The Devil's Excrement

My brother (No, not that one!) invited me to spend a contra revolutionary and alienating evening watching the Leones del Caracas versus Cardenales de Lara baseball game of the round robin tonight. It was a lot of fun, had not done that in quite a while (years!). My team, the Leones was whipped 7-3 and they were formally eliminated from the post season, so it will be wait till next year now. But I had a great time, more so, knowing that I am an alienated contra (I even had some beers!) by participating in these activities. Below some pictures taken with my phone. I was that close to the action.

And you have to wonder what Central Bank Director Armando Leon has been smoking this year. The once respected economist, whose term at the BCV expires this year, told local newspapers that he saw nothing wrong with President Chavez asking the Central Bank to give out US$ 8.7 billion to the Development Fund Fonden.

Leon saw no problem with this saying that this created no disequilibrium given that Venezuela had a nice position in international reserves. Ummm….The disequilibrium does not come from the position in reserves, but the artificial creation of monetary liquidity at a rate which can only end in a disaster. Moreover, oil prices have come down significantly which means that reserves will go down if the Government continues to spend (or buy stakes into well run companies for ideological purposes, rather than spend the money where it can benefit the people).

Leon also told us that the exchange control administration has been managed efficiently. Apparently he is not aware of all of the new rules which forbid giving foreign currency to a large list of items, as well as the new certification that the product is not being produced in Venezuela. The result will be more pressure in the parallel exchange rate as those importers buy the foreign currency there. And the parallel rate, even if the Government does not want to acknowledge it affects the inflation rate. In 1995, the rate topped the annualized value of 120%, forcing the Caldera administration to remove exchange controls, something this “control all” administration is not ready to do.

But the mots hilarious statement by Leon, even if it is not funny, was to argue that people have learned to invest in Venezuela. Even worse, Leon mentioned that small investors have bought shares of CANTV and Electricidad de Caracas. I guess Mr. Leon must have been abroad the last week as these stocks lost over 30% of their value, putting the Caracas Stock Exchange in deep freeze for a long time to come. Who does he think he is kidding?

Reality is that monetary liquidity increased by 70% last year, but reserves increased by only 16%. Subtract now from the reserves US$ 8.7 billion to satisfy Chavez wishes, subtract then however much the Government will pay for nationalizations and add Government spending in 2007 which its conmmesurate increase in liquidity and you have a time bomb. At the end you can spice this all up with making savings rates so deeply negative that people have no incentive to save and have all incentives to buy dollars in the parallel market.

The only measure under which you can say Venezuela’s reserves are adequate is in terms of its yearly imports. The rest is simply hot air and I am truly amazed and surprised that Mr. Leon will publicly say what he did. Unless, of course, he wants to be reappointed as Central Bank Director.

The whole issue of reserves is being handled with total irresponsibility. Next time the Chinese Prime Minister comes I do hope Chavez asks him why if China as exchange controls like Venezuela, it does not use a good chunk of its US$ 1 trillion in international reserves for development projects. But, of course, he will not think of it.

Last week, Venezuelan stocks fell when President Hugo Chavez said he would nationalize the telephone company CANTV and all of the electric companies including Electricidad de Caracas, a publicly traded utility majority owned by US based AES Corporation. At the time, the Head of the Venezuelan Securities Regulator, the Comision Nacional de Valores, urged investors not to sell until they knew the details.

Well, today Electricidad de Caracas fell an additional 10.5% when investors actually learned about these details that were supposed to impress them. You see, when Chavez first announced the nationalization of the electric company he said nothing about compensation, while later the Minister of Finance said there would be “fair” compensation to shareholders. But today, the Minister of Energy and Mines announced that the Government would “only” purchase control of Electricidad de Caracas by buying AES’ stake of 87% in order to “protect” minority investors from capitalistic AES. These shareholders would thus become “partners” of the Government in this utility now run under the social precepts of XXIst. Century Socialism.

The whole thing was absolutely eerie as the Minister described the process as one to protect these shareholders from the hands of this horrible company saying they would not “affect” the interests of these small investors. So far the shares have fallen 30% since the announcement and it is likely that the slide will continue tomorrow when the market opens and the news is known by more shareholders.

