The Devil's Excrement

While the militarization of PDVSA continues in the name of sovereignty,
true sovereignty is being thrown overboard as the company is not
investing, not drilling, production is down, projects are being
rejected even by oil companies from “friendly” nations, nobody (even
OPEC) believes the country’s production numbers and by the way,
whatever happened to the company’s financials? These guys can’t even
come up with them in the name of “sovereignty”. They are over five
months late and there are no excuses after so many years running the
the “sovereign” company. Whatever happened to transparency and
efficiency?

All that really matters is silly military games and
virtual enemies and obeying the autocrat. But they seem to be the enemy
as the Editorial from Veneconomy below clearly describes. They are the
true traitors to the sovereignty of the Nation.

(Note this guy is a financial analyst at PDVSA, maybe if he was not
playing military macho games and was at work, the company’s financials
would have been completed on time)

The grave has been dug by Veneconomy

This
week oil experts agreed on one point: a favorable outcome of the crisis
Venezuela’s state-owned oil company is going through is far from
certain.

It looks as though the absence of trained technical and
management staff, the lack of planning and the politicization of the
business, added to widespread corruption, will push PDVSA into
bankruptcy sooner rather than later.

The symptoms are already
apparent: PDVSA is not meeting its production expectations, the
refineries are in a calamitous state, a large number of wells have been
shut down, there is a deficit of some 120 drilling rigs, and production
barely reaches 3,300,000 b/d (according to inflated official figures),
a far cry from the production goal of 5,800,000 b/d.

Added to
this is the fact that Venezuela is apparently on the threshold of an
international lawsuit with ConocoPhillips and ExxonMobil, if the clear
contradictions between statements by John Lowe, ConocoPhillips’
Exploration and Production Executive Vice-president, and Energy and Oil
Minister Rafael Ramírez are anything to go by.

This Wednesday
Lowe stated that ConocoPhillips had agreed with the Venezuelan
government that compensation for its shares in Petrozuata and Hamaca
would be based on their “market value” and that negotiations were still
being conducted to determine that “value.” Then, on August 30, Minister
Ramírez declared that Venezuela would only pay compensation based on
the “original book value.”

According to estimates by analysts
with investment banks in New York, the difference between the two
values is considerable. The “original book value” of the four upgraders
is around $17 billion, whereas the “fair market value” would be in the
order of $33 billion.

Although ExxonMobil has not said whether
it has reached an agreement similar to ConocoPhillips’, it is to be
assumed that it did.

ConocoPhillips and Exxon have already
declared losses for the second quarter of some $5.25 billion
(ConocoPhillips $4.5 billion and Exxon (Cerro Negro) $750 million). If
these losses reflect the “original book value,” then the “market value”
could be in the order of $10 billion, at least. Venezuela does not have
that amount available and what is most likely is that Chávez will not
accept paying such a high sum to oil companies of the empire.

And
to complicate things still further for PDVSA, the most important of its
deals with China and Brazil are apparently falling through. What is
more, Chávez’ promises to build refineries all over the replace are on
the way to becoming empty words owing to the lack of funds, unless he
sells off other assets, Citgo for example, in order to be able to make
good his promises.

Unfortunately, the only things that do seem
to be functioning at PDVSA are communist proselytism led by Ramírez and
corruption at the highest levels, which has been extensively reported
by journalists who support the regime and revealed in the scandal of
the briefcase with nearly $800,000 confiscated in Buenos Aires.

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.

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.

The ability of this Government to lie, manipulate, deceive and cheat is simply incredible, as witnessed by oil production figures. Not only do PDVSA’s figures disagree with OPEC and the IEA, but when PDVSA bickers with the IEA and says that IEA has declined invitations to straighten out the differences, the IEA not only denies that there are errors in its numbers, but says it is not even aware of any such an invitation.

But lying has become a way of life for Chavismo in its accomplishments, its numbers and its announcements.

I was thus intrigued when the Agencia Bolivariana de Noticias bombastically announced that Chavez’ variety show “Alo Presidente” had reached an audience “turn on” of 50%, according to the news Agency run by Minister of Disinformation William Lara. According to the report, half of the TV’s that were on during Chavez’ marathonic program on Sunday were watching the President.

