Archive for August, 2007

The infinite belief that everything can and should be legislated and everyone will comply

August 31, 2007

One of the things that
has always puzzled and amazed me is the infinite belief in the law exhibited by
Venezuelan politicians on all sides, in a country where there is little enforcement of laws. As far as I can remember, the Venezuelan Congress then and the National
assembly now, created and invented ever more complex and sophisticated laws,
aimed at solving problems and regulating everyday life. Laws were approved and that was the end of that,
not much happened and there was little follow, up as no mechanism was created
for enforcement.

At the same time,
those that speak with authority about following the law, violate it themselves.
I guess this must be part of or endemic to underdevelopment.

Even more puzzling or
intriguing, the people in charge of enforcing laws, seem to have an amazing
capability to come up with new ones, innovating and extending them, as if to
demonstrate their infinite creativity. In the end we have more laws, less
enforcement, as if we were all living in a fictional world of legislative make believe.

All of this comes to
mind because of a variety of events that took place this week which
demonstrate this. I am not even going to include the proposed Constitutional
reform, with all of its populists offerings which will end up in the same
cemetery as the 2000 Constitution, which contains many mandates and promises
that seemed to have been forgotten by those that initiated them, despite their
total control over the life of the country in the last seven years and the
unexpected oil windfall they have had.

But let’s look at some
concrete examples:

Head of the Foreign Exchange Control Office CADIVI
: In wide ranging
statements the head of the Foreign Exchange Control Office CADIVI was perhaps
the biggest violator of the infinite belief in the law I described, as he
complained of numerous violations of current laws, which nobody enforces
(Including the $800,000 suitcase). Among the pearls Barroso said:

“The parallel market
is a distortion which can not be justified”

But it is legal…

“There are sanctions
for the media that publish the price for the black market and its impact should
not be what it is”

The swap market is not
“black”…In fact, if it is so unimportant, why did the Government spend US$ 10
billion in the first four months of the year trying to lower that “parallel” rate (unsuccesfully by the way)?…

“People have obtained
CADIVI travel dollars without traveling”

Or traveled with a bunch of dollars ($800,000) without getting them at CADIVI. Isn’t he the Head of
CADIVI? He should tell us how this can happen and stop it, he should not ask us why this happens!…

“CADIVI has detected
irregularities with the Internet quota…such as generating cash, with
companies that lend themselves to it”

And what has CADIVI
done about it?

His solution to all
this? All of the effort on more legislation, none on the enforcement…

Head of the Tax office SENIAT
: Two weeks ago the tax office published a
list with 2,650 companies which had not paid taxes in 2006, “inviting” them to
come and do a “replacement” filing with the correct taxes.

To begin with, this is
the case of being guilty until proven innocent. The tax office seemed to have
no clue as to whether these companies owed or not taxes and went ahead and made
the list public, paying newspapers (selected ones!) to carry it.

In a country in which
you can net the VAT or where Government bonds are all tax exempt, there can
indeed be many companies that pay no taxes. In fact, that is why many banks pay
little tax since they have so much money invested in Government bonds that at
the end they owe nothing or very little in taxes. It may also be that you have past
losses which you can net against present income or you may just be starting up.

But the worst part is
that the Tax Superintendent has suspended the publication after “discovering”
that there were at least 29 errors in the lists and that some of them are what
is called “special taxpayers” who are continuously inspected and supervised.

But the damage is
done. While the Superintendent promised to apologize to those that should not
have been on the list, there will be no compensation for the bad image given to
some brands or companies for being on the list and many will not notice the
apology. Moreover, this is not what the law establishes, the tax office should
have done its job before publishing anything and it should have done it in

—The new Bill for the
Civil registry (from El Nacional by
subscription): Some bureaucratic genius
with lots of times in his/her hands, has decided that the new Civil Registry
Bill will include a limitation as to what you can name your kids. According to
the report, you will not be able to register your kid with a name which is
foreign or that “exposes your kid to being ridiculed, which are difficult to
pronounce or are a combination of foreign names. To that end there will be a
list of 100 names to be used by registries as a guideline

First of all, in a
country in which kids have so many important problems, this does not seem much
of a priority. But suppose it was. How are 100 names going to cover the
possibilities? Additionally, if it will be discretionary, does it really guarantee

I can already imagine
it, intermediaries offering via Internet to have any name you want accepted. Or
people going omewhere in the interior to do the registry because it is
“easier” over in that town. Or very simply, registrars imposing a “price” on his/her latitude to
assign a name. The wilder the name, the higher the price, of course, this may be
or is becoming a socialist Republic, but the registrars believe in market

But really, one
hundred names? There are some 10,000 saints in the Catholic Church, how can
anyone argue that names there can not be used? (That was the rule in the good
old days). I know they repeat, but I am sure that there are not 100 Saints per
name. And yes, foreigners are exempt, but who is a foreigner? What happens if
a three generation Jew wants to name his kid Amnon or Shamira? What if a name
is on the “list” but is spelled different? Or what if it is the same name in a
different language because the grandmother had that name?

Is it worth all the
troubles, regulations and hassles? And in the end, we come to the same point:
Who the Hell will enforce it anyway in a country where red lights are
precautionary, nobody wears seat belts and you can leave the country with eight
hundred thousand dollars in bills and the Minister in charge of it says that
such stuff does not get checked anyway?

