in attendance and the bullets sprayed walls and luckily did not hit anyone else.

When the violence follows Maduro’s statements that Chavismo will win the elections “Como sea” (In any way…”), it is difficult to dismiss the meaning of these acts of violence. But when there are deaths involved, it becomes particularly dangerous to dismiss the violence or not remind the Government that it is in charge of law and order.

Particularly at fault have been the representatives from UNASUR, the only ones allowed to “observe” the upcoming elections, who have reacted with platitudes directed to the electorate and both sides, rather than remind the Government of its responsibilities to maintain order and prevent violence.

The reaction by the Government has been as cynical as can be. From Godgiven’s “these were all a set up by the opposition”, to suggesting that the dead political leader was a murderer and this was nothing more than a fight between unions. As if human life was only the right of a selected few and the same presumption of innocence, the same one that the Government wants applied to the two “Venezuelans” detained in a drug sting in Haiti, does not appear to apply to these people.

The important question is whether the Government is looking to postpone the election or simply to create fear in the elctorate as well as in the politicians looking for votes. I have never been in the camp of those that believe that the Government will cancel the elections, so I have to go for the second argument. The strategy for Chavismo is a multiple one: From state of emergency in border states, to Min Unidad distracting vote, to violence and intimidation. Once the votes are in, and if they are unfavorable, then the “Como sea” strategy will need to be implemented. But not before.

An Explosive Bag Of Doritos In Venezuela

November 21, 2015


Venezuelans are tense. Fed up with Chavismo after 16 years. Fed up of abuses and authority. People are less passive. They are willing to stand up more for their rights even in the face of excessive authority. They look forward to the upcoming election to express their unhappiness. But even criminals are now confronted in barrios, since the police will not act.

Except that when people take justice in their own hands, many unexpected things can happen. This is the story of one of them. This was published in Reddit and I reproduce it here with permission from the author, who goes by the handle #xaitox. I have polished his English a little bit, to make it easy to read.

The story is tragic and at the same time, comic. But tragic in the end. This is what 16 years of this Government have led the people of Venezuela to.

In #xaitox’s own words:

“This happened about 3 hours ago…

I am a 29 years old male, living in probably the most corrupted country in the world (Venezuela). So just to give you some background, Venezuela is in a very difficult situation, political and economical, the majority of us want to get rid of this corrupted government and we have elections in a few days. So , the tension is palpable in the streets, police and military are corrupted as fuck (you can buy weapons such as grenades or sub machine guns from them, etc etc) basically hate is in the air.

So, I was in a traffic jam, one of the many we have daily when hunger hit me, I had a big bag of Doritos in my car, so I decided to eat some, I have a gastric bypass and can’t eat that much anyway, I was eating with my window open when a motorcycle with 2 military officers (low rank) stood beside me, waiting for their turn to pass. I see the guy in the back literally drooling looking at the Doritos so “Why not? I won’t eat this much”. I offer him the bag and he didn’t hesitate to take it with a very big smile and thanking me….

20 seconds later the shit storm!!! The driver next to me gets out of his car screaming “you fu*king thieves! Let the guy alone he has done nothing to you” (he thought I was being black mailed and I got asked for money inside the bag which is one of many ways for them to get paid black mailing you), I get out of the car to explain that it wasn’t money, but hell no, the military officer that was driving told me in not such a pleasant way to stay inside the car, that he could handle it….

He gets off the bike and goes to the guy that was screaming, baton in hand, when all of a sudden no less than 20 people are surrounding him screaming “Thief!!!! Oppressor!!! Go to hell” and start punching him. Military guy #2 gets down to help his friend and getting punched and screamed. He managed to get military guy #1 back the bike and proceeded to drive as fast as he could… Everyone got in their cars and guy #1 hands me back me the  bag of Doritos  “Here’s your money”…

Now I have my Doritos back in my car and there is sadness in my heart for how deep this society has fallen…

But I do have half a bag of Doritos to eat in the traffic jam tomorrow and I have that going for me, which is nice.

2 military officers got their asses kicked for a bag of Doritos I gave them.”

Tragic no? An act of kindness turned into a tragic event, tragic for the military policemen and a tragic statement about where Venezuela stands today as a society…

Update: A friend sends me this video which he taped at a Mall in Caracas. The people in the Mall kicked the National Guardsmen out of the Mall, as they were trying to extort merchants. They follow them calling them : “Hijos de Puta”

And another: Centro Comercial Gran Bazar in Maracaibo:

A Remarkable Letter By The OAS Secretary General to The Head Of Venezuela’s Electoral Board

November 11, 2015
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Today, the Secretary General of the Organization of American States, Luis Almagro, wrote the extraordinary letter above to Tibisay Lucena the Head of Venezuela’s Electoral Board.

