Don’t Touch My Subsidy!

April 12, 2015


The issuance of the new decree on travel allowances or quotas demonstrated how upside down things are in Venezuela and the damage that Chavismo has done to the way the population population thinks. We already know or knew beforehand how incapable the Government is and this decision once again exemplifies it: Only fifty days ago the Minister of Finance said the previous policy would remain in place for the full year and the decree is a mixture of inconsistencies and bizarre facts.

But the short sighted and self-centered reaction by too many Venezuelans is what is really a sad commentary on how Venezuelans think today and how much Chavismo has screwed up their brains in the last 16 years. How people can complain about a reduction in their travel quotas, in a country with shortages of food and medicines, where hospitals can’t provide basic services and care and is a tribute to how successful Chavismo has been in turning most Venezuelans into rent-seeking, self-serving and egoistical citizens who only think about themselves and are no longer able to distinguish the trees from the forest.

Touch anything, but don’t touch my subsidy!

But the problem is not the quotas, there is no basic right to provide citizens with the ability to travel abroad. Least of all, at a subsidized prize. The problem is the controls. Not only that they exist, but that there is no free or open market to which people can go and buy foreign currency to travel, if they can afford it.

The problem is that a time of falling oil prices and facing a deficit of US$ 25-30 billion, the Government was ready to use US$ 4 billion in 2015 to subsidize travel abroad for the more affluent sectors of the population. The most absurd part is that this was reduced to about US$ 2 billion, still an incongrouos amount, given the lack of foreign currency and the crisis facing the country.

This is still only about 10% of the gasoline subsidy, another subsidy that is also skewed to favor the wealthier part of the population and which should also be reduced dramatically.

Of course, it is the Government that is to be blamed for all of this, but the travel allowance is as much of a way to buy people’s sympathy as cheap food, cheap gas, cheap electricity and all the other crazy subsidies in place in the country.

But via this decree, the Government also shows how incompetent and incapable it is. To start with, nothing has changed, macro-economically speaking, since the beginning of the year. If anything, oil is slightly higher, but the deficit still looms large. How the Government thought or believed that it could get away with using US$ 4 billion for travel simply boggles the mind. You would think if the Government made a budget for foreign currency at the beginning of the year, the US$ 4 billion for travel would have stood out dramatically on that short list if you ordered foreign currency expenses by size.

But it is also part of the same absurdity implied by the fact that the Government is keeping the Bs. 6.3 per US$ rate for 70% of imports (for now) or the Bs. 12 per US$ Sicad rate for other things, despite the fact that there has been no Sicad auction yet since the “new” foreign exchange system was announced. This is as unsustainable as most policies by this Government.

In fact, when it comes down to it, the Government can not even afford the US$ 2 billion for travel allowances, what it should have done is eliminate the travel allowances altogether and use that amount in a free floating market, or to feed it to Simadi, which has been a gigantic failure so far. Because the first effect of the new decree is to push people over to the black market to either buy dollars for travel or complete their needs. This will only push that rate higher, which will be followed by even more inflation. A losing game in the end.

And the decree itself is bizarre and full of strange biases. Like, what is the rational for giving people almost three times more for a stay in Europe, over a stay in Mexico or the US? Is life really that much more expensive in Europe at a time of the euro going rapidly towards parity with the US$? And since the amounts are obviously insifficient fr a stay of more than eight days in the US, isn’t the Government simply acknowledging that this is a subsidy?

Or what is the rationale for eliminating the cash advance? Or the amount that can be withdrawn via an ATM, which was reduced to only 10% of the travel quota? Or the rationale of leaving the cash advance only for people underage? Why do they need cash and the adults do not?

And without noticing, the Government via this decree, is forcing people to open accounts and obtain credit cards in state-owned banks by banning private banks from participating in this business. Another effort to add controls and screw the private sector that goes unnoticed and nobody complains about. This is in the end should be what scares the people the most, how with one swipe, the Government creates a system in which the private sector can not participate and which forces anyone wanting to travel to open an account and obtain a credit card with a state-owned bank.