But in the end I
wonder what the people named Lizett, Diogenes, Earle, Dinorah, Axer, Luzmila,
Mizher, Leobrado, Artemio, Betty, Belquis, Belkis, Wilmer, Ysmer, Geovanni,
Diluvina, Samara, Gineth, Amarilis, Ramses, Berkis, Osmar, Lesvia, Ronald,
Hilcry, Argentina, Johnny, Hayden, Aleydis, Dena, Paucides, Grace, Briccio,
Zulma, Arquimides, Oda.,Elis, Balmiro, Iroshima, Hercilia, Fasano, Edelys,
America, Marelis, Noah, Erasmus, Aristalco, Armiche, Yaritza, Iris, Cleotilde,
Malaquias, Oresteres, Lelis, Emiro, Iraima, Liseth, Tiberio, Ender, Eliseo, Rafic
and Noeli will think about this new Bill, surely few of these names, if any, qualify under the proposed Bill.

And you may ask: Who do these names belong to?

They are all names of
Deputies of the National Assembly taken from that institution’s website.

The question is then, what could expose them more to ridicule, their names or actually voting for the new Civil Registry Bill because the party’s leaders say so?

Milking Venezuela for all its got!

August 29, 2007

So, it took all of thirteen days for Un Nuevo Tiempo (UNT) to come up with the obvious and tell Chavez that he does not need to change the Constitution to shorten the work week or to start some sort of social security program for those who are part of the informal economy.

Jeez, I am no lawyer, but I realized that the first day.

In fact, they forgot that the 2000 Chavez Constitution gave a time limit to come up with a new social security program for workers in the formal economy, which curiously has yet to be implemented due to the lack of interest on the part of the all-Chavista National Assembly. But since Chavez needs to counteract the fact that people mostly reject his indefinite reelection, then he needed to throw in some populism into his proposal, even if he has yet to deliver in his seven year old promise.

But it is truly sad that the opposition response has not only been so disjoint, but that this particular group decides to fight populism with even more populism: Hey Hugo, let’s not wait to destroy the country till January, let’s do it together now!

Because everyone seems to be thinking about politics and making money and not about our poor country, which is being destroyed, materially and spiritually, very fast.

I mean, has anyone thought about the inflationary consequences of reducing the work day to six hours? It is as if the country’s inflation was running low and we could afford all this. In fact, since inflation is accelerating they are going to add fuel to the fire by increasing costs, without increasing productivity.

To begin with, shortening the work week will not increase the number of jobs very much, like Chavez seems to think will happen. The first thing that companies will do is to pay overtime to their current workers,. In that manner, they will not need to train anyone new and they will put more money in the pockets of their current workers for doing the same job they are doing today. There are limits to this, as the law establishes a maximum number for hours worked in a week, but you can be sure companies will stretch these to the limit.

And this will be cheaper than hiring new workers, as many benefits do not accrue for extra hours worked, even if these hour cost more. In any case, estimates are that labor cost will rise by 25-35% just due to this change in legislation, which companies will pass on to prices, not precisely aiding the Government’s anti-inflation plan (??). Moreover, this creates even more rules, limits and restrictions in an already rigid labor environment, which will only complicate matters when there is a downturn. And you can be sure one is coming as the swap rate hit almost Bs. 4,950, CADIVI seems to have slowed down handing out dollars to importers and the Government will not stop spending between now and December to insure its victory in the upcoming referendum.

But as if this was not enough, UNT also supports Chavez proposal for the creation of the pension fund for workers in the informal economy right away, just adding to the harebrained populism of the Government.

Has anyone done the actuarial calculations on such a fund? If my memory serves me right, Norway, which has a fund with some US$ 190 billion had to change its pension rules for its 4.8 million citizens, because the fund will become insufficient as oil production declines. So, we will now provide social security to all of Venezuela’s 26 million inhabitants, whether they contribute or not, whether they work for the formal or/and informal economy.

Yeah! Sure! We will probably need oil at $500 a barrel for that.

But there seems to be a pattern here: Talk to anyone who is anti-Chavez, but working with the Government and they tell you that they are “milking” the Government as long as they can. Because who knows, they may not be able to do it if Chavez gets really tough and they have to leave the country. Talk to someone who is openly anti-Chavez about why they don’t speak out against the things the Government does or says, and they will tell you that they have to protect their business from Government intervention. Then of course are the boliburgeios who are certainly milking the country all they can, because you never know if Chavez does not last and they may lose their easy access to the Government’s udder or they may not be given any more suitcases to carry.

So, it is a culture of milking the country and our future and that of the country be damned! Everyone is trying to maximize their gains just in case their sweet deal disappears. Meanwhile the Government offers and offers without caring if its debasing the currency, fueling inflation and/or destroying the industrial base of the country; it simply has to win the referendum to have more power. And of course, the illustrious opposition groups have not even had a meeting to decide upon a fairly simple common course: Stop the indefinite reelection of Hugo Chavez. Jeez, you would think they at least have a strong motivation in this common goal of getting rid of the autocrat.

But it seems as if Chavismo’s plan is to slowly control everything in the country, by which time the only thing left standing in Venezuela may be an emasculated PDVSA and it would have been a very empty victory indeed. Meanwhile, the opposition’s plan seems to be to hope that a military backed Chavista overthrows Chavez and this guy (or gal!) will utterly fail in running the country and all of a sudden power may fall into their hands.