Extraordinary, because for the longest time, Venezuelans have become accustomed to the cowardly and cynical and mercantile attitude of most Latin American leaders when it comes to the respect of human rights of Venezuelans and the way elections have been run in the country. Even when they criticize, they tend to do it meekly and indirectly, seldom addressing the issues directly.

Secretary General Almagro does an extraordinary job of doing it, without mincing any words and addressing the problems head on.

I personally would like to thank Mr. Almagro for doing his job and without avoiding the thorny issues that his predecessors and those in leadership positions in so many other countries and institutions in Latin America have done so for the last sixteen years.

While there is promise of an English version, I wanted to summarize in English the gist of Mr. Almagro’s letter, without translating it verbatim:

Mrs. Tibisay Lucena:

I have received your kind letter in which you reject our offer that we (the OAS) execute an an electoral observation process during the Parliamentary elections on December 6th. 2015.

I regret that this rejection is based on political positioning and not on the arguments that make Justice and guarantees necessary for an electoral process.

I do not object that you show your political position, but I suppose that you have it clear that the job of the electoral justice transcends completely that type of positions and that it requires to place yourself at the forefront of the guarantees demanded by the parties, whether they are Government or opposition.

In your letter, you reiterate that Venezuela’s electoral system is efficient, but I understand that electoral guarantees do not only refer to efficiency.

I would have hoped that in your letter you would have place at the forefront the guarantees demanded and that from it it would have arisen that all of the needs of Venezuelan political parties are covered to insure that the elections that will be held will take place in a just and transparent manner.

If the Secretary General of the OAS were indifferent to the requests of the opposition of the countries about the electoral observation we would be gravely failing our job, which is to support the proper functioning of the electoral process for all parties involved.

We would be failing our job gravely if we did not take into account the conditions under which the Venezuelan electoral campaign is developing with respect to the future legislative elections. It is worrisome that from the analysis of those conditions we have to conclude that as of today, the difficulties only reach opposition parties.

In this scenario we all are involved either by action or by omission, but that fact makes the essence of you job.

You are in charge of electoral Justice, you are the guarantor. Everyone should trust you, all parties, all citizens and all of the international community because Venezuela has obligations with democracy which transcend its own jurisdiction. An election needs that all of the actors involved, citizens, political parties, press and civil society have been assured the full enjoyment of their civil and political rights.

You have seen us insist to perform the electoral observation because it is or job to safeguard for electoral Justice in the region, because electoral Justice is a prerequisite for the correct functioning of a democracy and for the guarantee of the most ample respect of the civil and political rights of each and everyone of the citizens.

The opposition in your country has repeatedly requested that we we perform it and, as I have said before, you also owe them the guarantees, because your Government has many ways to insure that the results be just. And it is not a request that is out of tune, it is your obligation, legal, as well as moral. It is the obligation of the CNE, but it is also the obligation of the OAS.

If I looked the other way in the face of the complaint of the opposition oin your country and the international community, I would be failing my most essential responsibilities. If you do not have the mechanisms that insure that the observation has the most ample guarantees for their work, you are failing your obligations that make the essence of the guarantees that you should bestow.

Your job is to watch over just and transparent elections that develop with the maximum guarantees. That implies watching over those guarantees months before the elections. It is required  and to do what is required is a matter of electoral Justice.

To look out for justice and transparency in the elections is our obligation and it is not interference. Interference would be if I disregarded the just and well founded complaints, if I looked the other way given this situation. In such a case I would be doing it by omission, because my inaction would allow for measures that affect the candidates and that in such a way, affect the possibilities that all citizens be allowed to elect freely and fully.

This is why I ask in what follows the foundations of my insistent offerings for electoral observation, based in the need to demand conditions and guarantees for electoral Justice. They represent the conditions for the Venezuelan political process that make me reaffirm that an international observation would provide all Venezuelans with peace of spirit when the time comes to count the votes.

General conditions of the process and the campaign, a level playing field

Then he cites the problems in details in over a dozen pages, I will just cite the main subjects:

-Use of Financial resources (by the Government)

-Access to the media

-Confusion in ballots

-Security Plan, Operacion de liberación del Pueblo (OLP)

-Changes in the rules of the game.

-The ban of certain opposition candidates

-Intervention of Parties by the Judicial system.

-State of Emergency in some States and its impact on the elections.

-Freedom of the Press and of Expression.

-The sentencing of Leopoldo Lopez.

Sincerely Luis Almagro





Making A PDVSA Bond Exchange Attractive

November 8, 2015

People have gotten all worked up about some statements made by Pdvsa’s President (who has other cambures now) that the company may “talk to bondholders to modify the maturities in the next two years in order to make them more manageable”.