Uncle Nico will be watching you!

But people did not seem to notice these details. All they saw was their privileges reduced, their perks limited, even if it was absurd to keep the current quota allowances. But in the end, this subsidy will be paid over the coming years by all Venezuelans. In fact, we are all paying for the absurd travel subsidies of the last eleven years.

In the end, the reduction of the allowances exposes how privileges and subsidies distort people’s thinking, leading them to believe they are entitled to absurd rights. Which only indicates how tough the road back will be to a Venezuela in which priorities are set in logical and reasonable fashion, with subsidies aimed only at the weakest of the population.

1001 Chavista Rip-Offs

April 3, 2015


While the media in Venezuela barely reports corruption scandals, let alone investigate them, thanks to the press abroad and the Chavista crooks that get caught, we have learned 1000 ways in which Chavismo has ripped off and arbitraged the Government for their own personal profit. From Argentinean bonds, to contracts, to Illaramendi, to Maletagate, to Andorra, there have been a myriad ways to make money. By now the numbers are so scandalous that even a former Minister of Planning that oversaw over much of the time how these rip-offs took place, claims that there were US$ 22 billion in fake import orders in 2012 alone.

But details are hard to get, as even in the Andorra case we have only scratched the surface. But now we get a picture of the 1001th. Chavista rip-off thanks to investigative reporters from Argentina’s Clarin.

In 2005, the Venezuelan Government set up a trust at UBS to fund transactions between Argentinean and Venezuelan companies in the oil sector, apparently with emphasis in trading finished products. Money was supposedly put into this trust and as transactions took place, people got paid from it.

But according to a cable by Argentina’s Ambassador to Venezuela, the money was also used for personal profit. According to the Ambassador, someone borrowed US$ 90 million from the trust, exchanged it for Bolívars in the swap market and then repurchased the dollars at the official rate of exchange at the time which was about 14.5% lower than the parallel rate. The result? They obtained US$ 13 million more which they kept and returned the US$ 90 million to the UBS account.

Just think, the crooks that controlled the trust on both sides had sufficient weight in PDVSA and the Government that they could show up with Bolívars, which had nothing to do with the purpose of the trust or the Argentinean-Venezuelan cooperation since trading was in dollars, and buy dollars again. In theory, they could do this operation over and over, except they got caught by an honest Ambassador. (He was actually removed from his post due to the cable)

Remarkably, the man on Argentina’s side that scolded the Ambasasdor was none other than Claudio Uberti of Maletagate fame, who has been accused of quite a number of scandals and accusations. Uberti was the high ranking Argentinean official who supposedly asked Antonini to bring in the suitcases which arrived in Buenos Aires in a plane rented by PDVSA.

Of course, the Argentineans are interested in it, because the money may have ended up in an account in which Cristina Kirchner’s son has signature.

Think about it, at the time the difference between the official rate and the parallel rate was “only” 15%, imagine the deals, “guisos” and rip-offs that went one when the difference was like last year up to 3,800%.

No wonder the Government does not want to remove the Bs. 6.3 per US$ rates, with that rate, anyone with access to it, can make the same US$ 13 million, by selling 336,000 dollars in the parallel market and buying 13.36 million dollars at Bs. 6.3 per US$.

It is arbitrage on steroids…

Government Keeps Kicking The Can Down The Road…

March 31, 2015

kicking-the-can1Since 2013 we have all been waiting for the Venezuelan Government to make some form of adjustment to the Venezuelan economy, as it was clear that the trajectory was simply unsustainable. Then, in 2014 oil prices dropped making the adjustments even more urgent. But remarkably, little has been done, as the Government simply keeps kicking the can down the road, either waiting for some miraculous event or executing a well conceived plan that if oil prices don’t recover then…something may be done.

And thus we keep waiting. Venezuela’s economy is in intensive therapy. Inflation is pushing 100, shortages are the rule of the day, the economy is shrinking, the foreign exchange system is unsustainable and the Government faces a US$ 25 billion deficit. And despite this, the Government is doing very little.

