The Devil's Excrement

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.

This entry was posted on July 14, 2005 at 9:47 pm and is filed under Venezuela.