What is remarkable, even if it may seem moot, since it is clear the Government could by now care less about the law, is that the Venezuelan Capital Markets Law requires that if you are going to purchase a stake like what AES has in Electricidad de Caracas, that you make an offer for 100% of the company, precisely in order to protect minority and small shareholders. How the Chavez administration will get around this legal requirement by issuing a “Nationalization Law”, as described by Ramirez, is unknown to me, but nothing surprises me any longer.

Last year, Electricidad de Caracas sold some US$ 90 million in new shares to its employees and small investors in an offering hailed by Government officials. I guess in the end it will be AES that made money by being smart last year and being bought off by the fake revolution this year. The small Venezuelan shareholders will simply be screwed by the revolution.

What else is new!

It is rare in Venezuela for buildings to have fires that spread to many floors, but last night one such fire raged through the building of the National Institute for Statistics (INE) destroying the servers and a lot of material.

Given that people have begun to seriously question the veracity of INE’s numbers, the question is:

Does it really matter?

I think it does, they will now have a great excuse for losing some statistics.

Last week son Andres Izarra defined the need for the Government to have hegemony in information and communications, today his father William defines how Chavez will transition from autocracy to dictatorship, so that there is no doubt where Chavez is taking us. Some excerpts:

On communal boards or councils, which Chavez is proposing to replace municipalities:

“Communal councils require ideological formation. They must be the political unity of direct democracy. They must have a conscience of where the process is going to deepen it. They can not function only to execute budgets. Communal councils are the first unit of direct democracy, the first revolutionary law. But, of course (those that oppose the Government) may be part of it, if they adjust themselves. The councils can not be used to conspire”

On cultural values:

“There are cultural elements that still prevail and are right-wing. For example, TV transmits values which are not atuned with the evolutionary process, the promotion of gambling, lotteries (My comment: Most are state owned), alcoholic beverages go against revolutionary morals and that is a constant fight. There are people that leave the halls where we give conferences convinced of what we say, but then they impregnate themselves with the reality which is once again, television, public transportation, the routine of going to school, of cleaning clothes and that routine is counterrevolutionary. The effects of what that workshop or conference could have achieved when he/she impregnates himself/herself with reality, when they turn on the TV, which are the national TV channels like RCTV and Venevision, are lost and that is culture that goes against the revolutionary process. There is alienation even in horse racing (also state owned) even if that industry allows social programs. In my opinion, professional baseball is alienation. “

On the revolution being like a child

“We need a new culture to create a new being. That is why in my conferences I illustrate the revolution like being a child. The Venezuelan revolutionary process is a child. We have to counteract the effects of everything assimilated up to now, of the representative democracy and the previous cultural system. It is a long process. But well, since it is a process, we can’t get desperate and say, well we will do it by 2100!. No, one has to live day by day. That is like Hugo Chavez he goes step by step.”

On the speed of the process:

“It has been 8 years of transition and it is time to go to the translation which is to transfer power to the organize community which is the objective of the revolution, that is why political parties lose their essence if they are not in tune with the process.”

On nationalizations

“It is a strategic concept. All communications have to depend on the state as a public good, like oil.

On the counterrevolution

“The leaders of of political parties together with ideological illiteracy and the opposition are the counterrevolutionary structures that still exist”

There you have it, step by step, how the Venezuelan democracy will be turned into a dictatorship.

Sort of busy switching computers including the one the blog is in, if I disappear for a few days, you will know I screwed up, cross your fingers. Meanwhile, here is an article by economist Francisco Rodriguez who led the Economic OffIce of the National Assembly until it was disbanded for telling it like it was.

Should egalitarians support Chavez? by Francisco Rodriguez in The Guardian.

Many of those who identify with the desire for redressing Latin
America’s deep social and economic inequalities face a real dilemma
when confronted by the figure of Hugo Chávez. On the one hand, his
strong-arm tactics are not exactly what progressives who believe in
democratic and open societies have in mind when we think about the
future.

On the other hand, as Richard Gott recently pointed out,
Chávez seems to be redistributing the country’s wealth to the poor, has
been democratically elected and re-elected, and is immensely popular.

I know the tension. In 2000, as a young Venezuelan assistant professor
in a US university, I decided to take a leave from academia and go work
towards the transformation of Venezuela. I left excited at the
possibility of contributing to the building of a new society.

