The Devil's Excrement

Earlier I had written on the proposed Constitutional reform as described by Constitutional lawyer Hermann Escarra from a document he had obtained from the Commission for Constitutional Reform. It is clear that the document was not a fake, but as described by Escarra’s brother, this was what was given to the autocrat and what we heard yesterday is what the autocrat wants to include and it has much of what I described earlier. Clearly, much of the changes in fundamental rights was not included, but most of the material on the political and organizational aspects is all in what Chavez will be proposing. You have to wonder if the National Assembly will then include some changes of its own as it discusses what the autocrat has suggested and surprise us by reviving what was in the original document.

I haven’t had the time to go through the whole document. I am not a lawyer and there are many times when a simple subtlety can mean or imply different things. Thus, I will try to avoid boring you with discussing too many details and wil just give my overall impression.

First of all, it is obvious to me that the path chosen by Chavez for modifying the current Constitution, that is, to propose the changes to the National Assembly and have these approved in a referendum, is a violation of the Constitution itself. Articles 324 to 346 of the current Constitution cover how Constitutional Reform will be carried out. It says very clear that this applies whenever (Art. 342) “..the structure and principles are not modified…”

If the structure and principles are modified, then Articles 347 to 349, which requires a Constituent assembly apply.

Chavez’ proposals last night do not modify the fundamental principles of the Venezuelan Constitution directly contained in teh first nine articles of the 2002 Constitution. However, the proposed changes do modify some of these principles. That is, the first nine articles are violated by changing articles later in the Constitution.

I can see at least three changes in the Constitution that modify the fundamental principles and would thus require a Constituent Assembly:

—Socialist State: Throughout the text, Venezuela is redefined as a “Socialist State” (Estado Socialista) a term used more than fifty times in Chavez’ proposal. However, the definition of what type of state Venezuela is, is contained in Article 2 of the Constitution and the word socialism is never used. In fact, that article simply describes Venezuela as “a social and democratic state of Law and Justice”. Thus redefining the State as a Socialist State, would need to have Art. 2 modified and thus a Constituent Assembly would have to be called, since it is part of the Fundamental Principles.

—Indefinite Reelection: Whether you call it indefinite or continuos, the ability of somebody to be elected without limits, contradicts Art. 6 of the Venezuelan Constitution which defines the Republic as having as system which provides “alternability”. That is Chavismo can always be in power, but Chavez can not perpetuate himself in power unless Art. 6 is modified and that article is a fundamental principle of the Venezuelan Constitution and would require a Constituent assembly to change it.

—Decentralization: Art. 4 of the Venezuelan Constitution defines the country as a federal decentralized state. However, the proposed political changes, including the provinces and the functional districts would destroy decentralization de facto, even if it does not say it explicitly. In other cases (I have not checked them all), such as healthcare, it explicitly removes decentralization. Once again, this would require a Constituent Assembly.

Thus, unless Chavez calls for the election of a Constituent Assembly, modifying the current Constitution by simple approval of the National Assembly would not be valid.

Some of you may be wondering why then did Chavze choose this path if he is so popular? Why not convoke to a Constituent Assembly and get it over with.

The answer is simple. The current National Assembly has no opposition figures and if an election were held the opposition would likely capture an important number (not a majority!) which would slow down and block some of the proposed changes.

Given my interests in economic matters I would also like to comment on some of the proposed changes on economic matters. First of all, there was no need to introduce much change on economic matters in the Constitution, most of the significant ones will be put in the Laws approved before July 2008 as part of the Enabling Bill.

But there are two things that will impact economic matters significantly: The removal of the autonomy of the Venezuelan Central Bank and the ability of the Government to confiscate anything just by declaring it of social utility and without the need for confiscation or a judicial decision.

Central Bank Independence has been the subject of many academic studies and while it may not be a perfect system, it has been shown to be better than a totally dependent institution subject to the whim and desires of the Executive branch. Central Banks are supposed to be technical institutions that try to attain a stable currency and minimize inflationary forces. By removing its autonomy, Venezuela will likely suffer even wilder swings of inflation and high volatility in the value of its currency. In fact, Chavez proposes to give the concept of “excess” international reserves Constitutional rank, which is one of the most absurd economic concepts invented by the revolution and will one day come to haunt all of us.

Finally, while the term private property is not removed from the Constitution, it becomes at times very diffuse and a lot of uncertainty is introduced . As noted before, the Government could declare any property of public utility without any compensation and unilaterally, thus severely limiting the concept of private property.

