Archive for September 6th, 2007

Overnight rates soar, as Chavez takes over monetary policy

September 6, 2007

If it were not so pathetic, it would actually be funny what happened today in monetary markets in Venezuela, when the overnight inter bank rate actually went as high as 120% at one moment due to the stupidity of Central Bank authorities.

As I reported on Monday, the autocrat actually believes he knows everything, which makes him extremely dangerous. In his infinite ignorance, Chavez suggested that the Central Bank should stop “aiding the oligarchs”, lending to banks and begin helping the poor. Even worse, the Board of the Central Bank sucked up to the autocrat and yesterday that institution announced that it was following Chavez’s orders and would no longer do what is locally called as operations of monetary injection, in which it lends money to banks that are short overnight. This is somewhat like the discount window of the Federal Reserve Bank in the US and a mechanism that is used by all Central Banks of the world.

Well, the move took banks, mainly small ones, by surprise and given that they could not go to the Central Bank they began borrowing from other banks driving the overnight rate very quickly to 120% interest rate. By that time, it appears as if the Central Bank realized how much it had screwed up and intervened lending to the banks and driving the rate down to 30% bringing back some semblance of stability to the markets.

The whole thing was almost comical as it turned out that most of the banks requiring help were small financial institutions, with low credit ratings and an inordinate amounts of Government deposits. And the reason they needed money in many cases was even funnier, if you can find the whole thing to have some humor, in that many of them needed Bolivars to pay for the structured notes that the Government sold them earlier in the week with favorable conditions and in many cases leaving many people wondering why those institutions were the beneficiaries of the Government’s largesse.

Of course, the crisis was induced by Chavez himself and precisely because these smaller banks are bad credit risks and do no have credit lines with the more solvent and well run large financial institutions.

More remarkable, some foreign “analysts” tried to find some sort of ominous interpretation to the crisis, thinking that there was indeed a monetary crisis in the works in Venezuela, some sort of liquidity crunch that in the era of derivatives could extend abroad. No such luck, plenty of liquidity here in Venezuela, but it is in the healthy financial institutions and not in the vaults of the novel pro-robolutionary banking institutions. It was just the fact that loyalists who understand monetary matters follow the bumbling directives of the ignorant autocrat.

Remarkably, the Venezuelan currency strengthened as market players and investors decided to play it safe until the extent of the liquidity problem was clear. By the end of the afternoon, it was back up, following the more logical route already set by the excess monetary liquidity in the country.

Commune or Microsoft? by Anibal Romero

September 6, 2007

Anibal Romero, a Professor at Simon Bolivar University published this article yesterday in El Nacional which you can find in his website in Spanish. There are many ideas in it which I agree with, including the disdain for knowledge by most political leaders, as well as the the disdain for the ability of the Venezuelan people to build a first rate country. It may be a consequence of The Devil’s Excrement or perhaps the fact that politicians only seem to learn about politics. The question is why is it that we have not progressed much in 30 years, including the last eight and why is it that models such as Chile’s or some Asian countries are not even considered when our politicians attempt to innovate on economic systems? Why do we always look to copy failures and reject successes?

Commune or Microsoft? by Anibal Romero

In precise terms, the social experiment that is taking place in Venezuela constitutes a historical regression, which is a jump towards the past. All of the proposals of the so called XXIst. Century Socialism have been pre-configured, in a much more serious and elaborate form, in the utopian socialists of the XIXth. Century, in the works of authors like Owen, Fourier, Webb and Saint Simon, among others, who Frederick Engels criticized because they fantasized too much. Perhaps the only original contribution from Venezuela has been the project of the “vertical chicken coops”, which seems also destined to engross the catalog of socialist failures.

It does not fail to cause some pity the efforts that the Venezuelan regime is making to insure that this whole experience, as ruinous as it is a tragicomedy, ends up in an economic collapse of incalculable proportions. While in China and India hundreds of million of people embrace a capitalist economy and generate wealth and prosperity at huge velocities, the Venezuelan President-whose ignorance can only be superseded by his temerity-still believes that China is socialist and that communes and “social production companies ” may have a different destiny than the most ignominious failure. Chinese and Indian families compete with ferocity to educate their kids and send them to the great universities of the United States, so that they later come to their countries and develop academic centers as excellent or even more, but in revolutionary Venezuela the Government decrees the return to the commune and dreams of companies that will advance without profits.

Such primitivism, crude and cave-like, manifests both the infinitely poor mental quality of those that currently have in their hands the destiny of Venezuela , as well as an overlapping even if concealed disdain for the popular sectors of the population. In other words, I am saying that behind the supposed compromise towards the poor and defenseless of the country, the revolutionary regime hides a profound contempt towards the capacity of the people to better themselves and leave behind the pathetic state in which the majority of Venezuelans survive in. In fact, both the Venezuelan Government and the opposition, and I am referring specifically to the political “leaders” on both sides, do not trust the people and their aptitudes to stop being a third world and pre-modern conglomerate.

That is why, on the one hand the Government here urges people to return to communal life, while in China and India, to emphasize these examples, people want to emulate Microsoft. On the other side, and continuing its inexhaustible course of blunders, the opposition can not think of anything better than propose something that they call “social democracy”, attempting as always to compete in that terrain with Chavez, who will always have all of the advantages. The shortage of ideas and the absence of courage to articulate another ideological political message, different to the diverse versions of socialism, is the fundamental cause of its failure.

To tell you the truth, you can rack your brain and find it hard to understand why in Latin America in general- with one or two exceptions- and in Venezuela in particular, we have such a hard time learning the formulas that lead to the prosperity of Nations. We are always avoiding them and take refuge in the consoling fable of “we invent or we err”, a task that has already given us two centuries of disenchantments.