At which point they may start thinking what it is they plan to do with that power, just like Chavez did in 1998.  And who knows, after seven years they will give it a name and call it the sixth Republic.

And if all of this fails, the milking will continue by all sides, until the udder runs dry…

Bleak future, no?

The Constitutional Reform can wait, but life can’t! by Radar de los Barrios

August 27, 2007

Maria brought to my attention this proposal made on Saturday by the Association Radar de los Barrios. Unfortunately it received little attention from the media or the press. I thought it was worthwhile translating it and presenting it here. It is a pragmatic and realistic proposal, made as an alternative to the reform of the Constitution. It addresses real problems that affect people, not political problems that address acquiring more power. I translated it as faithfully as possible.

The Constitutional Reform can wait, but life can’t!
by Radar de los Barrios

Let us not allow the country to continue to be divided.

Mari­a Elena Delgado, a member of the Technical Table of the barrio Union of Petare, a mother of seven, three of which have been murdered by criminals. She does not need to “reform” the Constitution, she only needs for it to be enforced!.

Without entering into considerations about the possible virtues or defects of the proposal to reform the Constitution presented by the President, what is a fact-beyond the will of the person proposing it-is that the proposal itself has come to become another divisive factor of the Venezuelan people.

For many years, the country has been bitterly divided in opposing bands: “Chavistas and squalids”, “Devils and Florentinos”, “pro-Government and opposition”, “Bush’s agents and Fidel’s puppets” are only some of the disagreeable labels with which Venezuelans have spent almost a decade offending each other, separating each other and hurting each other. Now the proposed Constitutional reform threatens to divide us once more, between those “in favor” and “those against” it.

Yudeysi Zamora, an inhabitant of the La Vega barrio, died on February 13th 2007, due to the lack of medical care. Her kids do not need to “reform” the Constitution, only that it be enforced!

With all due respect, we want to tell those getting ready to initiate the campaigns for the “No”and for the “Yes”, the following:

Imagine yourself in a morgue trying to convince any of the mothers that each Monday have to go there to look for the bodies or their murdered kids or husbands, to convince them to vote; imagine trying to get the vote of people crying next to their shacks, filled with mud and stones, destroyed by the last rain storm; imagine looking for a vote for the “Yes” or for the “No” at the funeral of the last Chavista murdered, because since there are so few jobs in the formal sector, now positions are fought for among the “Bolivarian” unions in shoot outs; imagine yourself then, riding a disheveled ambulance, asking for the vote of a fellow countryman who is being sent from hospital to hospital, because they have no supplies, because Barrio Adentro can’t care for him and because he has no money or private insurance to be at a private hospital. Only imagine that and tell yourself, with your heart, if that campaign would have any sense.

Kids from barrio El Cipres, in Las Adjuntas, eating what sometimes is their only meal of the day: unripened mango with salt or with bullion. They don’t need to “reform” the Constitution, they need it to be enforced!

During these almost ten years of division, the number of deaths, injured and grieving homes due to the criminal action of the underworld has increased beyond what any country can sustain; during this same period hospitals have continued to decay, and well intentioned programs like “Barrio Adentro” continue to be only a promise to the large majority of the poor; almost ten years after dividing us among “opposition” and “followers”, the immense majority of Venezuelans live in trying to make ends meet via the informal economy, or the temporary solution of a little aid here, a little contribution there..; Today, after almost a decade of division among Venezuelans, the immense majority lacks a dignified home, because new homes are not built and the ones already in the barrios are not improved.

Antoine Perez, a ten year old kid found out what buried alive meant due to a landslide in his home in Fila de Mariches. He does not need to “reform the Constitution, only that it be enforced!

Now, why did this happen? Some will say because the Government has not had the will to resolve the great problems of the country, because it has devoted itself to impose an ideological project, its so-called “revolution”. And it may be right. Others will say that the problems of the country have accumulated during such a long time (the famous “40 years”) and that the opposition has sabotaged so much during the last few years, that it has been impossible to solve in ten years what was damaged during almost half a century. And maybe they are also right.

But what is absolutely clear, beyond any doubt, is that the division among Venezuelans, the irrational polarization, the confrontation between brothers against brothers has not helped at all in facing as a country and defeat those real enemies that we have: violence, underdevelopment, poverty, injustice.

To repair this mess in Street #2 of Los Frailes de Catia took 57 days, fifty more than the National Assembly took to approve the proposal for reform of the new Constitution after its first discussion!

That is why, in the face of the proposal for Constitutional reform brought up by the President, the position that we assume and that we propose to other autonomous social movements, as organized popular communities and the collective of manual and intellectual workers, can be expressed in two ways. We reject the continuous division of the country, no matter how “constitutional” it may be. Thus, as a consequence we propose the following:

Lagoon of sewage in Barrio Metropolitano of Petare, whose inhabitants also don’t need the reformof the Constitution, but that it be enforced!