Finally and I may address these issues at some point, it would seem as if the whole point is to give Hugo Chavez more power, allow his indefinite reelection and all of that is accompanied by articles that will make the whole package attractive, most of which has no place in a Constitution.

All in all, few surprises in what is being proposed and I can’t help but close by reminding everyone of this: In 1999 Hugo Chavez used the argument that sovereignty resided in the people to call for a Constituent Assembly to change the Venezuelan Constitution. This became a beacon for Chavez political movement and it was included in the Constitution where it says “The original Constituent Power is deposited in the people”. Today, because it is simply inconvenient, such populist phrases have been essentially forgotten by the autocrat.

The Minister of Finance announced today that it was postponing the placement of Bono del Sur 3 because of the “grave volatility in the prices of emerging market securities and those of developed countries”.

In the previous post I had said:

“The reason that the issue was being questioned was the fact that with
the uncertainty in the international markets with the sub-prime credit
crisis, then volatility could make the price of the Argentinean bond
swing dramatically and drop in price to the point that investors would
lose money.”

In the end, the problem lies in the artificiality of the transaction: Nobody is “investing” in these bonds, people are simply buying them to make a quick profit by buying dollars at a rate cheaper than the parallel swap rate which is the only rate for which the average Venezuelan has access to.

Thus, the true reason was simply that the decision to place the bond combo was made by a bunch of amateurs (see title of the previous post also) who have little idea about markets and economics and they prove it when they act.

The first thing people questioned about this issue was the timing. Why the rush to market if the Government does not need the money? Why not wait until markets stabilize? Why not wait until fewer Venezuelans are on vacation, thus guaranteeing more participants?

The second thing people questioned was the size. Given the market volatility, keeping the original plan of issuing a combo of US$ 500 million of the Argentinean bond and US$ 500 million of the TICC, would have made it more appealing to buyers, including banks and retail investors who buy these issues for different reasons. Thus, increasing the offer with another TICC just made matters worse.

Third, the price of the combo was set at 104 at an exchange rate of Bs. 2,150 to the US$. Who set that price on Tuesday? It certainly wasn’t the same international markets who they were referring to, it was the Ministry of Finance itself based on who knows what revo or robolutionary logic.

Finally, Minister Cabezas sounded today in his press conference as if the bond was announced weeks ago and not on Monday afternoon, only three days ago. Volatility has not changed much, Venezuela’s Global 27 bond changed 14 days ago by 4 points in a single day, today it changed by the same four points. (Even if at a somewhat lower level)

But there is another interesting fact. Part of the volatility in Venezuelan and Argentinean bonds over the last few weeks has been caused by…you guessed: The Venezuelan Government itself. You see, the Venezuelan Government has been selling structured notes and PDVSA to local financial institutions in order to drive down (unsuccessfully!) the parallel market rate. Simultaneously, Fonden has been selling structured notes directly into the international markets. Thus, the Venezuelan Government itself has been responsible for too much supply into these markets at a time of extreme volatility, which helps in itself to create more volatility.

It is like Heisenberg’s Uncertainty Principle, prices in these markets are affected by your actions, if you actions are significant. As an example, when the Bono del Sur 3 was canceled this afternoon, immediately the price of the Argentinean Boden ’15 went up from 70.5 to 74. Why? Simple, because investors and traders were worried that next week the US$ 500 million being unleashed by the Bono del Sur would drive prices down at a time that buyers have disappeared from emerging markets trading desks.

More ominously, it is a preview of something I have been saying here over and over: As the Government creates more and more strains in the Venezuelan economy, it becomes harder and harder to control their effects. The only reason why there was a rush to issue the Bono del Sur 3 was that the Government itself has been spending too much and increasing the money supply too fast, which increases the parallel swap rate and inflation. In the first half of the year it had to issue some US$ 10 billion in bonds to control this effect. Now, it is being forced to postpone this operation, which will only increase the pressures and strains in the Venezuelan economy until something blows up.

And like today, the amateur Government authorities will blame someone or something else and they will keep a straight face as they do it.

On Monday, the Venezuelan Government announced the issuing of the Bono del Sur 3, one of those perverse combos in which dollar denominated bonds are offered to rich Venezuelans for a profit in order to accommodate the Government’s irresponsible policies spending and macroeconomic policies.

Over the weekend many analysts had questioned the timing. At the time, the combo was supposed to be composed of a dollar denominated Argentinean Boden 15 with a local TICC, a bond that trades only in local currency bt its price and coupon is indexed to foreign currency. The idea would be to sell US$ 500 million of each, which would help in absorbing excess monetary liquidity.