What he is talking about is about a voluntary exchange by bondholders, something bondholders always are willing to listen to: Pdvsa would offer people to switch the US$ 1 billion in PDVSA 2016 and the US$ 4.1 billion of the PDVSA 2017 N, which matures in two parts, half in 2016 (US$ 2.05 billion) and US$ 2.05 billion in 2017.

While some form of exchange proposed to bondholders is definitely workable, the key here is the word voluntary: You have to offer bondholders something attractive in order to make the switch. From Pdvsa’s point of view, you want to maximize the number of bondholders that accept the exchange.

As I said above, people have gotten very excited about this possibility, because in the end, Pdvsa’s problem is one of liquidity and moving the Pdvsa 2016 and 2017N maturities two years down the road, would certainly boost the company’s bonds prices.

Except it would be very expensive. Like very, very expensive…

The plot below shows the price of the PDVSA’s 2016, 2017N and 2021 bonds (blue diamonds), together with its yield  to maturity (red squares):


The yield to maturity of the PDVSA2016 is 30%, it goes up to 50% for the 2017 with the low coupon and then drops again to 30% for the PDVSA 2021. I have also plotted the blue triangles which are the bond prices and, since there are no bonds maturing in 2018, 2019 and 2020, I have drawn free hand (using the Venezuela curve as a guide) a yield curve through the three points to try to capture the yield that would have to be offered in 2018, 2019 and 2020 in a proposed exchange. This is shown as large blue circles.

Now, let’s assume (there are many ways of doing this), that the idea is to move the 2016 to 2018 and the 2017N into two bonds, one in 2019 and the other in 2020, since there are no PDVSA bonds maturing in that period.

Let’s just consider the first case: Let’s offer something for the PDVSA 2016 to be exchanged one-to-one for a PDVSA 2018. As you can see from the graph, the PDVSA 2016 today is worth 79%. So, if you are holding 100k of that that bond you can sell it tomorrow in the market for 79k. So, anything the Government offers you, has to be worth 79k.

So, if we assume the 2018 bond has the same coupon of about 5% (I did not do exact calculations), from the graph yo can see that a 2018 bond with a 5% coupon, would have to yield 58% to maturity. In order for that to happen, the bond would be worth 27.5% of its face value.

This means that for it to have the same cash value today as the 2016, you would have to offer me 79k/27.5k= 2.87 times the face value!

This means that for a US$ 1 billion bond, you would have to offer US$ 2.8 billion in new bonds!!!

Sort of expensive, no?

But wait!!! Why would I take it? Where is my incentive? You are offering to give me a bond which is three years longer, that is worth the same as mine is worth today, same coupon. I am not interested, I will just wait until the PDVSA 2016 matures.

So, unless PDVSA offers MORE, this is not attractive. So, PDVSA would have to offer either more coupon or more capital, which would make it even more expensive.

See why this is not a piece of cake? Yu have to offer more capital or more coupon. Or both.

Some expert reader will be thinking: Oh, Devil! You are lying to us, because PDVSA can always offer more coupon and then it does not have to offer triple the amount…

Very true. But my calculations show that if PDVSA offered a 15% coupon for a 2018 bond in exchange for the 2016, it would have to offer you twice (Yes a factor of 2 instead of 3) as much as you have today, which would be cheaper, as three years of the extra 10% would only add up to 30% over the life of the bond. But going higher in coupon would certainly run into problems. And a factor of two is not exactly cheap.

But again, this is a theoretical case IDENTICAL for the investor than what he has today. On top of the double and the higher coupons, investors are going to ask for more. Either more capital, or more interest. Or both.

See the problem? It is very expensive to do this exchange and it means that in the end PDVSA would have a higher debt and the problem will be back in 2020, when PDVSA hopes (and prays!) oil prices would be higher.

Maybe PDVSA will just be running in place anyway.

To do this for the 2017N bond is not as onerous, but is still very expensive, I will not take you through the details, because it is a more complex case, but let’s just say that even at a 15% coupon, the bonds for 2019 and 2020 would be worth 35-40% of their nominal value, which implies you would have to pay people 1.5 times what they are owed today, plus a premium, plus the higher coupon.

Is there a cheaper way of doing this?

Well, yes, but no. Let me explain…

If PDVSA had not committed all that oil to the Chinese to pay for the Chinese loans, PDVSA could issue an oil-backed bond. Let’s say, for example, that PDVSA would sell oil every day to pay for these bonds (principal and interest) and each quarter, you would get paid part of the principal from a trust where the proceeds from the sale of the oil go to daily, plus interest.