Let’s look at what it has done:

-It obtained US$ 1.9 billion from swapping its Petrocaribe debt with the Dominican Republic

-It obtained US$ 2.8 billion from Citgo

-It started a new fx system, including a new rate Simadi, which took a month to be drawn up and a week to fail.

The most remarkable aspect of Simadi, is that the Government did not seem to have much of a plan for providing it with foreign currency, essentially guaranteeing its failure from day one. Some people claim that the Government really believed that people will sell into Simadi rather than the black market.

Really? If they are that naive, we are in bigger trouble than we thought.

But in any case, the Government made Simadi extremely complex, with the only good decision to have it trade at a value close to the parallel rate. However, it imposed a cap on its maximum price and while the system began trading close to that rate, once it became clear that there was a cap and there would be little flows via Simadi, the parallel rate, which had been held back by Simadi expectations, simply soared. (Read: More inflation ahead)

Remarkably, rather than relax or change the rules for Simadi, the Government has done absolutely nothing since then. An even bigger puzzle has been that after a month of the new foreign exchange system, there has been no Sicad auction, despite the Government announcing that one third of all foreign currency for imports would flow through that. Go Figure…

With the new system, the Government truly kicked the can down the road, as it failed to take advantage of the changes to modify either the Cencoex rate (Bs. 6.3 per US$) and the non-existent Sicad rate, last seen at around Bs. 12 per US$.

What the Government has not done:

-Despite announcements, advertising, claims and talk, the Government has yet to increase the price of gasoline which, while likely will be timid, could help a little in closing the financing gap (and save foreign currency). Why spend so much money in daily (and constant!) TV and radio ads and then do nothing? What is holding up the increase? Minister of Transportation El Troudi ( Likely the best Minister by far in the Cabinet) keeps going on TV, making statements about the small impact of the gasoline price increase, but then nothing happens. Whose decision is it?

-The Government has done little to control the growth in the money supply M2. Yes, the slope appears to be slowing down, but this always happens before March, when the Government delays budgets and then releases two or three months at once. Even more puzzling was the fact that there were no Treasury Bill auctions in January and February. These auctions are held regularly during the year. Why did they stop them at a time that you actually want to use them to reduce M2?

-Selling/Swapping the Gold: Whether people like it or not, the Government has some US$ 15 billion in gold that could be used at this time. That is what reserves are for and it is dumb to hold them in gold. There has been talk of a swap with the gold that is still in London, but nothing happens. If I were the Government I would ship even more abroad for future use. Again, why kick the can on this?

-There was supposed to be another Petrocaribe debt transaction with Jamaica, but nothing happens. Oh well, par for the course.

-The Government issued a PDVSA 2022 bond with a 6% coupon in stealth mode last October, which it sold to the Central Bank. This issue has yet to be sold in the market. What are they waiting for, a recovery in prices?

-PDVSA, which is rumored to have bought back close to a billion (cash) in its short term bonds, could be preparing some sort of liability management operation, that would seem to be the only justification for buying back bonds. Some people claim, they sre just buying back to pay less in October. Can they be that naive? Or is the same “intelligence” behind the Petrocaribe, Citgo and Gold transactions is preparing some form of exchange for the PDVSA 2015, 2016 and 2017 bonds?

What is clear is that the Government considers default only a last minute option, something that will be tested if the Judge in the Gold Reserve case rules against Venezuela and declares it in default. We suspect, Venezuela will simply pay at that time. The same way it is likely to pay next October, even if half of the market thinks they will not. But 2016 is a whole different ball game.

But in the mean time, to close the fiscal and balance of payments gap, it can’t continue to kick the can down the road. Oil may rise, but it may not, bonds may recover, or they may not, China may lend more or not, but Venezuelan has to act. The sooner the better.

The puzzle is what are they waiting for?