Just as a remainder, these bonds are sold at a price, calculated at Bs. 2,150 per US$ and people can turn around and sell it at a lower price in US$, but at an implicit price below the parallel exchange rate which today stood at a full 100% premium to the official rate at Bs. 4,300 per US$.

The reason that the issue was being questioned was the fact that with the uncertainty in the international markets with the sub-prime credit crisis, then volatility could make the price of the Argentinean bond swing dramatically and drop in price to the point that investors would lose money. Thus, by rushing the issue, the Government could burn some investors who had thought the PDVSA issue was a sure thing, held on to it and now can’t decide when to sell due to the volatility in international markets.

An additional problem is that this is the peak of vacation time so that there seemed to be no reason, given the resources available to the Government to rush it to market and wait a couple of weeks until vacationers came back.

But then some genius came up with the idea that rather than postpone, they would add to the bolivar part another US$ 500 million and this would somehow mitigate the possible volatility in the international markets.

Thus, on Monday the “combo” was announced to be equal parts of the Argentinean Boden 15 trading at 80, a TICC 2017 trading at 95 and a TICC 2019 tarding at 94. With this combination if you bought the combo at the announced price of 104 this morning, you would be buying the dollar part at an effective rate of Bs.3,500 per US$ give or take 50 Bolivars.

However, whomever thought of adding this additional part in bolivars did not think in through and the whole thing backfired. This morning, when the Government set the price, banks, who are the natural buyers of the TICC’s (Indexed to the official exchange rate but quoted in Bolivars) realized that US$ 1 billion in TICC’s was simply too much and their price dropped from the mid-nineties to around 80. To make matters worse today’s volatility abroad, also drove the price of the Boden 15 down to around 78, so that when investors plugged in their numbers into their spreadsheets, they came up with a rate around Bs. 4,100 per US$ very close to the official exchange rate.

The result? Interest dried up and brokers began telling their clients not to bother with the bond.

Let me also clarify why the US$ 1 billion was also unattractive to local banks. Under Venezuelan regulations, banks are limited to 15% of their equity in foreign currency. As you can imagine, in this inflationary environment, most banks have this up to the hilt. However, these TICC bonds, even though they trade in Bolivars, are indexed to the official currency, thus they count as part of this requirement. Thus, for banks it was nit too attractive to buy these two issues and given the size, US$ 1 billion, most decided to stay away.

By mid afternoon the Ministry of Finance was panicking, holding a meeting with the banking system, where according to one source the banks were even threatened with unleashing the autocrat on them.

Thus, as of tonight, with prices of both TICC’s and Boden 15’s depressed, the Bono del Sur 3 remained unattractive proving once again that the Government is losing its control over an over regulated economy, where you would need more knowledgeable people who would think before acting in such amateurish and simplistic way.

At this time, the solution would appear to be to exempt these TICC’s from the foreign exchange quota imposed on the banks. But logic has never been the forte of Chavismo and the revolution.

Stay tuned…the TICC’s will probably bounce up today, but international markets look jumpy early in the morning…

Note added on Wednesday night:  TICC’s rebounded today and should rebound even more tomorrow as I hear that they will be removed from the dollar quota for banks…without this maybe the Government would not have placed the issue. Interesting, lots os barking and in the end a profit incentive solves the problem. Sounds like XXth. Century Capitalism to me.

We have gone from the absurd to the very absurd now. Not only do absurd things happen, but Government officials make absurd statements with a straight face and just lie and exxagerate. Today was perhaps the pinnacle of this, as the case of the maletagate became more and absurd.

First, there was Deputy Tascon saying that the case was simply a “foreign exchange” illegality and when the reporter suggests there is corruption, he simply ignores it. By the end he says that this is just another attempt to destabilize the country. He even denies the person has anything to do with the state, but then we hear that it was PDVSA that made the reservation for Antonini in Uruguay last year and was part of an official delegation to that country. Thus, Tascon minimizes the case, which continues to blow up in the Government’s face.

Then came Minister of Energy and Oil Ramirez saying that the media was “lynching” Chavez with the case and destabilizing the country, once again saying that this happens all the time. He avoids suggesting the origin of the funds was PDVSA or where the money came from.

But later in the day Ramirez went even more into the realm of the absurd and revolutionary lies when he said that the “operational” emergency declared by the Vice-President of Exploration and Production, had no impact on the country’s oil production. Talk about an insult not to anyone’s intelligence, but to anyone’s common sense in saying that. In fact, international oil drilling rig firms like Baker Hughes say that not even the number of operational oil rigs in Venezuela is true, that while Venezuela claims 120 working rigs in the “operational emergency”, only 89 are actually functioning in the country.