If the bond is a two year bond, for example, you would get 1/8 of the principal paid each quarter plus interest. What’s the advantage? That if the bond is backed by oil exports, the interest rate (the coupon) would be much lower. Like way lower…5% maybe (guessing) on a two year bond. Now, an asset-backed loan like this, would be very attractive for investors, much like it was for the Chinese, as the structure is basically how the Chinese loans function: PDVSA sends oil, the proceeds go to a Chinese bank and the Chinese pay themselves from it.

Unfortunately, PDVSA likely has no ability to back the bonds this way, it probably has little spare production for this. But just think, it could offer the production as guarantee, just to lower the interest rate and then pay it with cash, if it has it. There are many ways to skin this cat…

Like the Republic could use some of the gold in the reserves to issue bonds guaranteed by the gold, but this would be just a way of lowering the coupon, the gold would be there just in case.

But, I digress. The main point is that a simple voluntary swap is not that doable due to the low bond prices. This makes it very expensive and seems like just kicking the can down the road.

Hard to get excited…and not as simple as people may think.





Venezuelan Central Bank Files Complaint Against Dolar Today In The US

October 24, 2015
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Thanks to the generosity of my readers, three of which sent me last night the document above, I managed to read the suit that the Venezuelan Central Bank filed against Dolar Today LLC, a Delaware company which supposedly owns the homonymous website and its related apps and channels.

I am no lawyer, but I did find this document remarkable in many ways. Perhaps the most ironic thing to me is that the Venezuelan Government via its puppet Central Bank (which the complaint says is independent), wants to use the US Justice system, daily criticized as unfair and manipulated by them, as a way to exert pressure on this webpage and even more audaciously, to seek “damages” from them.

But I am sure my followers will certainly enjoy the reading of this document full of the same crap that the Government spews out on a daily basis, this time translated into English and presented in legalese. And I am sure that the only intent of the complaint is or was to intimidate those involved with the website and its activities. Here I will refer to what I found ironic, hilarious, stupid, and enjoyable, without intending to be comprehensive. I invite my readers to add their own in the comments for everyone’s enjoyment.

To begin with, the only possible objective of this suit is to harass, intimidate and otherwise distract the owners of the Dolar Today webpages with the complaint. They will have to hire lawyers, spend money, go to deposition and the like.

The second interesting thing, to avoid saying laughable, is that says that Dolar Today is violating Article 1185 of Venezuela’s Commercial Code. That may well be, but the Judges in Delaware could care less about this violation, given that that is the law of the land in Venezuela, but certainly not in the US nor Delaware.

But it has to be laughable to argue that a webpage has created a form of cyber terrorism that has “wreaked, economic and reputational harm on the Venezuelan Central Bank by impeding its ability to manage the Republic’s economy and foreign exchange system.” by “Creating the false impression that the Central Bank and the Republic are incapable of managing Venezuela’s economy.”

Jeez, if a simple quote of a rate can do that and the Government and the Central Bank can do nothing about it, it would seem to me that the problem is not what the webpage did, but how clueless were the Government’s actions in trying to stop it. In fact, most Venezuelans remember multiple announcements suggesting that the Government was ready to “pulverize” the black market rate, but none of the plans were successful and in many cases people wondered what happened to them.

And you have to laugh at statements such as “Much of the world, including numerous members of the International Monetary Fund (“IMF”), engage in something that is both literally and figuratively quite foreign to the United States: the multiple exchange rate system.”

I would love to hear Nelson Merentes tell me the names of these “numerous” countries, assuming that given that he is a Mathematician, he will not argue that numerous means two or three countries. In fact the word numerous means “many” or “great in number”, which is simply false.

And you really have to be a cynic to suggest that the inflation rate in Venezuela is high simply because “it is an expected consequence of the Republic’s policies to promote social inclusion of the poor and economic growth”, when inflation is the worst possible indirect tax on the poor and those not included socially.

And since I am nitpicking, let me take advantage of it by noting that it is not true, as it says in numeral #26 and #43 of the complaint, that Venezuelans trade at the parallel or black rate via exchange houses. Such trades are not allowed at exchange houses and Venezuelans only can do these transactions privately.

Additionally, in the second graph of the complaint, the lawyers show a graph in which the parallel rate closely follows the implicit rate and only starting in October 2014 did the two diverge. In fact, had the Government made a long term plot of that, including the period before the “swap” market was shut down in May 2010, it would have shown that factors of two differences between the two have occurred before. Curiously, this widening of the difference between the two began taking place when oil prices began to drop and the Government no longer had “excess” funds to feed the black market, as an article in this week’s Wall Street Journal suggested was done via PDVSA in order to enrich a few individuals.

But the bottom line is, that the BCV and its lawyers will have to “prove” first, that Dolar Today actually manipulated the rate it published and second, that it used that information to benefit financially, something that I find extremely difficult to show. In the US, in the process of discovery, you have to support your accusations and if what you have is flimsy, the Judge is likely to throw at the case at the earliest stages of the process.