By Now, Nothing Shocks Venezuelans

March 21, 2015


After sixteen years of Chavismo, it would seem as Venezuelans have been anesthetized against the daily scandals and horrors that are reported or occur. Report of tens of millions of dollars paid in commissions to Venezuelan Government officials, barely raise an eyebrow. People hear the dance of millions and can no longer tell between 100 million dollars or 2 billion dollars. They hear US$ 2 billion was “siphoned off” PDVSA and it seems as if the question is: What else is new?, not what an extraordinary amount this is or that an additional 2.2 billion was laundered via the same bank in Andorra. The Venezuelan Government, Prosecutor, National Assembly don’t even bother to comment on all of these accusations. The opposition? We have heard almost nothing from them either. I mean, Giordani a former Minister of Chavismo said there were 22 billion in fake imports in 2013 in Venezuela and nothing happened, a pittance of 50 million or 4 billion appears to be largely irrelevant. The problem is that the billions add up and that is why there are shortages and lines and Venezuelan billionaires all over the planet.

But forget about money. Most Venezuelans can barely understand what a billion dollars is or what a Government could do with it. But we should all understand the value of a human life. But from protests to prisons to daily events, the value of human life has been devalued as much of the value of one hundred million dollars in the minds of most Venezuelans.

There are daily reports of deaths. In Caracas alone, nineteen  cops have been killed so far in Caracas in 2015. And it is only March. Six students get killed shot thru the head and the Government reacts as if this was the most natural thing in the world. A high ranking Diplomat even dares to make a joke about it, later saying that people did not understand his black humor.Very black and very aberrant too.

The President orders the Government’s weapons and bullet monopoly Cavim to code all bullets and two years later, nothing has been done. The business of selling bullets in the black market is too hard to pass up, much like increasing the price of gas or the Bs. 6.3 per US$ Cencoex rate.

Meanwhile it is the same bullets that kill the much beloved “people” every day. Just yesterday, a man was shot to death in front of his wife,a murderer was shot to death by police as they were trying to arrest him and a man walking with his wife in one of Caracas’ most centric squares, was shot and killed by someone in a passing car.

Most of these murders not even get attention by the press. The people are immune to the news.

A kidnapper tells a Canadian reporter that it is not a matter of right or wrong killing his victims, it is a matter of surviving in the “easiest way to earn a living” in Venezuela. The price of  a human life in Venezuela? All of three hundred bucks, when it has a price, most of the time, there is just no price, it is simply free, like the daily murders in Venezuela jails.

And the Government says nothing and the people have gotten so used to it they don’t even react.

And just as I thought I had heard it all, the most horrific story takes place: A couple was traveling to Caracas with a relative driving. A bunch of motorcycles were leading a funeral funeral procession and they attempted to block the way so that the procession could proceed preferentially. The driver does not obey the orders of the motorcycle riders. The motorcycle riders shoot at the car, spraying it with bullets. The couple was killed and so was the woman’s kid in her womb. The woman was pregnant. She is the 40th. woman to be shot in Caracas so far in 2015.

The story is not even front page news. Is not on TV. The Government makes no comment, neither does the police. There will be no special investigation. This is a daily occurrence. They are all anesthetized against the horror, the murders, the scandals. Nothing shocks them.

It has become a way of life.

Chavismo: No Scruples, No Compassion

March 10, 2015

So many things happening, where does one begin? Today, there is only one place, this remarkable statement by Venezuela’s Ambassador to the OAS

When I am trying to understand what happened to compassion among other Venezuelan Government officials, here comes this well educated, Christian(?), who used to lead missions looking for peace in Central America, and makes such a crude statement, full of hate, describing how a bullet would go faster through the empty head of someone from the opposition.

How did Mr. Chaderton convert to fanatical revolutionary? At which point, his ambition, his thirst for power, turned him against over half of the population of the country? When did Mr. Chaderton lose part of his humanity? If it can happen to him, who had all of the tools, education, idealism, religion, to respect and have compassion for his fellow Venezuelans, what can we expect from the less educated, militaristic, ideological members of Chavismo.