During four years I headed the Venezuelan Economic and Financial Advisory Office to the National Assembly,
a recently created team of economists roughly modeled on the US
Congressional Budget Office. Our task was to help deputies craft
legislation while advising them about the potential economic effects of
their law projects. I was able to put together a group of committed
economists who had the greatest desire of helping shape historical
changes in their country.

What we found was very different from what we expected. It wasn’t
just that the government did not understand the difference between
dissenters and opponents – perhaps understandable in a climate of
heightened political polarization. Nor that they seemed genuinely
disinterested in anything that was not directly connected with their
staying in power – also understandable when the opposition seems to
only think about how to oust you from power. It was that they really
didn’t seem to care much about any of the reasons we were there:
improving the well-being of the poor and making Venezuela an open,
democratic society.

My first assertion will surely seem puzzling to many readers. Wasn’t
Chávez reelected because he has reduced poverty? If he doesn’t care for
the poor, why do the poor seem to care so much for him?

There is a broad gap,
however, between what the government says it is doing for the poor and
what is actually going on. Did you know that the percentage of
underweight and underheight babies has actually increased in Venezuela
during Chávez’s administration? That, once you take out social security
– which, in Venezuela, benefits mostly the middle and upper classes who
work in the formal sector – the fraction of social spending in the
government budget has actually decreased? That, despite the
government’s claim of having eradicated illiteracy, its own Household
Surveys revealed more than one million illiterates in Venezuela at the
close of 2005, barely down from pre-Chávez levels?

Yes, Chávez just won reelection by a wide margin. So did Alberto
Fujimori in Peru in 1995 and Carlos Menem in Argentina that same year.
They won not because their policies were pro-poor, but because they
produced very high rates of economic growth. In the case of Menem and
Fujimori, the growth came from huge capital inflows generated by the
support that the World Bank, IMF, and financial markets gave to their
economic reforms. In the case of Chávez, it has come from a five-fold
expansion of oil revenues, which has allowed his government to enjoy
double-digit growth for the last three years.

But there is a dark side to chavismo which should not be discounted.
If you believe the government’s claim that it has respected freedom of
speech and other political liberties, I suggest you take a minute to
look up the case of Angel Pedreañez,
a 20 year old soldier who was burned alive in a Maracaibo fort prison.
According to his family’s attorney, this was in retaliation for having
signed the petition to hold the recall referendum against Chávez. Francisco Usón,
a former Chávez finance minister, is currently under 5 years
imprisonment for insulting the Armed Forces when he said that the
soldier’s death could not have come about, as the government claimed,
from smoking in his cell.

Indeed, what is most worrying about Chávez’s repression is how
systematic it has become. The government has built a detailed list – the Maisanta database
– that documents the political leanings of 12.4 million Venezuelan
registered voters. The list is routinely used to deny opposition
supporters access to public jobs and government social programs. Last
week, the government confirmed that it will not renew the concession of
RCTV, the nation’s oldest TV station, which is closely associated with
the opposition. During his inauguration, President Chávez promised to
abolish more than 200 mayoralties, thus “paving the way for one
communal city where municipalities and mayors will not be needed, only
communal power.” Chávez’s intolerance of dissent is so high that he has
even ordered the nation’s Communist Party to disband itself, in order
to become a member of the government’s “Unified Socialist Party.”

Venezuela’s poor do not live in a better society. They live in a
society whose government is systematically squandering the nation’s
largest oil boom since the seventies while at the same time restricting
basic political freedoms. Those of us who want to build a truly
democratic and egalitarian future for Latin America should support
democratic movements committed to the respect of civil and political
liberties and whose leaders genuinely care about the region’s poor. We
should not support Hugo Chávez.

And the revolution bypasses classical road signs between San Carlos and Acarigua with this somewhat atypical road sign, which uses a word “arrecha”, meaning tough, difficult, which could be considered to be coarse. The sign says that the curve ahead is “arrecha” and people’s carelessness kills them when they take it. I wonder if they have thought of hiring an engineer that could make the turn less arrecha and fewer Venezuelans would die. Traffic accidents is the number one cause of death in Venezuela.