1) That 2008 be designated the Year of National Unity against Insecurity and that during the year ALL of the sectors of the country (Government, opposition and independents) actively participate in the practical implementation of the recommendations of the National Commission on the Police (CONAREPOL)

2) That
2009 be designated as the Year for National Unity for Health Care and that during that year ALL of the sectors of the country (Government, opposition and independents) actively participate in the improvement of health services and the integration of the conventional hospital network (Hospitals, clinics and mobile units) with the emerging care network (Barrio Adentro I, Centers for Diagnose and popular clinics)

3) That 2010 be designated Year of National Unity towards the Rescue of Public Education and that during that year ALL of the sectors of the country (Government, opposition and independents) actively participate in the rescue, maintenance and overhaul of pre-schools, schools, high schools and public universities as well as the optimization of the Educational missions and of any other form of mode of pedagogical assistance to the population, to guarantee that the education of the poor does not continue being a “poor education” , always taking care of the fact that the content be oriented towards free and critical individuals capable of interacting with solidarity and in responsible fashion in the context of a social state where the rule of law prevail as established in the current Bolivarian Constitution of Venezuela.

4) That 2001 be designated as the Year of National Unity for Dignified and Productive Employment and that during that year ALL of the sectors of the country (Government, opposition and independents) actively participate in the promotion protection and development of concrete economic initiatives oriented towards creating quality employment, with stability and social security for millions of Venezuelans, creating the conditions of legal, economic and political trust that would make it possible to reactivate the private sector, attracting international private investment and orienting national public investment in long term productive initiatives.

5) That the period 2008-2001 be designated as the Four Years of National Unity for the Right to Housing and that during that year ALL of the sectors of the country (Government, opposition and independents) actively participate in the physical rehabilitation of the areas of all barrios of the country, standardizing the quality of life of these community spaces with conventional urban spaces, promoting the building of homes for sale ad rent within the framework of daring projects fro urban reform in existing cities and generating concrete assets from the point of view of economic activity to promote new scheme for territorial occupation , with more equilibrium from the geographical, sociological and economic point of view than the current scheme in which 90% of the population is concentrated in the northern coastal strip of the country.

6) That the proposal for Constitutional Reform formulated by the President be debated in the year 2012 and the referendum for it be voted jointly with the Presidential election of December of that year.

Homeless “having lunch” in a garbage container in San Agusti­n del Sur. He does not need the reform of the Constitution either, just that it be enforced!

If these proposals are assumed by the political country (both Government and opposition), we could reach the year 2012 with a new reality: the political actors mostly liked by the country would not be those that are more aggressive, those that insult the most their opponent, those that make the most thankless use of political connections to which they have access, but would be those that have made more and the best proposals and that have worked hardest to make them reality.

In this new context, to debate and vote over a constitutional reform and about a new President will not be a brutal exercise of power of one sector of the population over another one, but a nutritional exercise for ALL Venezuelans, of the creation of a future, of reaffirmation of new realities. We will not choose between the bad and the least bad, but between good and the best. Our debate will not be to punish those that have been most inefficient, but to choose those that have presented the most honest and efficient options. It is that 2012 that we would like to reach.

Of course, there always exist the risk that “professional” cynics of some professional politicians (both from the Government and the opposition) determine that we Venezuelans “do not deserve” a debate like that one, useful and respectful. Let it be their problem, the last politicians that thought that way were the ones taken away by the landslides of 1998. Those that disregard the country in similar fashion now, will face a similar fate. The dinosaurs also ignored the meteorite that took them to their extinction.

Neighbors of the Federico Quiroz barrio showing signs with articles of the Bolivarian Constitution of Venezuela that some what to “deform”, sorry, “reform”

This is the position of the autonomy social movements of the organized popular communities; Let’s reform life now! And if the people deem it needed, let’s reform the Constitution later, when united we have started defeating insecurity, death, unemployment, ignorance and injustice!


Maletagate update: The cover up by the Governmnet continues

August 27, 2007

The weeks go by and the cover-up of the Maletagate affiair continues in earnest:

—The Minister of the Interior states categorically that suitcases “with dollars” are never checked in Venezuela. Anyone who has never traveled may believe this is true, but all hand luggage is always checked and the National Guard at the Maiquetia Airport, teh same one where the infamous Enarsa flight left from spot checks suitcases. When I left in eraly June, every single one of my suitcases was opened and searched and obviously I had to go through the X-ray machines. In fact, I had to go through two of them. for some reason. I guess it plays well for the gallery.

—Local newspaper Tal Cual reports that the Prosecutor’s office id doing nothing on the case. All they have done so far is ask the Argentinean authorities for details of the flight, the incident and the list of passengers. Not one of the PDVSA employees involved has been called to testify in a blatant cover up by that office. In fact, nobody is even investigating if the PDVSA workers violated the anti-corruption laws by accepting the ride i the Enarsa airplane.

—Former Vice-President Jose Vicente Rangel suggested on his Sunday TV program a cynical explanation for the suitcase with US$ 800,000 in bills. His explanation is so stupid and against known facts, that it is clearly just a smokescreen for the gallery. What Rangel said was that the money was the result of the sale of PDVSA bonds bought by the local branch of Argentina’s Banco del Sol. According to him, the local branch “buys” PDVSA bonds in local currency and exchanges them for dollars which were being sent to the home office in Argentina.

Well, as what a harebrained and stupid by our former Vice-President. First of all, the Venezuelan Banco del Sol has absolutely nothing to do with the Argentinean one. Second, you don’t regularly buy PDVSA bods with local currency and sel them for US$, this was done only once in April and that was it. Finally, you sell these bonds abroad in the international markets, there is no cash market for them locally, least of all payable in bills in the middle of exchange controls. So this is simply BS which is part of the cover up by the Government on the case.