Simply put, how can they prove there was “wire fraud” or that the rate was set in order to to obtain a profit? A profit with respect to what?

And you have to love the fact that a Government that has shut down any possibility of a market for the parallel rate of exchange wold argue that “the DT Rate does not reflect any actual exchange market”. Of course, there are none allowed in Venezuela! The only “market” that exists is the border market in Colombia, which Dolar Today claims to use to set its rate.

In fact, between 2003 and 2010 the “swap” market existed and was legal and one could argue that it gave the rate transparency and liquidity, but it was the actions by the Government to shut it down that created the distortions that the BCV wants now to blame Dolar Today for.

I am also not so sure that you can prove a rate is “fraudulent” as the complaint charges. Even if the BCV could prove there was a transaction, it would prove that someone was willing to pay a particular rate and thus it would be hard to argue it was fraudulent. That is precisely what I tell people that say that the rate is being manipulated: Find me someone that sells them cheaper than that…or you sell it to me, since you can find it cheaper.

I have found no one that wold take me up on it.

I will stop at this, enjoy the reading. But if I could, I would suggest this to the Government: Allow a legal market to function for the parallel rate, I would bet that in time that market would find an equilibrium rate not too far or higher from where it is today. Because in the end that rate reflects the same lack of foreign currency which is causing causing lines, shortages and inflation. And it is the stubbornness of the Government to adjust and use economic theory that has created the distortions, including the anguish, pain and deaths of the thousands of people who can not get medicines or adequate medical care.

But the irresponsible regime of Nicolas Maduro wants to blame a web page…

(Maybe the complaint should be turned around and some Venezuelans should sue the Central Bank for the same reasons, but saying that by not following its Constitutional mandate of independence and monetary stability, it has caused harm on the Venezuelan people)

Maduro Declares State of Emergency In Parts of Tachira State

August 23, 2015


I can only worry about the decision by Venezuela’s President Nicolas Maduro to declare a State of Emergency in five municipalities of Tachira State, a state that borders with Colombia.

To begin with, the action that originated it, the non-deadly shooting of some military personnel carrying out an anti-smuggling operation in that State, is certainly not the most serious incident either near the border, nor in Venezuela, to justify decreeing a State of Emergency.

But the extent of the terms of the State of Emergency, seems a little exaggerated and certainly prone to abuse. While we do not know the terms of the decree, which has yet to be published, according to the Governor of Aragua State (Why him?) who made the announcement in the name of the Government, Articles 47, 48, 50, 53, 68 and 112 of the Constitution have been suspended in those municipalities. So that you don’t have to go read the Constitution if you don’t want to, these articles deal with:

-Neither home nor your private communications can be intervened without a judicial order to do so.

-You can move freely and with your property around the country and leave the country as you wish.

-You can gather publicly and privately for legal purposes.

-You have the right to protest peacefully.

-You have the freedom to devote yourself to the private economic activity of your choice.

Now, while Governor El Aissami said that Human Rights would be preserved, suspending all of these article of the Constitution constitutes a violation of democratic principles and it is hard to imagine how these articles can be suspended and any action taken without the violation of Human Rights. If your home is invaded, if your communications are violated, if you can not gather with others or protest and if you are not allowed to carry out your daily business, your human rights are being abused and violated. No democracy can afford to suspend all or any of these rights guaranteed by the Venezuelan Constitution.

But even more importantly, how is it that an incident like the one that caused this leads the Government to suspend all of these guarantees, but, for example, the death of 30-40 people, including cops in clashes in Caracas’ Cota 905 do not require the same reaction?

The answer is simple: Maduro could care less about the incident, he was just looking for an excuse to create an incident with Colombia, given that the clash with Guyana did little or nothing to increase his popularity. In fact, Maduro made some very incendiary statements about the Colombians that are coming to Venezuela, at a time that such a flow is minimal, given that economic conditions on this side of the border are so unattractive. In fact, as I described in my previous post, the reverse is true, for the first time in a long time, the flow is in the opposite direction, as Colombians with Venezuelan papers are flooding the border area as they flee scarcity and hyperinflation.

And as you an see in the following video, even if the border is closed, it is not closed for expelling Colombians that live in Venezuela (Nobody knows if legally or not, nobody asked), as they were not only bused out of the country, but badly treated:

In the video you can even see kids being expelled without due process and one of the guys, who lives in Venezuela states they were treated like dogs and denied food for two days. And there are reports of the National Guard searching homes in these counties, painting a very fascist R in red or blue on each house to signify that the house has been checked (Registrada) (More here)

And the worry is why Maduro has decided to create this artificial crisis at this time. It is obvious that he is doing it for electoral purposes, Chávez did it in his time. But how far is he willing to take the conflict with his former new best friend Santos?

