The Devil's Excrement

Weil captures well the meaning of the RCTV case to the broadcast media in Venezuela

It has been a rough couple of days for the Venezuelan
Government as the sloppiness of its actions and the improvisation of chief
Treasurer Chavez have cost the country quite a bit in the last two days.

On Monday, the holders of the Cerro Negro bonds, one of the
Orinoco oil belt partnerships, served notice on the Government that its actions
from the production cuts to the forced changed in ownerships constituted a
prospective default which could lead bondholders to accelerate the payment of
the bonds. This will not only be costly in terms of use of cash, but also
expensive, because there is a penalty in that case. A PDVSA Director tried
appeasing bondholders on Tuesday by saying that PDVSA is ready to buyback the
bonds of both Cerro Negro and Petrozuata. This only drove the bond prices
higher as the expectation of the buyback caught the interest of investors who
know that a forced buyback would imply much higher prices than those available
on Monday.

Then, S&P said yesterday that it had placed Venezuela on negative watch because the country
was acquiring larger stakes in the Orinoco,
which would require higher resources from PDVSA and would continue to make the
country more dependent on oil. Negative watch means that it will be more costly
for Venezuela
to issue debt in the future and the Government certainly has plans to issue
more debt in the next few months.

But things really got worse today, when a Wall Street firm
cut its recommendation on Venezuela’s
debt based on the fact that Chief Treasurer Chavez had decided to have Venezuela
withdraw its membership from the IMF. You see, much of the country’s bonds,
including those issued by Chavez as recently as a year and half ago, include a
clause or a covenant which says that the country leaving the IMF would
constitute a default event. Of course, Chavez knows it all, but apparently
could not remember this detail, which led to the bonds dropping today. To make
matters eve worse, the Minister of Finance, said Venezuela had no plans to default
on its debt, demonstrating his ignorance about what default means. He repeated
later in the day that Venezuela
had no plans to default, referring to no plans of stopping paying the debt, but
clearly failed to understand that a technical default would mean that
bondholders could ask for accelerated payment, lowers ratings, more cost and
even worse, the inability of the country to issue new debt while the condition
exists.

All of this would be fine and dandy for the revolution which
on the one hand talks about sovereignty, leaving the IMF, World Bank and the
like, but on the other has become highly dependent on foreign investors, who
happen to be the biggest capitalists and speculators in the planet) buying the
country’s bonds in order to finance the deficit and as a tool to lower the
parallel exchange rate. Unfortunately the runaway spending by the Government is
making this fight harder and harder and the Government is getting increasingly
frustrated after the issuing of US$ 7.5 billion in debt did not have the effect
that Minister of Finance Cabezas had promised Chief Treasurer Chavez it would
have.

Unfortunately, the parallel rate has a strong influence on
inflation since last year estimates are 25% of imports were made at the
parallel rate. While this year it may be less, since the Government’s exchange
control office CADIVI ahs been giving large amounts of foreign currency (US$
9.8 billion in the first three months of the year). However, CADIVI’s outflow
goes according to CADIVI’s desires and Government priorities, which sometimes
are not in synch with what the local markets want, which in turn feeds the
parallel market yet again. In fact, CADIVI has even stopped authorizing
preferential dollars for ALADI, a Latin American Integration Association, which
means all products that came that way now have to be purchased at the parallel
rate of exchange.

Thus, the 1.4% inflation rate increase in April  is no fluke and it
will only go downhill from here, as the effect of the value added tax cut has
worn off, salaries were increased, the parallel rate is back up and liquidity
has yet to drop significantly. Even worse, food inflation, the most sensitive
politically was 2% in April, with the twelve month rate topping 30%.

Certainly not a pretty picture, without mentioning that
reserves continue to go down and if its is true that the concept of private
property will be removed in the secret 
and so undemocratic proposal to reform he Constitution and replaced with
that of “individual” property, you can bet that the parallel rate may have no
limit in the next few months.

For the first time since Venezuela’s last Dictator was
overthrown in 1958, the May Day march by the Confederation of Workers was not given a permit to
march. Symbolic no?. What is most intriguing is that the ostensibe reason
for not allowing it is that the endpoint of the march, the same one for the
last 49 years, was Plaza O’Leary on downtown Caracas, which according to the Mayor of the Libertador
district of Caracas is “within the security zone of the Miraflores Palace”.

What is most intriguing abut this very strict statement by the
obviously pro-Chavez Bernal, is the fact that you may recall these two pictures
taken last September at a Chavez rally:

which took place in , you guessed it,
the same Plaza O’Leary, where the pro-Chávez rally not only entered into the security
zone of the Presidential Palace, but the rally itself took place at that
square, with the autocrat himself presiding over the events. Curiously that rally was
authorized and not even the drunks were kept off the newly restored statues of
the fountains of Plaza O’Leary, in one of the few worthy aschievements of the revolution in the last eight years.

But that is Venezuela
nowadays, there are two classes of people, those with Chavez and those not with
him or against him and the pro-Chavez group certainly receives preferential
treatment. Those not with him or against him are discriminated against,
ignored, persecuted and treated differently as this case shows.

Meanwhile, there will be a second march (the CTV march is
going ahead as planned as of this afternoon) of the pro-Chavez unions, a
concept that may seem oxymoronic given the fact that the Chávez autocracy has
refused to sign any collective bargaining agreement with any union in the last
four years. I guess the Chavista workers will be celebrating how the Government
is buying from them their CANTV shares, for which they paid over four dollars
in the early nineties, and which they will seel back to the Government for US$ 2.12, thus reversing a true case of collective
ownership when workers were given 12% of that company when it was first
privatized.

And then tomorrow Chavez will fly to Orinoco Oil Belt to
complete what he calls the “nationalization” of the oil industry, in what is
nothing but a very capitalistic private equity buyout of the partners. Of
course, he will pay dearly for that equity that he wants to add in each of
these projects, which would have never been built without the foreign partners
due to the technology required. And don’t be surprised if to sweeten the deal,
PDVSA throws in an increase in production for these projects, giving foreign partenrs a larger share of Venezuela’s oil production.

In fact, a few months ago Chavez was saying he wanted to
have 100% of these projects, until someone pointed out to him that it would not
only be very expensive, but a company that can barely handle fifty year old
technology could not possibly handle the technology of the heavy oil projects.

But it is good for international propaganda, you acquire an
additional 20% on the average of these projects, but then you need PDVSA to
sell bonds to the capitalistic hedge funds and investors in order to pay the
foreign partners. And it is the existence of these same bonds which binds you
to the rules of capitalism, because you know you may need them again in the
future. In fact today the bondholders of one of these projects, Cerro Negro,
delivered to that company a notice of “Prospective Default”, which simply warns
the Government that whatever it does, since this is a forced change in
ownership as well as violation of covenants, it will have to buy back all of
the outstanding bonds and debt of these projects. And it will not be cheap. In
the end, PDVSA will likely pay the partners with the buyout of the debt, making
the deal sweeter for the foreign partners in all four projects.

So, it is May Day in this workers non-paradise. Workers get
an extra 20% pay raise, which covers inflation and is hailed as the highest
minimum salary Latin America, which is, of
course, calculated at the official rate of exchange, for which most Venezuelans
have little access and which has remained fixed for the last three years.

Maybe they will also hold a ceremony to celebrate that from
now on, workers will pay their own health insurance too.

You’ve got to love the revolution!