Chavez names new Minister of Finance

January 5, 2007

Today we also got a new Minister of Finance as President Chavez replaced his trusted friend Nelson Merentes with the Head of the Finance Committee of the National Assembly Rodrigo Cabezas. This is clearly an improvement as Merentes is a mathematician with little knowledge on economic matters and Cabezas is actually an economist, a rarity in the Venezuelan Finance Ministry. The negative part is that Cabezas has strange economic ideas. He was actually the one that invented the concept of excess international reserves, but he combined that with the idea that the Government should increase spending constantly in order to have the country grow. This is the combination that has actually been implemented and the excess monetary liquidity actually drove inflation up sharply in 2006 with the CPI closing at 17% and food inflation at 26%. It will take an incredible balancing act for Cabezas to get the country out of this trap without a major devaluation.

It is an improvement because Merentes would have had no clue as to what to do. It is also my hope that Cabezas will eliminate the sale of dollar bonds to the banks which I have described as the biggest source of corruption in the country’s history. Cabezas has already named as his Vice-Minister a former military officer and Chavez’ buddy, Rafael Isea, who participated in the ’92 coup and was Chavez’ assistant from 1995 to 1997. One wonders if he is there to make sure nobody sticks their hand in the till. I hope that is the case.

By now, most Ministers are concerned that their job is not secure. Merentes has been used by Chavez as a wildcard, naming him to five different Ministries, so that it took people by surprise that he was replaced. Some people are surprised by Jose Vicente Ranges’ demise, however one of the stories going around is that he asked to be removed, while others claim that he had spoken against not renewing the RCTV concession, which irked Chavez.

Thus, expect more shuffling to take place before next Wednesday when Chavez will be inaugurated for his third period as President and he assembles his new Cabinet.

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