Archive for July 14th, 2005

The incredible Scotch drinkers from Venezuela

July 14, 2005

I like
numbers, but I also like to understand them. Whenever I hear a number, I try to
figure out whether it is reasonable, makes sense or if I need to learn more
about it. Some may think that is my science training at work, I think it is the
other way around, that is why I became a scientist originally.

All of
this comes to mind because during my vacation I came across a statistic that
flabbergasted me, but that I am still not sure I do understand or can even come
close to understand: Venezuela was once again the number one country in per
capita consumption of imported Scotch whisky.

Now, you
may think this is not that hard to understand, but I do. I have always said
that I am almost 100% Venezuelan, except for two facts: I like to arrive right on
time and I don’t drink Scotch, which may explain how mystified I am by the fact
that Venezuelans consumed in 2004 a staggering 25 million liters of Scotch
whisky that comes out to basically a liter per year per capita. To put this
number in perspective, the US
imported 139 million liters in 2004 or less than half a liter per person (0.45
to be more precise).

is, how can Venezuelans consume so much more imported scotch per person than
the US,
given the much lower purchasing power of the Venezuelan population? Imagine
this: Let’s assume 10% of the Venezuelan population can afford to buy scotch.
Let’s then say than half the population is under 18 and can not drink. Let us
further assume that like me, some percentage of people just don’t like scotch
and moreover, men drink more scotch than women, let’s say aggressively by a
factor of two. That says that roughly these Venezuelan scotch drinkers consume
50 liters of imported scotch per year or one liter per week.

is, this is simply one type of liquor, and this excludes beer, rum, crummy
Venezuelan whiskies and the like. Thus, let us assume, imported scotch makes up
half the drinks they have, this leaves us with a liter of hard liquor per
person every three and a half days. Can a country function like that? Maybe
that is part of our problem. Who knows?

The truth
is that I think that politicians (of all sides) have something to do with this.
I am sure an outrageous percentage of Government funds pays for the nice scotch
that politicians consume. Any anniversary of a political party, meeting or
negotiations seems to be followed by the boxes of bottles of Scotch, ice, water and soda. But even
with this, I really have no way of justifying the numbers and have begun
gathering the consumption of other alcoholic beverages, in order to delve even deeper into
the problem in the future. Stay tuned!

Dire warnings by Central Bank Director

July 14, 2005

Imagine a
country in which a Central Bank Director warns that a change in the law will
eventually “burst somewhere”. Markets would panic the currency would
drop, Congress would reconsider what it is doing.

But not in Venezuela.
Yesterday the Finance Commission of the National Assembly approved the reform
of the Central Bank Law requested by Chavez and Central Bank Director Armando
Leon had
such dire warnings in an interview
in El Universal today. But nothing
happened. The currency can’t move because there are exchange controls and
little money is invested in the local stock market these days.

But Leon’s
statements represent a very serious warning by a trained economist that nobody
could accuse of being rabidly anti-Chavez. Leon warns that the transfer of
international reserves will create economic disequilibria. He goes even further
than that warning: “If that is maintained in the reform, there will be a
permanent financial instability”, concluding:”sooner or later the pressure
created by these changes will burst somewhere”.

Scary warning from a respected central bank board member. 

Oil money hides the failure of Chavez’ statist model

July 14, 2005

This Government professes to have an unrelenting belief that the Government can
do better than the private sector. International and historical experience
shows that to be the case extremely infrequently. As the Government creates new
institutions almost daily, it turns out that the old ones, even those that
should be easily profitable, like Banco Industrial de Venezuela, continue to
lose money and seem to prove exactly the opposite of what the Chavez administration
wants to sell to the people and the world.

Banco Industrial is a good example to follow. It has been capitalized twice
already during the current Government, it has been the subject of accusations
of corruptions repeatedly in the last few years and Chavez has changed its
President three or four times in the last seven years. In addition, the
financial sector has benefited dramatically from their large spreads as well as
the tax free status when they invest in Government bonds in an environment of
dropping interest rates.

Despite this, the bank is asking the Government for some US$ 80 million in a
capital injection, because it ahs enjoyed huge losses in 2004 and the first
five months of 2005 In the first five months of 2005, Banco Industrial lost
close to US$ 400 million, on top of the US$ 3 billion that it lost in 2004. In
fact, the bank regularly violates the indices of liquidity and overdue loans
required by law.

Like many
other institutions, Banco Industrial is the victim of mismanagement and the
belief that it is one of many sources of “petty cash” for the Chavez Government.
The amazing thing is that they can even manage to lose so much money. 2004 was
a banner year for the Venezuelan banking system with outrageous profits based
on return on equity. But not for the
main Government bank, which is not only the source of easy credit for the
friends of the Government, but periodically receives orders for financing
projects like its recently inaugurated office in Cuba.

Of course,
the Government will contribute the US$ 80 million and will check little of the
bank’s management until the next crisis. But the deeper problem is that Chavez’
belief that Government can do it all has led it to create an inordinate amount
of institutions such as Telesur, Conviasa (does it fly?), the Venezuelan
satellite, the people’ s bank, the floating of bankrupt companies and the like,
which can easily hide their loses thanks to the strength of oil prices.

But in the
end this is an irresponsible use of state funds at the expense of the “People”
who should be the true beneficiaries of the bonanza. But all the money is doing
is hiding the inefficiency and corruption of Chavez’ collaborators. And giving the
appearance, for the time being, that Chavez’ statist model works. But at some
point the growth in the cash flow will stop and the model’s day of reckoning
will be here.