And even more worrisome, if Maduro is willing to do this 100 days before the parliamentary election, does he have a plan to extend this State of emergency as he wishes in order to gain popularity or limit the ability of the opposition to mobilize?

The Government’s popularity is down, they can probably limit the number of Deputies of the opposition to a simple majority, but with inflation accelerating, Maduro may be ready to step over the line if his popularity falls further. Chávez used to say that it was only in the Fourth Republic that rights were suspended, but here is his anointed successor doing precisely that, a clear sign that all bets are off going forward.

Meanwhile the opposition is incredibly quiet, as if Tachira was a far away place, rather than an opposition stronghold. Why aren’t opposition leaders present in Tachira provoking the Government or helping to protect Venezuelans and Colombians and Colombian/Venezuelans whose rights are being abused? Is the MUD going to limit itself to issuing bland statements that no media broadcasts? Is anybody going to question what it is that provoked the State of Emergency which state media justifies rather easily as paramilitary attacks on Venezuela’s Armed Forces?

I have no answers for the MUD’s passivity. This is a golden opportunity to show the country and the world the fascism and abuses of the Maduro Government. If nothing is done to slow down the Government in its attempt to escalate the conflict with Colombia, the Maduro administration may create a conflict that would give it an excuse to postpone the election if they deem it necessary.

And as usual its equally undemocratic friends around Latin America will blame the opposition and/or Colombia for it.

The Uncertain Outcome Of The Venezuelan Parliamentary Election

August 10, 2015


On Dec, 6th. Venezuela will elect its new National Assembly. Clearly, the opposition will get the most votes, likely by a large margin. But will the opposition “win”. That I am not so sure. Yes, the odds are in its favor and Chavismo seems to be screwing up the economy sufficiently that there is no way Chavismo can win.

But I worry.

I worry, because Chavismo will pull out the 1001 tricks, from gerrymandering, to banning candidates, to cheating. And it is clear that today, Chavismo thinks that it will win. But I think they should be worried too. The trend is so bad for them, that they may need twice as many dirty tricks to win by the time December comes around. As I noted in my last post, the acceleration of inflation, discontent, protests and scarcity is such, that in four months, very few of the hard core Chavistas will give Maduro the benefit of the doubt.

But this does not mean they will vote for the opposition. And the opposition will need all the votes it can get. In fact, the opposition le by the MUD called for a march last weekend. And so few people went, that there were no marches. Some political parties did not even show up. In the end, the “leaders” addressed the militants, but most people that went, left early, disappointed at the non-event.

So, let me show you why I worry.

First, let’s try to remember the last Parliamentary elections. In the last Parliamentary election, Chavismo got 48.1% of the vote and the opposition got 50.2% of the vote. But Chavismo got 59.4% of the Deputies (98 of them) and the opposition only got 40.6% of them (67 Deputies).

Now, most people think that this was mostly due to gerrymandering, the effect of redistricting to favor Chavismo. However, estimates are that the opposition should have obtained 84 Deputies if the system was exactly proportional or a difference of only 17 Deputies (84 for the opposition and 81 for Chavismo). But only 5 of them would be explained by gerrymandering.

The second origin of the difference is that the “opposition” that got 50.2% of the votes, was composed of two parties: The MUD, which got 47.1% and PPT which got 3.2%. Thus, even in the strict sense of the word, Chavismo would have had a majority, as that division between MUD and PPT implied in a “proportional system” that Chavismo would get 84 Deputies and the MUD 76, while PPT would have obtained 4. Add three Deputies that were simply due to this “division”.  Remember this factor later in the post.

A more important factor is the over representation of less populated states. When the Constitution was changed and the Senate was eliminated, each State got three Deputies first then however many their population  would imply. Thus, humble Delta Amacuro with 100,000 voters has 4 Deputies, one for its population and 3 for being a State. Zulia, in contrast, has 15 Deputies, only five times more than Delta Amacuro, despite having a population that is twenty times more.

Similarly, up to 1997, each circuit could not vary by more than a certain amount. This was eliminated and the CNE can decide how few or how many people elect one Deputy in each district. The CNE has wrecked havoc with this.

Other effects, for example, is that PPT got 28% of the vote in Lara State and got no Deputies.

My whole point here is that Chavismo will do anything to manipulate and obtain an edge in the upcoming election.

So, when I hear that Ramos Allup is a candidate in Caracas and Marquina in Lara, I have to worry, because by choosing people arbitrarily and not by primaries, the MUD may be playing into unintended consequences.

And I worry even more when I hear that Claudio Fermín (Yes, he is alive) has decided to run candidates in 16 States, which will run against both the opposition candidates and Chavista candidates. Now, I have no reasons to question Mr. Fermín’s allegiances, integrity and/or beliefs, but after being a no-show in Venezuelan politics for so long, all of a sudden Mr. Fermín has found the resources (read: money) and the people (where?) to run candidacies in 16 States?

