Archive for November 1st, 2007

November 1, 2007

It is
anybody’s guess why the Autocrat/President/Chief Justice of the Supreme Court “came to the conclusion” that indeed the proposed
Constitutional Reform could be voted separately in two or three blocks and not
as a unit like he and his cohorts had contended up to now. It was he, in his
role as autocrat, that arrived at the decision and not the Supreme Court, which
has had a number of injunctions on the subject for the last two months, but
clearly did not want to go against the wishes of the all powerful autocrat. And
as proof that he is the law, he ordered the National Assembly to incorporate
his suggestions in order to vote on the reform as soon as possible.

But it was
not clear why he did it, since the proposal forces the Electoral Board to throw
away all of what it had done in order to fulfill the Constitutional mandate
that this has to be voted on 30 days after the National Assembly approves it.

therein lies the first problem; the changes would make it quite difficult for
the referendum vote to take place on December 2nd. as planned, which has led
some to suggest that that was exactly the purpose. But I just don’t buy it.
Time is running against the Government and the proposal is not very popular and
on top of that regional authorities, who would get the Chavista vote out for
the reform, seem to have little interest in doing so, as they will see their
power reduced by the reform.

In fact,
the proposal raised more questions that answers, as some of the articles
proposed by The Assembly are related the ones proposed by Chávez and you could
not separate them. Just sorting that out, as well as the advertising on the
different proposals could take days and there is simple no time for that.

In fact,
the about face suggests that it would have been better off for the Supreme
Court to rule as it would have delineated the criteria on how to vote these
reforms and how one can propose or not that some articles are voted as a block.

Some have
suggested this may make the proposed reform more popular as it would seem more
open, but I just think that the whole affair just gets more confusing and it
may just be that Chavez came up with this on his own and announced without consultation
without realizing the possible consequences of the measure.

But to
suggest this, just when the cry of the students has been for a postponement of
the referendum seems to give ammunition to the student’s proposal, which I do
not believe will favor Chavismo. To begin with, shortages are increasing and
people are getting frustrated with them and they are blaming only the Chavez
Government. Add to that the upcoming rush in inflation due to the new tax and
the soaring swap rate and the mood, which has already been rarified by protests
lately, can only become worse. Additionally, the Enabling Bill also imposes a
time limit on the approval of the Constitution since there are many bills that
require approval.

I also
don’t buy that Chavez could lose the proposal as it stands today. It is clear
that what people don’t like is the indefinite reelection, but Chavez is putting
that on the same block with the shortened work week and the retroactive
severance pay, so there is little chance that it has something to with it.

But the
gauntlet has been thrown and now Chavismo will have to disentangle its
consequences, unless of course, the Venezuelan Supreme Court rules that Chávez
is wrong and the whole thing was a ploy to make him look more open that he
really is. Just in case this is the goal, Teodoro Petkoff challenged Chavez to
separate the indefinite reelection from his overall proposal to be voted on
separately, which Chavez will never dare accept. But even this theory of the
“more open” and “gentler” Chavez seems too far-fetched and inconsequential to
be behind the proposal.

So, we
will just have to wait and see how the complexity is disentangled from the
autocrat’s proposal and if the CNE has the capability to hold the vote in 31
days as the National Assembly wants. It definitely seems rushed to me, but so
has seemed the whole process that has led us to this point and to an absolutely
fraudulent and illegal proposal by Chavez to change the Venezuelan Constitution.

As new tax slows down financial system, inflation soars in October in Venezuela

November 1, 2007

It was the first day of the new financial transaction tax and lo andbehold, the financial system sort of ground to a halt, given the
level of improvisation and the lack of preparation by the Government. Basically, the Government did indeed modify the terms of the original decree, exempting some transactions like credit cards, the stock exchange and the interbank system from the new 1.5% tax. But things were so unclear, and the regulations so badly defined, that banks did not process any transaction via the Venezuelan Central Bank and their policy was very clear: when in doubt, charge the tax, which led to most large transactions, including those with local debt, which in theory is exempt, not taking place for the time being. Thus, only cash and checks were processed since it was very clear in their exchange that a 1.5% tax had to be charged.

One of the main victims of the halt was the parallel swap market, which simply died in the last three days ahead of the tax, and today was functioning with a huge spread so that if the transaction was eventually charged the 1.5% tax, then banks and brokers would be covered.

Thus, volumes were small, and few transactions were taking place, which simply adds to the pent up demand of the last few days and may fuel further rises in the upcoming days.

And October inflation was announced today and it was much higher than analysts were expecting at 2.4%, certainly showing the effect of the soaring swap rate, despite the fact that the Government claims it is irrelevant. As I have suggested before, if it is so irrelevant how come the Government spent some US$ 12 billion so far this year trying to bring it down?

In any case, with the 2.4% this month, the accumulated rate increase for the year is already 13.4%, above the 12% target set by the Government and still two more months to go. This, despite the fact that the value added tax was lowered by 6 percentage points in two stages, which gave the CPI an artificial decrease. Even worse, the Food and Beverages group, which affects the poor the most, as over 80% of their income is spent on this group, was up 4.1% for the month of October. For the last twelve months food inflation has been 33%, absolutely killing purchasing power gains by the poor. Add to this shortages and the contribution of the new tax to inflation in upcoming two months of the year and anyone that argues, like the Minister of Planning, that things are going well, has no clue as to what he is talking about.  And that is in large part the origin of the problem.

The Government has yet to explain how with record oil prices it needs to set such a financial transaction tax at a whopping 1.5%, which will generate next year 9% of the budget. One thing is for sure, it will add between 4 and 5% to the CPI in the remainder of this year, absolutely destroying not only the Government’s goals, but also the purchasing power of the Venezuelan poor. But tell that to the Tax Superintendent who still insists this tax does not contribute to inflation. Maybe e should look at Alcoholic Beverages and tobacco in October, as this group was up 9.1% after a special new 10% tax was levied on those items last month.

So, another oil windfall in Venezuela’s history becomes a lost opportunity, as mismanagement and ignorance are such that people have not felt the effects of the huge inflows into the country.