The Devil's Excrement

There is little waste in today´s Veneconomy Editorial, judge for yourslef

Yet
another black mark by PDVSA by Veneconomy

One characteristic of the Bolivarian PDVSA is the lack of transparency in its
management owing to the absence of credible financial statements and also to
the recurring reports of corruption. The $7.5 billion bond issue involves the
state-owned company, once again, in irregular, unclear operations.

Irregularities involving the bonds started to come to light last week, when
PDVSA announced that it had “detected duplication of orders by investors” and
that, therefore, it would proceed to cancel those orders and would not allocate
bonds to the people involved. However, the measure seems to be unfair, as many
of the people whose orders were cancelled claim they placed their order through
just one company. In the April 11 edition of El Universal, the journalist
Víctor Salmerón commented that, according to his sources in stock brokerage
firms, “a group of financial organizations apparently somehow used the identity
card numbers of some people without their consent to place orders.”

In addition to these irregularities, there are reports in the press of the
existence of a large volume of orders placed as a result of investors “selling
their quota” to other investors. Diario de la Economía, for example, cites the
case of an official of Banco Industrial de Venezuela who, at the eleventh hour,
filed 3,000 orders, apparently irregularly. Then there are the cases of people
who say they were offered as much as Bs.400,000 for the use of their identity
card. In the opinion of Oscar García Mendoza, the president of Banco Venezolano
de Crédito, the much trumpeted PDVSA bond issue is a “mega sham” whose only
purpose is to benefit a tiny group of the government’s richest and closest friends.

As García Mendoza quite rightly says, if the government’s true intention was to
reduce the money supply by Bs.17.01 trillion, all it needed to do was to sell
$4.7 billion at Bs.3,600:$ on the parallel market.

However, events point to the true objective being quite different. The PDVSA
bond issue magically generated fast returns for a few in the order of $2.8
billion (i.e. Bs.9.99 trillion), 20% more than the Bs.8.3 trillion earned by
the entire Venezuelan financial system in the three years between 2004 and
2006. (These Bs.9.99 trillion are the difference between the Bs.17 trillion
obtained from the sale of the bonds and the Bs.19.8 trillion that the holder of
the bonds would realize upon selling the bonds at 75% of their face value and
exchanging the proceeds from the sale into bolivars at the exchange rate of
Bs.3,600:$).

Should the government wish to refute Dr. García’s assumption, all it would have
to do is to publish the names of those who purchased $1 million or more of the
bonds.

What is perhaps worse is that Venezuela’s coffers could end up shrinking by
some $7.5 billion if the intention to use the bolivars from the bonds to buy
dollars from the Central Bank announced by Finance Minister Rodrigo Cabezas and
Energy and Oil Minister Rafael Ramírez pans out. (The orthodox thing would have
been to sell the bonds for payment in dollars, so avoiding this potential drain
on the reserves).

There is another irregularity worth mentioning. According to the Gaceta Oficial
of April 10, enrichments from these bonds will be free of income tax for only
five years and only for individuals resident in Venezuela and companies domiciled
here. In other words, a foreigner who buys the bond in Europe
would, in theory, be liable to Venezuelan income tax. That being the case,
buyers will be thin on the ground.

This entry was posted on April 12, 2007 at 7:17 pm and is filed under Venezuela.