Really? Who is paying for this? Pardon me if I am being cynical.

And these candidates will run as “opposition candidates”, against Chavista candidates, managing to do exactly what we don’t want: divide opposition votes. They would help more if they ran like Chavistas. But that is not what they are being paid for.

But the MUD set up itself for a maneuver like this (No doubt promoted and financed by Chavismo) by not holding primaries, by cornering power within the MUD by people that have no constituency and believing that their manipulation will not impact the final number of Deputies.

In one sentence: For being stupid and arrogant.

So, now go back to the thought that PPT subtracted Deputies from the opposition’s total in the 2010 election just by running separately and you will know where I am coming from.  I would not be surprised if Fermín’s candidates are sprinkled selectively in precisely the districts where the opposition may be running into competition.

A carefully placed (and well funded) candidate in ten or fifteen districts, could switch the election to the other side.

Add to that banning people like Maria Corina, cheating, electoral centers with no opposition witnesses, good organizers like Ledezma and Leopoldo being in jail, and it all adds up. You could turn the election on a dime.

And thus, I am worried. Non-marches like last Saturday’s worry me. Movements to have people not vote worry me. The after effect of a loss on Dec. 6th. worries me. Marquina being a candidate in Lara worries me  and the fact that Ramus Allup could get another four years in Venezuelan’s political life, gives me nightmares.

Which is not to say that Chavismo should not be worried. Given the trends, people may be so mad by the time election time comes around that there is no amount of tricks that can help Chavismo. In fact, Chavistas may just stay home and the opposition may surprise the tricksters.

But it is not a predictable outcome and the MUD has not done, in my opinion, the required “smart” job to insure victory. In fact, I think it has done the opposite: It has created the possibility that Chavismo could win, by being so narcissistic and selfish. Legislative elections are won on regional factors, not on playing favorites on parties that have little popularity and constituencies.

You’ve been warned…

A Not So Subtle Change In Venezuela

August 4, 2015

I just came back to Caracas and my conclusion is simple: Things changed so much in five weeks, that everything seems to be happening at a faster pace, prices going up, scarcity at all-time high levels, people fed up, conflicts growing within the Government, violence increasing and Maduro focused on his war on the “Economic War” which all it does is make him the most popular Chavista, but not necessarily very popular.

But the two most significant factors are the rate at which prices are moving up (previous post) and the ease with which angry mobs  (above) have decided to loot and riot at the smallest excuse. Yes, the problem is the Government controls the media and few people see what is going on, but the looting is taking place in traditional Chavista strongholds. And they don’t occur because people are fed up of lining up to get something, they take place because people are fed up of standing in line and getting nothing: Neither bread, nor Harina Pan, nor diapers, nor contraceptives. It used to be a moment of triumph to find something, now the moments of victory are few and far between.

And every day, there is a new item that can´t be found, last week, as I came back it was bread and toothpaste. Great for my diet, no sandwiches for the Devil! Nor Cachitos, nor bombas, nor palmeras.

We are talking serious scarcity here!

Like there are also no Bills to pay things for. Despite an 80% increase in monetary liquidity (M2), the largest Bill is still Bs. 100, US$ 15.9 at the official rate, 50 cents at the Simadi official rate, but a scant 14 cents at the parallel rate.

To say nothing of the fact that when you call abroad you have to choose your carrier, as most have stopped carrying calls to less “popular”countries, in order to make it less noticeable that they are not paying their counterparts. That is why with a carrier I use, Switzerland is unreachable, while Spain and the US are still connected.

And people know who to blame, from Barinas to Apure. Oh yes, Maduro is popular among the 17% of the population that thinks of itself as Chavista. But the rest? They are looking for a leader and the prize is there to be taken.

Because inflation is not going to subside at a time that M2 and scarcity are accelerating. So, for the first time, I think the probability of “something” happening this year is not small. In fact it is quite significant. (30%?)

And what I mean by “something” is some form of Chavista cabal deciding to ask Maduro to step aside, get sick, move away and let someone save Chavismo. The “Patria” is another matter, for  now, it is only Chavismo that requires to be saved.

In fact, doing something like that may be exactly what Chavismo needs to spice up the Parliamentary elections. Otherwise, they act, but the elections  get postponed in the name of stability and peace.

What evidence do I have for this? The fact that a General was removed for killing some leaders of the “Colectivos”a few months ago, but these days the Government regularly carries out “Peace campaigns” in which 20 or 30 members of the Colectivos are simply killed by police or military.