—Guido Antonini has disappeared from the face of the earth. The main witness on the case, the man that had “nothing to do with the Government’ is nowhere to be found. Strange how he can arrange this. It takes resources and papers to do a disappearing act like in the movies and you need the help of a Government. Initially there was a rumor that Antonini was with the FBI, which the FBI denied. What other Government can then be involved in helping him?

You guessed it, the same one orchestrating yet another blatant act of corruption by this outlaw autocracy. From Chavez down, the whole Government is involved in this cover up of this act, which was just a small sample of the large scale and wholesale corruption under the orders and supervision of Hugo Chavez.

WSJ: Venezuelans Chase Dollars amid worries over the economy

August 27, 2007

From today’s Wall Street Journal, you have read much of this here before…


Venezuelans Chase Dollars Amid Worries Over Economy

Some See Ways to Profit From Chavez’s Controls;
A Poker-Chip Maneuver

By JOHN LYONS From today’s Wall Street Journal

Like many people they know in Caracas these days, Alfred and Norma Munoz are bracing for what they believe is inevitable: a currency crash brought about by President Hugo Chavez’s policies.

The middle-class couple plan to borrow as much as they can from a local bank and buy an apartment outside the country. If Venezuela’s boli­var plunges against the dollar, they figure, the loan will be cheap to pay off in dollar terms, and the overseas apartment will hold its dollar value. “Plus, it gives you somewhere to flee if things really get bad,” says Mr. Munoz, who runs a small business.

At the moment, with oil at near record prices, Venezuela’s economy is booming. The fourth-largest oil exporter to the U.S. has averaged 12.6% annual growth since 2004 — the fastest in Latin America. Three-month waits to buy new cars are standard at Caracas dealerships amid a boom in consumer financing. Unemployment has fallen to single-digit rates for the first time in more than a decade.

But there are signs of trouble. Oil production is falling as the state oil company loses top managers and invests less. Inflation is running at 19%, according to the Venezuelan government, though many private economists say the rate is more like 25%, given the increasing role of a black market in hard-to-obtain goods. Partly as a result, the boli­var, officially fixed at 2,150 per dollar, has lost more than half its value on the black market. Many locals fear that official devaluation and runaway inflation is inevitable.

The global credit squeeze caused by mortgage problems in the U.S. may give Venezuelans new reasons to worry. That’s because oil prices could fall if, as some economists fear, a world slowdown in lending leads to a broad economic slump. Declining oil prices would deprive Mr. Chavez of income for his vast social programs and accelerate pressure on the boli­var.

Exasperated Voters

In decades past, currency declines and hyperinflation have reared up across Latin America, destabilizing governments and spreading misery among ordinary people. Indeed, Mr. Chavez’s own rise to power was helped by a financial collapse and soaring inflation under the mid-1990s government of Rafael Caldera, which prompted exasperated voters to back Mr. Chavez in a 1998 election. If such problems emerge again in Venezuela, they could erode Mr. Chavez’s popularity at home, as well as curtail his influence in the region by forcing him to cut back on foreign aid.

While the boli­var is weakening, many other oil nations are watching their currencies get stronger. The explanation for the discrepancy lies, at least in part, in Mr. Chavez’s economic policies. His attempt to manage the economy for the benefit of the poor has produced unforeseen problems, which he has treated with unorthodox solutions that in turn have created new problems. With each policy turn, people like the Munozes have become more convinced things will spin out of control.

Since 2003, Mr. Chavez has more than doubled government spending on free medical care, higher salaries, gasoline subsidies and other services. That created more demand for goods and services, which fueled inflation. In response, Mr. Chvez expanded price controls, which now cover meat, sugar, eggs, milk and other products. That led to food shortages as producers balked at selling their goods at the mandated prices. The shortages produced a black market, where prices have soared.

This mixture of food shortages, black markets and rising inflation is dejavu for the Venezuelans who have lived through three financial meltdowns since the 1980s. In the most recent, a collapse of a big bank helped bring on a currency crash and inflation that topped 100% in 1996. To protect themselves from a repeat, Venezuelans are trying to get their hands on dollars, further weakening the boli­var.

“We all know what is coming, we just don’t know when,” says David Macedo, who drives a delivery truck that supplies small grocery stores. When he has a few boli­vars saved, he says, he often goes to the Caracas airport to buy dollars from arriving tourists. He pays far more than the official rate of 2,150 bolĂ­vars per dollar, but less than the black-market rate, now about 4,800.

Wealthier Venezuelans have discovered they can use credit cards to exploit the difference between official and black-market currency rates. Some have flown to the nearby island of Aruba and bought $5,000 worth of gambling chips, the maximum overseas credit purchase allowed by the Venezuelan government, according to a person who arranges the trips. They cash in the chips for dollars, then, back at home, buy enough boli­vars on the black market to pay off the credit-card debt, this person says. They pocket the rest — around $2,300 at current rates, more than enough to pay for the trip.

Once locals start expecting a crisis, it becomes harder for the government to avoid one. If shopkeepers expect inflation-fighting policies to fail, they will try to raise prices no matter what the government does. Such a phenomenon was recently seen in Argentina: In 2001, Argentines who lost confidence in their government’s ability to avoid debt default began withdrawing their bank deposits en masse, ultimately speeding the economic collapse and currency crash they feared.

