Archive for July 27th, 2006

How to lose $45 million in the robolution

July 27, 2006

This is a tale of what is going on
behind the scenes in the robolution. It is emblematic of the lack of
transparency in the Government’s finances, how millions slosh around from one
side to the other without anyone checking where they are, how they went from
here to there or why they were moved. This is the tip of the iceberg of the
stories we hear about daily, except that the details are never known. In fact,
this case is known only because someone was killed. And even then, the Government
has revealed very few
of the details of the case. After all, it is just US$ 45 million that went
missing, while they are used to talking in hundreds of millions if not billions
and people are getting very rich in the process as these funds move around.

It all began in 2001 when the insurer of the local bank’s deposits FOGADE, sent US$ 45
million to French bank BNP for investment. Apparently, nobody seemed to follow
up what happened to this minuscule amount until May of this year when
supposedly US$ 2 million in a CD was due. Except that at BNP nobody knew
anything about the US$ 2 million, let alone the original US$ 45 million and the
proceeds from investing it.

When BNP was asked about the funds all they could say was that the money had
been transferred to an institution called CLBS, which had been the one
providing FOGADE with updates and the statements, not BNP. How the money moved
from one to the other or why, has yet to be revealed.

CLBS was made to appear to be a foreign company, but in reality it seems that
it only had a single office, the Caracas
office from which a local broker managed money for various institutions.
Problem was, the man who ran that office and who was apparently associated with
BNP at one point, was gunned down in the Las Mercedes area of Caracas
in April by two men in motorcycles in what was clearly a gangland style hit.
Since then, the office of CLBS has been closed and reportedly the associates of
the broker who ran it have all left the country.

Besides the ease with which the money was moved, there is also an apparent
connection to the bankruptcy of Refco where many local institutions had custody
of their instruments because of the very generous conditions that company gave
them when lending them money against their holdings. In fact, the murder of the
broker and the FOGADE funds may simply be unrelated, even if all the funds may
be in the Refco accounts under bankruptcy proceedings.

So now, the same Superintendent of Banks who told us in non chalant fashion that the
Refco bankruptcy would have no impact in the country’s financial institutions
has initiated an investigation. Will we ever know? How many other cases are
there? The truth is nobody knows as money is being shuttled around in the
billions with no transparency. In fact, FOGADE had stopped working with BNP in
2000 as the then President had heard rumors of monkey business with the local representative.
As a new Head of FOGADE was appointed the new account with only US$ 45
million was opened.

This is no isolated case, this is
the case that was discovered, but as I said in the previous post, the
development bank Bandes exchanged US$ 1.5 billion in 2004 and 2005 via the parallel
market benefiting their friends, including some that were involved in the
FOGADE transaction. The new development bank Foden is given the central bank’s
reserves which it uses to buy US$ 3.1 billion so far in Argentinean bonds, of
which US$ 2.5 billion has been sold in the parallel market at an average rate
of Bs. 2370 per US$ by the Government to their friendly financial institutions.
While the Minister claims fake profits of US$ 200 million, it is the friends
who are making a bundle. And these transactions have been rumored for months
but were only confirmed recently by the Minister himself.

These are the obscure ways of the robolution. The inner circle and friends are making millions if not billions and only once in a while we get only a peek at the edges of the transactions. And some fools are still silly enough to believe in this farce.

Benford’s Law and the Florida and Mexican elections

July 27, 2006

While it
does not deal with Venezuela, maybe some readers would be
interested in a paper on Benford’s Law and elections
written by Prof.
Mebane of the Department of Government at Cornell University.

The paper looks
at Benford’s law in the context of elections and the detection of fraud. It
looks at the effects of manipulations of data on the results and shows that
various simulated manipulations can have a strong impact on the expected results
from Benford’s Law.

The author
then looks at data from the 2004 Florida
election and the recent Mexican election. He concludes that the second digit
Benford test worked well in Dade, Broward and Pascon counties, although there
were some exceptions where questionable results were obtained.

contrast, the results from the Mexican election imply that there are problems
in many Mexican states with the results although not in most of them. Prof. Mebane
suggests that a manual recount of the vote would clarify these discrepancies. And
based on a recount with sampling, one could decide whether to carry out or not
a complete recount.

By the
way, the Mexican election shows a lot of cynicism on the part of both the
Venezuelan Government and the opposition. The Venezuelan Government because
while suggesting that they thought there had been fraud in the election, they
never came out and said that there should be a recount. This would be exactly the opposite of their position in local elections. The opposition, because
their apparent sympathy towards Calderon or antipathy towards Lopez Obrador,
stopped them from calling for a full recount in Mexico, which would have been completely
consistent with their positions on the Venezuelan elections. Shame on both

July 27, 2006

So now, Deputy José Albornoz wants to
go after Sumate
. According to this incompetent Deputy, Sumate violated the
Law of Foreign Exchange Illegalities when it received dollars in 2005 and did
not go through the Foreign Exchange Office CADIVI. Well, Sumate says they
received Bolivars, but the point is irrelevant anyway, because that law went
into effect on October 14th. 2005. You see Exchange Controls were imposed in
February 2003, but there was no law that established punishment for exchange
control operations. The law was introduced in April of 2003, but thanks to the
inefficiency and ineffectiveness of the National Assembly controlled by
Chavismo, it was not approved until last
, only two and half
years later. The law clearly states in its transient articles that it goes into
effect 30 days after its publication, which took place on September 14th.
2005. Until that day, you had to go thru CADIVI to get dollars, but there was
no law penalizing foreign exchange operations.

But I do find it interesting that Albornoz cares so much about the
Sumate funds, some one hundred thousand dollars, while the Government’s
Development Bank Bandes, presided by Minister Merentes at the time, exchanged
some US$ 1.5 billion, between 2004 and 2005, of the PDVSA social fund via the
parallel market in a total non-transparent way using “friendly” banks, but this
does not seem to get the attention of the Deputy who
was awarded today
the “Sleazebag of the week” award by Daniel.

This is pure and simple political persecution of the enemies of the
regime. Sumate is a threat to the Government. They almost succeeded in the
recall referendum, revenge has to be extracted at all costs.

(Note added: In fact, even after the law came into effect, it left opened the use of any form of security as a way to exchange dollars. Thus Sumate could legally change dollars via CANTV shares or swaps of securities. As a matter of fact this is what the Argentinean bond sale to the banks does. The Ministry of Finance sells banks and financial institutions Dollar bonds for Bolivars and this swap is perfectly legal under the same law)