From a CANTV internal e-mail, CANTV Roja, Rojita…

Ever since last Monday I have been suspicious of what hides between Chavez’ proposal to nationalize telecom company CANTV and electric company Electricidad de Caracas. The whole thing makes little sense. These two companies have become the center of attention but are not and should not be that critical to Chavez’ so called socialist project in Venezuela. It certainly makes no sense to use much needed funds on nationalizing these two companies, while there are so many needs elsewhere. Even philosophically, neither of them are that important in Chavez’ project, after all, except for Valencia, Caracas, Nueva Esparta and Puerto Cabello, the Government already controls the rest of the electric sector via power comapny CADAFE and power generating and transmission company EDELCA.

The same with CANTV. What is the point in calling it strategic, when you have competitors in all fronts, with CANTV’s cell phone subsidiary Movilnet having only 35% of the cellphone business? After all, fixed line penetration is barely 11% of the population, while cell phone penetration is above 50% of the population.

The same thing happens with data, while CANTV certainly has the best network in the country, if it is badly managed in the future, like it was in the past, it will just give an opening to competitors to take business away from it. Yes, CANTV has 85% of the Internet access business, but it does because it has executed so much better in terms of quality of service and price that it managed to prevail. But will it be able to continue to prevail in Government hands? And if it doesn’t, will the Government then tell us that it needs to privatize the rest? In fact, if the Government were sincere, it would nationalize the fixed line operations of CANTV (which are regulated) and let the company keep it’s cell phone subsidiary, which are not. But can the Government keep up the same quality of service?

I doubt it.

I doubt it, because the first thing that will happen is that good managers and technical people will certainly migrate to Movistar and Digitel as CANTV becomes a political operation with ever changing managers and Presidents, much like the Ministers and the General Directors of the Ministries, which last on average less than one year in their positions.

Thus, the key seems to be what unannounced changes Chavez will be able to sneak by us using the Enabling Law, which now is supposed to last for two years. The experience is not new. In fact, Chavez had a long honeymoon with Venezuelans when he was first elected in 1998: the call for the Constituent Assembly, the approval of the new Constitution and Chavez first reelection. But people began to get worried when in 2001, Chavez asked for an Enabling Bill and a scant ten days before the end of it, it presented 44 Bills that were quickly passed by the National Assembly, including the infamous Land Bill. Less than two weeks after that there was the first major protest against the Hugo Chavez Government on December 10th. 2001.

There is not much information about what will or not be included in this Enabling Law or how open or close ended it will be. It will certainly include a new Law for a National Police, various laws to restructure the Armed Forces, a law for nationalizations. But beyond that it is not clear.

Will a new Sports law be part of it? Will that law ban professional sports as has been suggested by various Chavista Deputies? Will a new Health Care Bill also be part of it? Will that law nationalize private hospitals and health care facilities? How about Education? Will the new Higher Education Bill be part of the Enabling Law and take away the autonomy of public universities?

The same thing can be asked about Constitutional reform. While Chavez has chosen that route, some of the changes he is proposing seem to go to the heart of the still young Bolivarian Constitution and would seem to require a Constituent Assembly for its approval. This in turn requires a referendum calling for it, as well as another calling for its approval. From the change of the country’s name to include the word socialist to the political restructuring of the country, these appear to be more than just adjustments that would require more than a simple reform by the National Assembly. But of course, since Chavez has 100% of the National Assembly, he does not want to have a Constituent Assembly with even the minimal voices of dissent present in it. Autocrats are not democrats, they act according to their desires and interests, not democracy and the law.

The so-called restructuring and redistricting of the country is what bothers me the most. In the name of more decentralization, which Chavez has certainly gone against during his eight years in power, Chavez is proposing the elimination of municipalities and Mayors and their substitution with “communal boards”. What Chavez proposes is a sort of federal system for cities in which communal boards make up its components. In this manner, Chavez will not only eliminate the rise of possible political opponents, but his more militant supporters will overwhelm these boards, giving Chavismo total control of the country at all levels.

It is these changes, which seem to be critical to the progress of the fake revolution and acquiring control of the political and social system in Venezuela. So far, they have not been given the prominence that they deserve. The average Venezuelan could care less if CANTV is or not nationalized, but education, sports, and his/ her political representation are indeed of importance, but by focusing the debate on the more confrontational nationalization processes, the Government may simply be masquerading its true political objectives.