In Venezuela, Mr. Chavez came to power promising to use the country’s oil wealth to benefit the poor. His economic problems started after a 2002 coup attempt and an oil workers’ strike. The ensuing economic turmoil prompted many Venezuelans to take money out of the country, which threatened to bring down the banking system. Mr. Chavez stopped the capital flight by banning overseas money transfers and dollar purchases.

When oil prices rose, Mr. Chavez sharply increased spending, which helped him win crucial votes in 2004 and 2006. But the capital controls trapped new spending inside Venezuela, more than quadrupling the amount of boli­vars in circulation. The bloated money supply undermined the boli­var and fueled inflation.

The Chavez government realizes the dangers and vows to tamp down inflation before it gets out of control. In July, it required banks to pay customers higher interest on deposits, in hopes of making the boli­var more attractive and encouraging savings. But the new rate is only about half the inflation rate. Finance Minister Rodrigo Cabezas says the government will moderate spending for the first time in years and will keep the official exchange rate unchanged at least through 2009. “We have no plans for devaluation,” he says.

Few economists who follow Venezuela are forecasting deep financial trouble, at least while oil prices remain high. Latin American economies generally run aground when they can’t afford to pay their bills for imports and debt service. Venezuela currently does not face this problem.

But the longer-term prognosis is far from clear. Mark Weisbrot, co-director of the Center for Economic and Policy Research, a Washington think tank, who is generally supportive of Mr. Chavez, says the government has time to boost economic growth by investing in industries outside the oil sector. Other economists are more skeptical. They contend that the government isn’t making enough long-term investments, such as building factories, and that it remains far too dependent on oil revenue.

“We don’t know when a crash will happen,” says Alberto Ramos, a senior Latin America economist at Goldman Sachs. “But Chavez is driving down the wrong side of the road.”

Many Venezuelans are preparing for the worst. Mr. Chavez’s control of the legislature, courts and military means it’s unlikely the government will alter its current eco
nomic course. In mid-August, Mr. Chavez proposed constitutional reforms that would end the autonomy of the country’s central bank and eliminate presidential term limits, a move critics say is his bid to become president for life. At the extreme, concerns about the future have prompted thousands of better-off Venezuelans to leave the country in recent years for Miami and such oil centers as Houston and Alberta, Canada.

Next year, Mr. Chavez plans to relaunch the boli­var, minus three zeros and with a new name: the “strong boli­var.” The plan includes the reintroduction of a 12.5 centavo coin, la locha, a historical throwback to the days of the South American military leader Simon Boli­var, Mr. Chavez’s hero. For months, the government insisted that the currency “reconversion” would solve many of the country’s ills, such as inflation. The plan was widely disparaged, and in July, a senior Chavez official acknowledged that it “will have no primary effect on the inflation phenomenon.”

While inflation always hurts the poor by eating into their purchasing power, some of Mr. Chavez’s policies to curtail it are helping bankers, securities brokers and other wealthy Venezuelans. With capital controls limiting the amount of boli­vars that can be transferred abroad, bank deposits have risen sevenfold since 2002. Financial firms have done a brisk business helping Venezuelans get their money out of the country legally through debt swaps. Using boli­vars, the customer buys a Venezuelan security that trades on a foreign exchange, then sells that security, taking payment in dollar-denominated debt such as Treasurys. The payment gets deposited in an offshore account.

A Chavez plan to bolster Venezuela’s currency by selling dollar-denominated government bonds has largely backfired. The government figured that asking Venezuelans to buy the bonds with boli­vars would take the currency out of circulation, boosting its value. Shrewd buyers realized they could get the dollar bonds from the government at the official exchange rate, then resell them on the official Caracas exchange, where the bonds trade at prices much closer to the currency’s higher black-market rate.

The government tried to give small investors first dibs on the bonds by saying that orders by private individuals for less than $3,000 would be filled first. Brokerage firms paid maids, doormen and laborers about $50 each to sign over their rights to the bonds, says Pedro Torres, a middleman who is paid by brokerages to find working-class Venezuelans willing to turn over their rights to the bonds. He says he signed up 170 for the last bond sale, earlier this year.

Black-Market Rates

Savvy Venezuelans have also used the dollar bonds to speculate against the boli­var. Purchasing bonds with loans from local banks, they sold enough at black-market rates to pay off the loans, pocketing the difference. By exploiting the gap between the central bank’s rate and the market rate, investors have in effect taken free dollars at the expense of Venezuelan reserves.

The downward pressure on the currency doesn’t end there. Because the Chavez administration’s bank regulations have kept loans cheap, Venezuelans have an incentive to borrow not only to buy bonds but other goods as well. They take out loans to buy big-ticket items, such as dishwashers or expensive watches, that will keep their value. These loans, too, pump new cash into circulation, counteracting the government’s anti-inflationary goal.

“Chavez is the first president to publicize, organize and incite a run on his own currency,” said Alejandro Grisanti, an economist who opposes Mr. Chavez. He estimates that at least two-thirds of the government’s last dollar-bond issue was bought on credit, including the ones he bought for himself. Venezuela’s Finance Ministry declined a request for comment.

At a crowded Fiat dealership in Caracas’s posh Las Mercedes neighborhood, would-be buyers add their names to three-month waiting lists. They are so eager to purchase they don’t care what model or color they get, as long as they get it soon, says sales manager Beatri­z Machado. Some used Fiats sell for more than new ones because they are available on the spot, she says.

