The Devil's Excrement

Oscar Garcia Mendoza is President of Banco Venezolano de Credito, as you can see his article in yesterday’s El Universal, agrees with everything I have said here about the banking system, its present and its future:

Long
live Chavez by Oscar Garcia Mendoza

After seven years of his
Government, there are very few Venezuelans that are thankful of Chavez’
Government. The country has received more than US$ 375 billion in oil income
and the reality is chaos in the infrastructure, increase in malnutrition and
poverty, administrative disaster and one can’t stop counting.

Some have benefited. Among
those, the banking sector has been quite privileged.

In these seven years the
earnings of the sector have been the highest in its history. It has grown
substantially and in its majority it backs the Government.

What has happened? The
banking sector from the beginning of the regime has acted as a facilitating mechanism
for the cash flow of the Government and has allowed it to take unproductive
current spending to the levels desired by the administration. It has been the
mechanism to conduct the flows of the Government. On the one side it receives
funds from state companies and ministries and on the other it acquires public
debt instruments which are exempt from income tax, realizing great benefits
from this.

In recent days, the Superintendent
of banks was complaining that banks barely pay taxes, the reason is there for
everyone to see: if a great part of its earnings arise from exempt bonds they
have to pay or little or nothing.

On January 31, an article
in the Financial Times related how the Ministry of Finance was making opaque
sales, without an auction, of Argentinean bonds to local banks, which it
mentions by name. Those banks, says the article, acquire those bonds in
bolivars at the controlled exchange rate and immediately sell them generating a
profit that miraculously evaporates. Up to now those involved have not denied
the news.

Banks enjoy on top of that
accounting privileges: revaluations, portfolios outside the balance sheet. And
it is rumored that given the huge monetary liquidity the Basel indices will be
lowered so that banks can capture more deposits, without the bankers having to
capitalize.

The feast may last as long
as oil income can support it or maybe less, because the level of spending is so
exorbitant that they will have to rely more and more to inorganic issuing and
to inflation, in fact the highest in Latin-American for years.

The time will come in
which “out of friendship” it will no longer be possible to sustain the earnings
and the illusion of solvency and at that moment the losers will be the
depositors, as it always happens. With the regime collapsed some, from afar,
will continue to gratefully proclaim: “Long live Chavez”

This entry was posted on February 5, 2006 at 9:24 pm and is filed under Venezuela.