Archive for November 15th, 2007

Venezuela: Oil, lies and simple math…

November 15, 2007

or why I am worried about the economy and so should be the Chavez Government

Yesterday, the Minister of Finance red jacket and all, held a press conference
to call the document issued by Fedecamaras “subversive”, because it
opposed the Constitutional reform. Cabezas proceeded then to tell us
how wonderful the economy is. I don’t know what bothered me most,
Cabezas attitude to a serious document, or the fact that the Minister
of Finance thinks everything in the economy is doing so well.

I remember when Chavez staged his coup in 1992, one of the accusations
against the Government at the time by him and other involved in the
coup, was that it was focusing on macroeconomic numbers and not on the

And while Cabezas told us yesterday that the salaries of Venezuelans had gone up every year since
Chavez took over, he failed to tell us that inflation has been out of
control and that according to statistics from the Venezuelan Government
, while salaries have gone up in Bolivars, in real terms,
Venezuelans are actually doing worse than in 1998 and they have been
running in place since 2002, despite oil prices shooting up a factor of
four in the period. So, if you are an economist like Cabezas you should
be concerned.

Then Cabezas told us about the
wonderful growth in the economy, but that is what you would expect from
the oil windfall the country has enjoyed in the last four years.

then today the Central Bank issues its report on the growth of the
economy and whether you are an economist or not it is quite scary.

the only good news, the Venezuela economy grew by 8.7% in the third
quarter of 2007 when compared with the same quarter in 2006, which is
the way in which such statistics are measured by the Central Bank. As I
said before, that is sort of what you expect.
you look into the numbers and find out that the non-oil sector grew by
9.7% and best sector was: the public sector! This grew by 12.8% and we
are told as if to sooth us that this only happened because the
Government nationalized CANTV and Electricidad de Caracas. Then you
read the fine print and find out that Communications grew a whopping
24.3%, commerce (yes, those wonderful imported things at the official
rate) grew by 18.4%, finance by 18% and construction, one of the
biggest drivers in the real economy barely grew by 4%. If that picture
is not worrisome to Cabezas he should have his name examined.

And then comes the shocker, the oil sector shrank, contracted or was reduced by 4.4%.

Minister Ramirez is telling us in his dual capacity as Minister of Oil
and President of PDVSA, that not only is oil production not declining,
but it is growing. Growing, because he says it is larger and he also
said that PDVSA has invested US$ 10 billion so far in 2007 to increase

So, we are supposed to believe his
lies and those of his cheerleaders, but let’s look at one simple, very
simple number: the average price of the Venezuelan oil basket for the
last 21 months:
As you can see, oil
prices have been going up, in fact, the average price of the Venezuelan
oil basket in the third quarter this year was US$ 69.62 per barrel
according to PDVSA’s statistics and the same price in 2006 was US$
58.99 per barrel, an uncanny increase of exactly 18% year over year.
So, we are supposed to believe that the price of oil increased by 18%,
PDVSA invested US$ 10 billion in the first nine months of 2007 and oil
production increased, but somehow, magically or perversely, oil GDP
according to the Government controlled Central Bank shrank by 4.4%?

that is exactly why I am extremely worried, as Cabezas should be: This
growth is simply the result of increased Government spending and the
day the price of oil falls, it will be the day of reckoning. It is the
same oil boom and bust cycle, this time on steroids, It is in the end,
revisiting the Devil’s Excrement.

Maybe I should change the masthead of the blog by now:

For countries, easy wealth appears indeed to be the sure path to failure. Venezuela IS a clear example of that.