And then Ramirez takes us into Chavez’ fantasy’land of promising imaginary projects and goals, when he says that in Venezuela we will have our own “Halliburton” which will provide oil services to Venezuela and other countries. This from the man who presided the genocide of Venezuela’s oil technological capability when he fired not only 19,000 oil workers, but more importantly, 1,000 Masters and Ph.D.’s in oil and oil related areas that worked at Intevep, Venezuela’s oil research and technology center, the number one center at the time on research in heavy crudes.

Since then, cynical Ramirez has not even started a program to train people to replace those fired, demonstrating his ignorance about the reality of the oil industry. As Luis Vierma said in his testimony in the National Assembly, it takes 15 years to produce a good petroleum engineer, but Ramirez apparently wants to produce them from spontaneus generation or maybe import them from Cuba or Iran, who can not even deal with what they have and thus stage another fake operation to defend our country’s “sovereignty”.

But maybe his projects are like Chavez’ 14 gift refineries to the world, or the project’s with Argentina’s Enarsa that have been kicked around for two years and not one has gotten off the ground. The problem is that while Ramirez and his kind are more concerned with funding political revolutionary projects elsewhere, than with the well being of Venezuelans.

What a lying, cynical clown this man is!

While the Venezuelan Government continues going back to its cover-up mode, the same is not true of Argentina. Today, Argentine authorities ordered the international capture of Antonini. But more importantly, they requested from the Minister of Planning a record of the trips carried out by its former superstar adviser Claudio Uberti, as well as requesting all of the information on the movements of Antonini in and out of Argentina. Meanwhile El Clarin gives us a picture of Antonini in September 2006 accompanying the Governor of Cojedes State to Uruguay in an official visit.

Thus, we can count on the Argentines to dig in and investigate what our own Government is trying to cover up and the more they dig, the more they will sink in the cesspool of corruption, lies and absurdity that they have built over the last few years.

Local cartoonists are having a field day with the Maletagate affair. From left to right: Bozzone: “All that scandal for 800,000 dollars?”. Darwin: :”It seems that here we wash the dirty linen at home, but the dollars abroad” and Zapata: “Boot and Bounty”

Official Maletagate logo from El Mundo

Now I am a bit confused with the Government’s strategy. After clear coordination yesterday, today we get two jewels from Ministers claiming this is much ado about nothing:

—Minister of Foreign Relations Maduro: “These types of incidents take place every day in all airports of the world”

Jeez, where should I begin. Yes, but not in a plane carrying high Government officials? Yes, but not with planes arriving from countries where it is illegal to hold so much cash? Yes, but those caught are detained or at least, not allowed to leave the country? Yes, but the Government’s responsible for the borders investigate how the money left the country? Yes, but the origin of the funds checked?…

—Minister of the Interior Pedro Carreño: “We can’t satanize it only to learn later that the money got on board somewhere else”

This from the man who told us Montesinos was dead or the CIA was spying on us via Direct TV set top boxes. Didn’t he hear that no investigation was going to be made at the beginning because none of the crimes took place in Venezuela? Or how about the fact that PDVSA says none of its employees has been singled out by the Argentinean authorities? Then, I ask, how did this man get on the plane? Is that irrelevant?

Can’t both these guys think? A plane full of Argentinean and PDVSA officials carries one person with a suitcase full of cash and there is no suspicion that others in the plane knew about it? Why did Enarsa charter the plane? If Enarsa has not started the first business with PDVSA, does it make sense to charter a $60,000 flight to hold a meeting? If Antonini was in Buenos Aires 12 times during the last year, most times leaving the same day: How did he arrive the other times? Was it always in private planes? Were there always PDVSA people on the flights? Why was the Argentinean adviser to the Minister of Planning fired? Why was this man on that plane? Was he part of the negotiations between the two oil companies? Why did the PDVSA employees give fake addresses? Why was the son of a PDVSA VP on the plane?

Oh yeah! And it turns out that Antonini’s partner, has something to do with a company whose jet was confiscated by the DEA in June and just happens to be owned by one of Mercal’s most important suppliers.

Too much of a coincidence?

Things like these do not even happen in the movies and smart Government officials should shut up before they are caught in too many lies. We have heard so many already…and counting

And how about this ad on a road in Carabobo State paid by the Governor’s Office (The one whose Governor is the burping General) saying “Inciting Sex generates rapes…security is a co-responsability of all of us”

I guess the Tropical Ayatollahs are showing their fundamentalism and proving once again that the left and the right meet in the extremes…

Will they ban the thong in Venezuela?