Champagne and Whiskey

“They don’t want a car. They want a place to put their money,” says Ms. Machado, who wears a red blouse and earrings to show her support for Mr. Chavez, whom she credits with helping the poor. She, too, has doubts about the economy, and says she spends her boli­vars quickly. Using a boli­var loan, she bought an apartment and a car. Recently, she says, she loaded up on imported champagne and whiskey.

The biggest losers may be the poor, many of whom are Mr. Chavez’s supporters. Antonio Buitrago, a 57-year-old cab driver, credits Mr. Chavez with helping his son to walk again. Last year, after the young man was badly injured in a car crash, the government paid for medical treatment, including a rehabilitation trip to Cuba. “I trust Chavez is going to take care of me,” Mr. Buitrago says.

But Mr. Buitrago says his life is getting more difficult these days. He is among what a local pollster estimates are the 45% of Venezuelans who’ve had trouble finding milk and chicken this year. He can’t afford black-market prices for scarce goods, so he stands in long lines at markets that sell subsidized foods. He deposits his savings in a bank, where it’s being eaten away by inflation, saying buying dollars on the black market would be unpatriotic.

At a recent “Expo Credito” in Caracas, lines curled around the conference hall. Upper-middle-class Caracas residents waited alongside men in army and fire-rescue uniforms to sign up for credit cards. The conference slogan: “Credit for Everything.”

Denis Naranjo, an engineer, said he’s considering his options. He wants to take out a loan, but isn’t sure whether to buy real estate or cars. What he really needs, he says, is a bank account in the U.S. “In Venezuela, things are always changing,” he explains. “You need to have a plan, and you need to be flexible.”

A bunch of nice blooms

August 26, 2007

A whole bunch of blooms this week, mostly species

Left: Cattleya Jenmanii, right Cattleya Jenmanii coerulea, not great shape, but a true purple.

Top left: my first Cattleya Percivaliana of the season, nice shape, not a great lip. On the right a Laelia Purpurata striata which did not get out of the sheath properly.

Left, a nice Denbrium, particularly the way the flowers cascade down. Right Blc. Copper Queen, first flowering

A Rynchoschylis hybrid, Ryn. Little Stars

Around the revolution on 60 seconds

August 26, 2007

Some interesting tidbits and questions which show that the revolution never ceases to amaze:

–Minister of the Interior Carreño in yesterday’s El Nacional: “We do not check at customs suitcases with dollars”

We know, we know

–And Lt. Jesus Urdaneta, one of the four leaders of the 1992 coup with Chavez, who was later his Head of Intelligence reminds us that one of 40 cases over which resigned because Chavez would do nothing about them, was a suitcase with  US$ 300,000 in cash sent to the Colombian guerrilla.

How many suitcases did we miss since that one in the year 2000 and Antonini’s this year?

–President Chavez wants to act as a middleman for some Colombians kidnapped by Colombia’s FARC.

Funny, he does nothing for the 75 Venezuelans under the same situation, some of them kidnapped by the same group.

–And today Chavez demanded that Great Britain return the Malvinas (Falklands) islands to Argentina.

Why didn’t he demand that British Guayana return to Venezuela the Esequibo region? By the way, what does Chavez buddy the Mayor of the city of London think of this? Someone should ask him…

–Finally, if Chavez does not believe in “representative democracy” and only believes in his “participatory democracy” where the people decide everything, how come he wants us to vote as a block on his proposals for Constitutional reform and we can’t participate in the details of the 33 changes proposed by him and approved by the undesirable “representatives”?

Just asking…

Revisiting the soaring parallel exchange rate

August 26, 2007

This week the swap (parallel) exchange rate shot up again, closing around Bs. 4,750, roughly 2.2 times the official exchange rate. About two weeks ago I wrote that the only way for it was up and indeed it has done that at a very fast clip since then.

People are constantly surprised that this can be so. They think that given the difference between the official and swap rate, it should not go up so fast and that given the Government’s resources, it will intervene in the market to make the rate drop.

This is all wishful thinking, there are both short term and long term conditions all pointing at the parallel rate continuing to shoot up and except for one or two measures, there is not much the Government can do at this time. This is the history of exchange controls in Venezuela: It all works at the beginning and slowly controls break down until they unravel.

Let’s look at the short term and long term reasons for the rise, looking first at what has made the swap rate move up from around Bs. 4,100 at the beginning of August to the current value:

The recent rise can be explained by some short term pressures on the swap market:

–Since June 1st monetary liquidity has jumped US$ 5 billion to US$ 59 billion , adding pressure to the parallel market

–The Government announced that it would sell some US$ 1 billion in structured notes to local financial institution in the next few weeks. As far as anyone has been able to determine only US$ 200 million was sold. many operators in the swap market were short (sold dollars they did not have expecting to buy them cheaper) awaiting for these sales to drive the rate lower.

–The Government announced the Bono del Sur III, which made many investors either wait for the bond before buying or go short. Since the bond had to be canceled or postponed this drove the swap rate higher. Until world markets stabilize this bond will not come to market.

–The final force driving the swap rate higher was the fact that part of the failure of the Bono del Sur III was that the bolivar part, the so called TICC’s, dollar denominated bonds which trade in local currency, was due to the fact that these bonds were part of the foreign currency quota banks may have. The Central Bank issued a resolution in the 16th. saying this is no longer the case. Since many banks had TICC’s as part of their foreign currency portfolios, after the resolution came out they went to the swap market to buy more foreign currency to replace their TICC’s in their quotas.