Even worse, can we turn his around? Can we make Venezuela a country where everyone respects everyone. Where opinions are voiced without eliciting violent responses?

I really don’t know.

I wanted to write about the interpretations of the Maduro-Obama clash. But does it matter? In the big scale of things, the current conflict between Maduro and Obama and all of its nuances, seems simply irrelevant.

How far are these guys willing to go preserve their power? When the response to the ban from the US of the Head of the intelligence police for human rights violations is to name him Minister of Interior and Justice. Who cares about strategies and whether Obama should or should not have issued the ban in response to Maduro’s demand that he reduce the members of the US Embassy in Venezuela?

Once again, it boils down to no compassion and no scruples. Chavismo lacks both. Maduro is at this moment addressing the National Assembly so that it gives him Enabling Powers to fight US imperialism. In reality, he is asking for an Enabling Bill, so that when the opposition wins the upcoming Parliamentary elections, whenever they are held, he can go and change any and all Bills that take away powers from the National Assembly. This is simply a variation on what I predicted three weeks ago, except that I thought Maduro would let the Assembly legislate, but instead, he wants to control the process. He has even less scruples that I assumed.

That is Chavista Democracy. If the other side wins, take away the victory via subterfuge. And call UNASUR so that they certify that what you did is legal.

Meanwhile, the explicit mention by Fincen that at the Banca Privada d Andorra, the bank used schemes to help siphon off US$ 2 billion from PDVSA, is not even news in Venezuela (Self-Censorship?). Two billion, ten billion, twenty billion. Who cares? Maybe those responsible now occupy very high positions in PDVSA.

There are no medicines, but the Government will buy 20,000 fingerprint machines to control purchases at supermarkets. And so on..

Each one of these would be a story in itself under normal conditions. But things ceased being normal in Venezuela long ago. And when those running the show have neither scruples nor compassion, the end can only be a tragedy. An even bigger tragedy that the one Venezuela is living today.



I Will Turn You Into Powder!

March 5, 2015

Twice in one year, Venezuelan Government officials have said:

“I will turn you into powder”

referring to the parallel or black market for the exchange of Bolívars into US dollars.

Last year, it was Mr. Rafael Ramirez that said it. He is long gone. This year, it was none other than Nicolas Maduro, I am not implying anything by the similarity, other than the fact, that it has been shown how little they have understood the implications of the systems they implemented.

Last year, it was Sicad 2, a sort of glorified Sitme (The previous system)

This year, it was the creation of Simadi, a kludgy system, with little logic or connection with the reality of markets. A system so badly conceived, that I thought it would utterly fail. But I never thought it would fail so fast.

In barely two weeks, Siamdi has become Sicad 2 at a higher rate of exchange of Bs. 170 per US$ instead of Bs. 50 per US$.

Nothing more, nothing less.

And as I said, the system never was free, nor unlimited, nor market driven. All of which guaranteed its failure.

And it failed. Within a week, as shown in this plot (yes, today it was higher):


the parallel market dollar has soared. While the Simadi rate remains at Bs. 177 per US$, any chance that the Government had to succeed failed when: 1) They set the Simadi rate below the parallel rate. 2) They failed to supply the private system with dollars, only giving foreign currency to Government-owned banks and 3) They limited any transaction to Bs. 180 per US$.

As those who had waited for a month for Simadi got nothing, the parallel rate soared, going from 190 to 284 per $ today (That point is not in the graph, which I made up yesterday)

So by now, Simadi has become a glorified or amplified Sicad 2, exept the rate it is Bs. 177 instead of Bs. 50. And the graph above implies that Simadi is dead on arrival. You see, besides my objections before, here and here, by setting and holding the Simadi rate lower, with the parallel soaring, arbitrage becomes too much of an incentive. Go to your nearest Casa de Cambio gets US$ 300 at Bs. 177 and sell it in the “other” market at Bs. 280. The same if you go to bank or broker that gives you higher amounts. You buy it, sell it higher and you make more than a months salary for a fairly good job.