Or the fact that military officers resent some of the recent promotions to Generals for the new (BoliGenerals 2.0) even richer Government officials, which have stepped down to enjoy their riches while controlling the purses of their former positions.

And you may ask: Why hasn’t something happened yet? Easy, no single group within the military feels they have control or they will be backed in their actions…yet. So, they wait in the shadows ready to save the revolutionaries, if not the revolution.

And perhaps the biggest signal of how bad things are, is that that the payroll in many companies is a couple of thousand dollars a month for many small and medium sized companies. Why close then if you are losing money? Wait it out, keep your employees fed and hope for the best. It is only ten grand a year and the reward could be big.

And that is why on the thirteenth anniversary of this blog I can stick my head out and suggest that there is some light at the end of the tunnel before the end of 2015, even if that light is still looks very red to me. The pace of change is just too fast. And if I am allowed to extrapolate even further after thirteen years, those that may force the change may find out that their own actions  may accelerate change in a direction different than the one where they want to go. You see, if people think there is going to be change, they will probably ask for more than those forcing the change may be thinking of.

A not so subtle change is taking place and things are sure to accelerate in the months ahead…



Santero Economics Will Not End In Venezuela With The Upcoming Elections

July 5, 2015


The Venezuelan Economy has been run in the last few years with a limited, random and incoherent set of principles, that reminds me a lot of Santería, which is composed of a set of beliefs taken from various religions, which are some times incoherent and even contradictory and which are based on hope, spiritual beliefs and ideas with little fundamentals. Thus, we can characterize the current policies as Santero Economics, as the policies are equally incoherent, based on hope and many times go against each other, with no relation to known economic principles and fundamentals.

By the end of last year, the typical narrative (including mine) was that in January Santero Economics would be set aside, as inflation and scarcity would force Maduro to do so, but as we know, nothing happened. By February, I was convinced nothing would change this year.

The current narrative in most analysis abut Venezuela is very similar: Maduro is afraid that adjusting the exchange rate, increasing prices and the like would create a backlash and he is simply waiting for the upcoming Parliamentary elections before making any changes in his Government’s policies.

Well, I now believe that this is simply wrong, as Santero Economics is here to stay, as long as Nicolas Maduro is President of Venezuela, as he has been convinced by by both local and foreign advisers that the problems of the Venezuelan economy are caused by the oligarchy and the opposition and economic indicators such as inflation have little to do with the Government’s policies.

The ideas of these pseudo-gurus, who are close to Maduro, have now taken over, overcoming the opinions of those in charge of the economy, whose proposals get rejected time and time again.

At the core of Santero Economics beliefs is that deficit spending, salary increases and increases in the monetary supply have little to do with inflation, which is a political phenomenon. Thus, at the core of the problem is the economic war being waged by the oligarchs. The solution is simply to import more stuff, control more of the economy and try to bypass the current private sector. It makes no sense to change the Bs. 6.3 per US$ exchange rate, because all of those imported products would have increased prices.

According to the Santero Economics Mythology, it makes no sense to continue giving foreign currency to a private sector that has half a trillion (??) dollars abroad . If they want to produce, let them bring the dollars back and invest them in Venezuela.

Similarly, the Santero lore states that the bachaqueo of Venezuelan products into neighboring countries is an essential part of the Economic War, set up by the oligarchy, which uses the proceeds from this activity (As if the Venezuelan military did not exist) to bring back the money and continue its attack against the Venezuelan currency. Thus, the only rationale for increasing the price of gasoline, for example, is to remove a weapon from the arsenal of the enemy in the economic war. substituting that subsidy by a direct subsidy to the people.

The final part of the plan is to use the communal power to supervise, oversee and denounce unfair prices as a way of controlling inflation.

Everything else is apparently perfect in the world of Santero Economics. There is no answer to the question as to why if deficit spending does not matter why not n-tuple spending without limit. And if the monetary supply is irrelevant, why not increase the money supply without limit and make everyone really wealthy.

Maybe they could visit Greece and solve their problems too.

Meanwhile, Maduro is happy, everything is going well and he can devote his time to other things:

tumblr_mls9arjbFi1rv2mnno4_250 tumblr_mls9arjbFi1rv2mnno3_250 tumblr_mls9arjbFi1rv2mnno1_250tumblr_mls9arjbFi1rv2mnno2_250

Hyperinflated Arepa Index V

June 30, 2015

I was in Caracas a week ago and went to eat an arepa. It was not research, it was gluttony, as I did not expect any change from the sharp increase I had observed in May. But lo and behold, my arepa de queso de mano had gone up another Bs. 45 in that time to close at Bs. 320, almost tripling the price of an arepa in the six months since I started the index.

Here is the chart now:


As has been reported elsewhere, inflation does indeed seem to be accelerating.

At least the size of the arepa is the same…



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