–The proposal for Constitutional Reform unnerved many investors because of the removal of the independence of the Central Bank, which will have a direct impact over the long term value of the exchange rate and the threat to private property rights.

Longer term, it is hard to believe the swap rate can have a significant drop and all signs point towards much higher rates before the end of the year. Among them:

–The Government’s ability to absorb monetary liquidity is now limited due to the high Government spending. Two years ago a US$ 3 billion issue would remove 10% of that liquidity, today it requires US$ 6 billion to have the same effect. Moreover, liquidity should keep going up the remainder of the year as the Government will certainly maintain its high spending (the only policy that can slow the growth in monetary liquidity) at least until the approval of the referendum for Constitutional reform.

–International reserves have not gone up much since March due to the high ever of imports as well as the fact that the more than 100% difference between the official and swap exchange rates creates many opportunities for arbitrage. The numbers are becoming staggering: Imports will be US$ 45 billion for the year and the US$ 3,000 per citizen for purchases via the Internet is becoming a huge source of corruption. People are paid to request these dollars which are then sold in the parallel market at a hefty profit. Just think if five million Venezuelans request this allocation, that alone represents a drain of US$ 15 billion in international reserves. In addition people get US$ 5,000 for travel per year and airline tickets are paid at Bs. 2,150 per dollar. After three years of a constant exchange rate and internal inflation near 20%, traveling at the official rate of exchange seems very cheap.

–The approval of the new Constitution and its consequences will keep the pressure on the rate till the end of the year, as the uncertainties mentioned above on the Central Bank and private property will make people and corporations seek refuge in foreign currency.

–Monetary reconversion, the new “Bolivar Fuerte” coming into effect on Jan. 1st., is also a source of concern. Since nobody believes that just removing three zeros from the currency will stabilize the currency, people suspect that there is an ulterior motive behind it, a devaluation of the currency being the most likely suspect. The Government denies any devaluation is in the cards at least until 2009.

–There are no incentives to save in local currency since interest rates are deeply negative. Inflation is running near 20% and a bolivar denominated Government bond offers at most 9%, while a PDVSA dollar denominated bond gives you a 10% yield.

–There are incentives to borrow in local currency and either buy durable goods imported at the official rate or to buy dollars and wait for the parallel rate to devalue further.

Of course, according to the President of the Finance Committee of the National Assembly, there is no problem. This is all part of the “new financial architecture” of the revolution. According to him, economics is an evolving subject where you can innovate and create new ways of doing things and the robolution is simply getting rid of the IMF paradigms such as the independence of Central Banks. I guess he thinks he can do away with other paradigms, such as inflation being a monetary phenomenon and exchange controls working with a parallel rate which is more than twice the official exchange rate.

He is in for a big surprise!

“Democracy” under Chavez

August 25, 2007

Anyone that believes that the (Constitutional) reform goes against them should leave, Chavez has enough people…

Miranda Governor Diosdado Cabello

Changing the time zone for “justice”. Who comes up with these ideas?

August 23, 2007

When you think you have heard it all, the Minister of Science and Technology announces that having Venezuela shift to the GMT-4.5 time zone to the GMT-4.0 time zone is a matter of “justice” to all Venezuelans. In this way, Venezuela will use a time zone that goes right through the middle of the country, rather than the current one to its East. According to Dr. Navarro this will provide Venezuelans, whether they live on the East or West of the country with the most enjoyment of daylight, which scientific studies show has an important effect on health. Moreover said Navarro, this will allow for a more rational use of time. Ugh?

Jeez, where do I begin on this? To begin with, who had so little time on his/her hands to think of this? In any case, how does changing the time zone affect how many hours of daylight someone enjoys or not? I thought in my oppositional ignorance that at 10 degrees above the equator it does not matter whether I am in Guiria on the East of Venezuela or in the Guajira on the West, if I am at 10 degrees the number of hours of daylight are the same? No? Am I missing something?

In any case, those studies look more at the effect in places where the difference between summer and winter daylight hours may change by 3 hours, while in Venezuela daylight hours change from almost nothing in the South to one hour and eight minutes when you are 10 degrees North of the Equator. Have any of these studies been made at this latitude? Does it matter given our school habits and hours?

Is the effort and cost warranted? Is the disruption in software, synchronization and reprogramming worth it? Is the time spent on it worth it? How about our banking hours versus those in other countries? Or Stock Market hours since our almost irrelevant exchange opens at the same time as the NYSE whether summer or winter?

But more importantly: Is this type of social “justice” a priority in Venezuela. Isn’t this somewhat of a luxury? Can’t the Ministry of Science spend the money used for this in solving other more pressing problems involving more relevant “justice”?

Can it be that the Government simply wants to disrupt the scheduling of Direct TV and cable programs so they start on the half hour breaking the customary “on the hour” programming as suggested by a reader?

In any case, it looks like this harebrained project will go into effect on September 17th. With it, Venezuela will become the fifth country in the world which is not in a time zone which is an integer relative to the Greenwich time zone. The others? Myanmar, Iran, India and Afghanistan.

I guess it will be easier for those flying Conviasa from Caracas to Teheran to keep tabs of the time difference without those odious half hours being involved.

Till then, talk to you wherever you are an hour later than it used to be. Or is it an hour earlier? I guess I will have to sit down and figure it out. It’s a matter of “justice”…