Archive for March 4th, 2005

Neo voodooian economics and idiocy in the noveau rich and politically powerfull Venezuelan class

March 4, 2005

By now, Venezuelan Government authorities have become extremely arrogant and appear to be losing perspective about what Venezuela is in the grand scheme of things. High oil prices have become like a powerful aphrodisiac or expensive liquor and they are simply drunk, hallucinating with their empty and idiotic ideas, while trying to gain the political respect of other leftwing countries in the region. I can imagine the laughs in private of those same foreign Governments, when they talk about what a fool the Venezuelan leader and his collaborators have become. They are the noveau rich in the neighborhood that thinks that because they have a Porsche and they neighbor a Honda, they are richer, so why not help them? The truth is the neighbor has a Honda, because he understands the fragility of his wealth, while the man with the Porsche thinks his car proves he is smart.

Thus, Venezuela announces that it will send Uruguay 43,800 barrels of oil and derivatives a day, with 15 year financing and 2% interest. On top of that, Venezuela will give the poor people of Uruguay a two year grace period in payments, much like the agreement with Cuba or should I say with Dictator Fidel Castro. And I can hear the Uruguayans laughing all the way to the bank at the naiveté of our esteemed President, who is apparently so ignorant, that he does not realize that Uruguay has a much better standard of living than our poor and beleaguered country. In fact, Uruguay’s standard of living as measured by GDP per capita is not only bigger than ours, but it is almost three times larger than Venezuela’s. And three times larger when you are talking about GDP per capita is simply huge. It is, for example, the same ratio that exists between Canada (US$ 30000 per capita) and Chile (US$ 10,000) per capita. Or the ratio between the US (US$ 37,800 per capita and Uruguay (US$ 12,600).


But these guys are so intoxicated with what they believe to be the richness of Venezuela, that they will now subsidize Uruguay, buy US$ 500 million of Argentina’s  debt (another country with a much higher standard of living than Venezuela, close to Uruguay’s) and continue to ship 50,000 barrels of oil a day to Cuba, all of them free. And they not only show their ignorance with their actions, but they ratify it with words, as exemplified by the Minister of Energy Rafael Ramirez who fills his mouth saying that the agreement with Uruguay will not affect the cash flow of  PDVSA, because he states “it is only a marginal volume of barrels for the company” . Yes, it is only 1.65% of PDVSA’s production, but another 2% is being shipped to Cuba under similar terms, making it 3.65% altogether. And we don’t know how many more agreements they will sign in the next few months.


This in a country that just devalued its currency by 12% in order to cover the fiscal deficit for 2005, once again directly affecting the purchasing power of the poor, who barely have enough money to eat. As usual, it is only politics that matters, whether nationally or internationally. We need to spend, so let’s devalue, we are rich, so at some point we will not have to devalue under this strange economic concept these ignorants have. It is truly a new form of Voodoo economics.


And Government figures continue vomiting their ignorance, as in the case of the mediocre Mathematician-turned-Minister-of-Finance Nelson Merentes, who explained to the country (the world was not listening, of course) that the devaluation yesterday” is part of a plan being advanced by the Government to obtain larger economic growth and more “social inclusion”. He added: “If we want to have a strong Bolivar in 2007, we have to take measures on 2006-2005; this is one of those progressive measures to be able to obtain growth and strengthen the Bolivar starting in 2007”.


I hope not too many economists are reading this and wonder what it was they studied at the University. This is the first time I have heard that devaluing allows for economic growth. Hey Nelson! If that is true, why didn’t you devalue by 50%? Imagine the growth it would have generated!


But these are the same promises that were made by exactly this same economic team in February of 2002, when the Government was forced to devalue the currency sharply, after using these innovative neo-voodooian economic concepts which sprout from the brains of the Giordani-Merentes team. Or is it simply ignorance?

Another good cartoon from Rayma

March 4, 2005

At last we have a Government that is interested in erradicating poverty……….but in Argentina stupid!

Killing you softly with populism: Chavez’ failure with the economy, success with his promises

March 4, 2005

Perhaps there is no better way to show what this post is all about, than to present today’s cartoon by Weil in Tal Cual:

(Look my dear, there goes our President, may God protect him)


Indeed, how is it that such an ineffective administration can maintain such a high popularity level? How Chavez can be such a snake farmer, that people whose purchasing power has been decimated by six years of this so called revolution, still have a hope that things will improve, even if they seem to be getting worse each day.


You see, one of the mysteries of the last six years is where has the money gone? It is a premise of the Keynesian economics, so favored by most Venezuelan professionals in that field, that public expenditures alone can sustain the economy, generate economic growth and at least, give the appearance of prosperity until the day of reckoning come, when income drops and you have to face the music. But as the following slide from a presentation sent by a friend and reader I had not heard from in a long time shows, this economic formula has failed miserably in the last six years:




Despite a 142% increase in oil income, a 66% in the country’s debt, a 323% in spending, GDP per capita is down 11% in the last six years.


But you know what Chavez says; he claims that the economy does not have to grow for people to do better, a concept that certainly is in conflict with traditional economics knowledge and experience. It is clear that economic growth by itself does not generate prosperity, but the second slide shows that inflation is up 292% in the last six years, but what is worse, food inflation, which is the one that hits the poorest the most is up 383% in the same period!:




 But by now you will be saying, well if salaries are up more than that, who cares? The problem is they are not, as shown in the next slide:




And this does not even take into account the impact of the 12% devaluation today. In any case, only 30% of the population is actually employed.


Any Government policy has two attack two fronts: Growth and employment. But employment after a brief foray at the 10% level recently, is back up to 15% this month, according to official numbers, even if not shown in this graph up to June of last year, when it was at the same 15% level (which is suprising to me by the way):



But the President speaks of salary increases who only benefit the employed, jobs are not being generated and mortgages are going to be subsidized by everyone (more on that later, when time allows).


But in the end, the revolution is simply killing everyone softly, like in the famous song, but apparently some feel loved by it anyawy. The poorer get much poorer, while the rich are getting a little bit poorer, except those that are attached to the lifeline (or nipple!) of the revolution, those are getting much richer!. But despite this reality, Weil’s cartoon still reflects to some degree the reality of the effects of populism. Indeed, killing you softly with hunger, but extremely popular!