The Government simply screwed in is naive belief that anyone would like to bring their foreign currency back. That with 100% inflation (and higher soon) anyone would not buy currency and wait a few months. Instead, it created this dumb system, forcing each bank to operate with its clients, each broker with its clients and Government-owned banks to receive foreign currency to give to its clients, chosen who knows how, but creating a huge distortion in the system. But even Government-owned banks are not getting enough. And you can bet some of it filters back to the parallel market. It is too nice an opportunity to pass up.

With any normal Government, this would just require adjusting the system and trying again. But this is far from being a “normal” Government. First, they really thought they could control the market They really believed that people would bring dollars back to become rich at Bs. 177 per US$. It did not happen.

And now, it would take as long as to set up the new system, to adjust it. Consult. Check with the ideologues. Check with the President. Check with the military. But most of all, it will take understanding to convince themselves that something is wrong with their system.

After all, they were supposed to turn the black market into powder, not the other way around.



The Maduro Government Has Become Totally Insensitive And Cynical

February 27, 2015


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



Caracas Mayor Ledezma Arrested

February 20, 2015

Video of intelligence police taking Caracas Mayor Antonio Ledezma away

After two weeks of threatening to arrest him, intelligence police (SEBIN) raided the offices of Caracas Mayor Antonio Ledezama and forcibly took him away while shooting into the air as they left. The intelligence police had no arrest warrant and it was not until President Maduro later spoke on forced nationwide TV that the President confirmed that he had been arrested “on orders” from the Prosecutor.

Venezuelan media did not report the incident (other than El Nacional) for hours, as people gathered outside the SEBIN offices near Plaza Venezuela. But it was not until the early hours of the morning that it was learned that Ledezma was being held in El Helicoide.

Maduro claimed that Ledezma would be tried for his “crimes against peace”, noting in particular, that he had signed a letter which was nothing but a conspiracy against him. The letter was signed by Ledezma, Leopolodo Lopez and Maria Corina Machado and called for a “transition Government” of national unity.

Maduro revealed that he had been in Cuba during the Carnival break, suggesting that this strategy was cooked up there. The strategy is likely to be to create protests, intimidate and at the same time distract the population from the numerous economic problems the country has. This is a typical strategy by Chavismo of becoming aggressive whenever its popularity goes down, looking to show that the President (Chávez then, Maduro now) is in charge and deserves the support of its sympathizers.

The concern is that what the Government wants to do is minimize the leadership of the opposition ahead of the Parliamentary elections. Polls suggest that Chavismo will lose such an election by a wide margin, but at this time Maduro is likely trying to stop the opposition from obtaining a 2/3 majority. If this were the case, the National Assembly could approve Bills before the new Assembly takes over, moving subjects, such as budgetary approval and the like, to the Executive branch. If the opposition did not obtain the 2/3 majority it would be unable to overturn such Bills.

The detention does little to help the image of Maduro internationally, but it has been clear for quite a while that he cares little about that and is behaving like an outright Dictator. The outcry so far internationally is the loudest since the detention of Leopoldo Lopez, but the immediate reaction and condemnation of the detention.

For the opposition, taking advantage of the Government’s low popularity will not be easy. The opposition lacks access to the media and has precarious financing. If its leadership were to be jailed, the battle would become even more uphill to obtain 2/3 of the Deputies in the National Assembly. Any possible Electoral discrepancies would never be investigated, Chavismo would achieve its goal of keeping power no matter what. Clearly, there seems to be no one that opposes Maduro within the Government at this time.

Going forward repression is likely to increase as the Government sets aside any pretense of being democratic.

Not pretty!


SIMADI May Be A System, But It Is Not A Market

February 12, 2015


Just my luck that last night just as I pushed the Publish button, I received a copy of Foreign Exchange Agreement #33, regulating the new “market”, different than the Cencoex Bs. 6.3 per US$ system and the Bs. 12+ Sicad system. Then this afternoon I received the regulations for the securities part of SIMADI. In some sense, it is good that it happened this way, otherwise lst night’s post may have been too long, complex and boring.