I was intrigued, because when I looked last at such statistics in the past, Chavez’ TV program had a rating of less than 5% and his audience turned on never was above 15%. (Rating is the % of all possible TV’s that can be turned on, while the number given by the ABN referred only to the percentage of TV’s on at the time which were tuned to the program)

Thus, I got in touch with one of the companies that performs such measurements for advertising agencies and broadcast stations, which shall remain unnamed, but you all have heard the name. I am not sure what the error in the measure is, but the numbers are so far from the official announcement that these guys are truly big liars.

The program last Sunday, which lasted close to seven hours, in reality had an average “turn on” of 10.7%, almost a factor of seven below what ABN claims. If the program is split into fifteen minute periods, the highest number achieved last Sunday was 14.2%, during the second fifteen minutes of the program, while the lowest came at the very end and was 8.6% for the last fifteen minute period.

Even worse, the total number of TV’s turned on during the seven hours never was much above 10% of all TV’s being polled (all TV’s in the Nation) since that is one of the worst rating periods of the week. Combining these, the “rating”, the total number of TV”s in the country watching the autocrats antics came out to be on the average 1.3% of all TV’s polled, which is supposed to be a reflection of all TV’s in the country. Thus, the levels of popularity of Chavez’ variety show is as bad as the level of honesty by the Government.

But we knew that, the robolution has no scruples and deceives and lies at every step.

While Chris Kraul tells the world from Los Angeles that not even the dead are safe from crime in Caracas, Simon Romero in the NYT revisits the topic of naming kids in Venezuela in view of the proposed legislation which will make naming your kid Tutankamen del Sol or Juan Jundred a thing of the past.

This is what happens at the public “debates” for Constitutional Reform. Any attempt by the opposition to participate or give an opinion is met with shouts and rejection and in the end Chavismo dens up “discussing” the autocrats positions among themselves and the opposition is kicked out. Note that the first speaker in the video is none other than the “People’s Defender” who has yet to defend the people, he just defends the Government. He is a truly despicable character, worse than the autocrat, because he claims to be what he is not.

I guess after eight years in office President Chavez has yet to understand what the Venezuelan Central Bank does or none of those that surround has been able to or tried to explain it to him. And it shows, given his proposal to move “excess international reserves” to be spent and now his plan to remove the independence of the Venezuelan Central Bank.

Yesterday, during his Sunday variety show Chavez said:

“The independence of the Venezuelan Central Bank is over …private banks have to use their own resources, the Central Bank should be aiding the poor and not the bourgeois”

Maybe some intelligent banker should pick up on this and ask Chavez to let private banks issue their own currency the way it used to be in Venezuela a few decades ago. Most banks not only had their own currencies, but they were backed by the gold in their vaults. Then one day the Government forbid this and even tried to take over the gold reserves, some banks accepted it, others sued and actually won the suit and their gold was returned.

So, if private banks started issuing their own currency and given Chavez’ absolute ignorance about what the Central Bank does, in a short time, private bank’s currencies would become premium and the current Bolivar and the upcoming Bolivar fuerte would slide down. It would make for an interesting competition between the private sector and the reckless economic ideas of XXIst. Century Socialism. Unfortunately, Chavez will debase the only currency we have in a very short time due to his ignorance on monetary matters.

In fact, it is already happening. While Minister Cabezas continues to say that the parallel swap market is largely irrelevant, the Government has sold over US$ 10 billion in the first eight months of the year at an exchange rate above Bs. 3,000 per dollar and the recently postponed Bono del Sur 3 had an implied rate of Bs. 3,800 per US$ even before its components began going down in price. Thus, even if the Government does not want to devalue, it is already selling US$ at rates at least 50% above the official one.

But look at the bright side. If the Central Bank is no longer independent, then the “small” discrepancy of US$ 6.499 billion between what the Central Bank says is the country’s external debt (US$ 32.38 billion)* and what the Ministry of Finance says it is (US$ 25.85 billion) can be cleared up by eliminating one. Given the difference, I am sure that just like in PDVSA’s numbers the most favorable (lower) number will prevail.

*Go to http://www.bcv.org.ve/c2/indicadores.asp, once there select Balanza de Pagos y Otros Indicadores del Sector Externo. Within that, select Deuda Externa. Saldos a Valor Nominal por sectores e instrumentos. It will open an Excel spreadsheet with a line saying “Deuda Publica” and you will see that in the second quarter, public debt was US$ 32.38 billion

Is good to know that we are helping the poor people of London get around their city at half price. I mean, with our fantastic public transportation system and high standard of living it is wonderful that we are spreading the wealth to those that need it more elsewhere. (Thanks Jose and Kathy!)