To give you my punchline right away: SIMADI may be a system, but a market, it ain’t.

In fact, it an extraordinarily complex and bizarre system for buying and selling currency. It even makes you wonder why it is that way…

SIMADI has three parts:

1) The cash retail system

2) The bank cash system

3) The bank and broker securities system

Let’s look at each of them:

1) The cash retail system

This market called “menudeo” will function via foreign exchange houses and banks and be devoted only to individuals. Minimum is US$ 300 and it will be limited to US$ 300 per day, US$ 2,000 per month and US$ 10,000 per year for each individual,

How does it work? You go to your bank or exchange house and buy or sell dollars at yesterday’s exchange rate for the system. This will also be (yesterday’s rate) the referential rate for credit card transactions and custom duties.

2) The cash bank system

This is likely the weirdest one. Minimum is US$ 3,000. You also buy at yesterday’s rate, however, each bank can only buy and sell foreign currency with its own clients. That is, there is no interbank system or market. You buy and sell only with the clients of your bank and at yesterday’s price. To make it even weirder, banks can not hold positions. That is they can not buy dollars for their own account in this system, only by buying (selling) cash from clients and selling (buying) cash to other ones. If they buy too much on a given day, they have to sell any excess foreign currency to the Venezuelan Central Bank. Oh yeah! If you are a client and want to do either, you have to send the bank either the Bolívars or the US$ to the bank ahead of time. Only if they are there is the bank allowed to do the transaction.

3) The securities system

The securities system will operate in the Bolivarian Stock Exchange, where all authorized brokers and banks can operate. They can buy or sell dollar denominated securities in exchange for Bolivars at an agreed rate.

However, they can not do transactions with anyone but their clients and other brokers and banks can not be your client. i.e. You have the sellers you can find buyers among your clients. That’s it. When you sell the bonds in US$, the dollars from the transaction have to go to your Venezuelan banking system dollar based account.

In this market, brokers and banks can take positions, i.e. they can buy, for example, dollars from a client, keep it and later sell it to another client, but not to another broker or bank.

Oh yeah! The Central Bank does have to approve the transactions you close.

Thus, this is no market.  This is just a bizarre system. Why do you need to do this via an exchange is a mystery, except that the Government wants to keep tabs of transactions, but there are no bids or asks, the clients of your institution (to use the language of the regulations) agree on a price and you do the transaction at that price. But you don’t talk to other market players. You only look at previous transactions and try to have your clients agree on a price.

What does this mean?

-The price has a strange way of being constructed.

-There is no market per se

-If you are a bank or a broker, you can only sell however many dollars your own clients sell to you.

-I suspect that Government-owned banks will have a huge advantage as the Government, the largest generator, provider, holder of foreign currency, will likely give its own banks bonds or foreign currency to trade. They will have a gigantic advantage over private banks. Once again, leave the private sector out of it as much as possible, maybe the word “marginal” refers to the role of the private sector in all this.

-The parallel market still exists. Moreover, there will be arbitrage now not only between Cencoex and Sicad and the parallel rate, but there will also be arbitrage between SIMADI and the parallel rate. And a privileged few will make a lot of easy money.

-Market it is not, just a bizarre and complex system to exchange foreign currency.

Par for the course from Chavismo…


Venezuela: Another Marginal fx System?

February 11, 2015


I waited until today to write about yesterday’s announcements about the “new” fx system, because we were promised for today some decrees relating to the rules that would oversee these supposedly new fx system.  But much like everything that has happened so far in 2015, there are new delays and who knows when these new rules will come out. And in any case, they may be irrelevant anyway, or to use a word that is en vogue, the details of the rule may be marginal to the whole subject and its future.

Maduro took three weeks in January traveling around the world begging for money. Then he took four days after coming back to give a speech in which he announced that “in the next few days” we would know the details about this newfangled, state of the art new system for doing what people have been doing for centuries: Exchanging one currency for another. But the few days for this complex task, took three weeks and it was not until yesterday that we heard some details details.

The new system has three parts. The first two are a rate for Cencoex (same name) of Bs. 6.3 (same number) per US$ and a rate for Sicad (same name) which will start at Bs. 12 (same number again) per US$. Thus, so far 66% of the “new” three part system is identical to what has been in place since April 2014.  In fact, it is so identical that even the percentages of foreign currency indicated by the Minister that will be sold in each market are practically the same as estimates of how foreign currency was distributed last year in the two systems.

And then there is the new and marginal third fx system, which will be called the Sistema Marginal de Divisas (SIMADI) (Marginal system for Foreign currency)

Really, you can’t make this stuff up.

Now, about the only thing we know about this “new” system for real is that it will have a price higher than the old Sicad 2 system and that it will be called SIMADI, which is the subject of numerous jokes including SIstema de MAduro y DIosdado.

The rest, is having to take at face value what the Minister of Finance and the President of the Central Bank said about it:

i) It will be a system subject to “market” forces. Free Floating.

ii) It will have no limitations or restrictions.

iii) It will operate via banks, brokers and exchange companies, but there will be a limit in the latter.

However, to participate in the “market”, the rules will be the same as for Sicad 2: You have to register, open an account in US$ in a bank in Venezuela and provide your last Venezuelan tax return.

Now, according to Maduro today, from 3-5% of all foreign currency will flow through this system. At today’s oil prices that is about US$ 1.5 billion at the top range of 5%. Of course, Merentes and Torres talked about “anyone” can sell in this market and that it would start “near” the parallel market rate and then go down. Yeah, everyone is waiting to sell…

Well, pardon me for being so skeptical. Let’s assume that the parallel rate is Bs. 200 (it has never reached that, but makes calculations easier). If the Government plans to sell only US$ 1.5 billion in this market during the whole year, that would take barely Bs. 300 billion out of the monetary liquidity which stands at Bs. 2 trillion today. That means, that only 15% of the monetary liquidity has to go to the SIMADI, in order to wipe out the US$ 1.5 billion. That is peanuts, more so, when M2 has been growing steadily at a rate of 65% per year, which means that another Bs. 300 billion would go into the system in just one quarter and a lot of it will also be looking to leave the country.


Easy, let’s look at the other side of the equation: Demand. There is lots of pent up demand, because essentially the parallel market has been illegal for the last four years. Many corporations refuse to participate if it is illegal, but now they have a way of doing it if its is legal, free-floating and unlimited. Additionally, given the shortages in the country, companies, people, will use this new market to obtain foreign currency, either to import, to complete supplies or raw materials to produce stuff in Venezuela or buy widgets to sell locally. Finally, the market has been dry lately,  savers, companies,  everyone with any sense of self-protection will look to take its savings abroad via this market at a a time of increasing political instability and uncertianity.

Given all this, I expect much more than 15% of the monetary liquidity to go to this market and at this time, it does not seem the Government is making an effort to have more foreign currency (by devaluing the other two rates), nor to reduce the deficit which is financed by money printing.

Thus, I can only conclude that this market is unlikely to be free, unlimited and market driven, for the simple reason that the Government does not want the rate to rise without control. And if it tries, it will eventually shut down the market, much like it did in 2010, as the parallel rate will drive inflation, no matter how marginal the Government wants you to believe it is.

As we say in Venezuela, we have seen this movie before, which means there will be limits, regulations, etc. and in the end the system will look a lot like Sicad 2, but at a higher price. Making it the same as that in place in most of 2014, but at a higher and controlled price.

And thus, truly marginal.

P.D. PDVSA issued a 2022 bond without telling the market, which it can use to supply the system. It is a US$ 3 billion issue, but its price will be around 34% at current levels, so that it could contribute US$ one billion to this market. I still think its not enough.


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