The Devil's Excrement

Thus, last night we got on the radio the “new”, revamped version of Hugo Chavez. A gentler, softer more lovable Hugo, talking about “not letting us get carried away with extremisms” or “we have to ally ourselves with the middle class” and ” we can not propose thesis that have failed everywhere else in the world, like that stuff about eliminating private property”. This was the same irate guy of a few weeks ago after his referendum loss talking about not changing one comma of his proposal (which limited private property rights) or saying he would have armed reservists to defend the revolution.

Of course, this is the same Hugo Chavez that has alienated the same middle class over the last nine years, insulting them even when he did not need it, calling them oligarchs, lackeys of the empire and telling them to leave the country. The problem is that Chavez’ popularity is going down fast as more and more problems surface ad some advisory team in the situational room of the Miraflores palace came up with the idea that we need a more softer and gentler Chavez to prop up his popularity.

The thing is, this is so much against Chavez’ nature that is not bound to last very much anyway, much like he gentler Chavez of April 2002, when Hugo Chavez sent the Army to violently stop a peaceful civilian protest. Upon his return, he was meek and apologetic and it lasted about two weeks before the old, mean, confrontational Chavez was back. We saw him again in the 2006 Presidential campaign with his “live” ads aimed at attracting the same middle class that he thinks he can regain at this time. That lovable Hugo probably lasted only the 60 seconds of the TV ads and pictures shown of him posing in blue cloths with a big smile.

But it is difficult to believe that Chavez will change, not only because of past experience or what General Uson, that knew him quite well, tells us about that impossibility, but because the new, improved and reshuffled Cabinet named yesterday, seems to point in exactly the opposite direction. Essentially, Chavez named a more militaristic and more radical Cabinet. It is mostly composed of ineffective members of the Chavista administration, past and present, reshuffled around. But in the end, those named today seem to have been picked more for their loyalty and radical ideas, that for the need for Hugo Chavez to start governing Venezuela after nine long years.

Some changes:

Jorge Giordani is out at the Ministry of Planning to be replaced by a hard core Marxist/Communist Haiman El Troudi, one of the “idea” men of XXist Century Socialism. El Troudi has not occupied any high positions in the Government but is one of those vague ideoliogists of the revolution who is always telling us how they are redoing things to make them work this time around and how XXIst. Century Socialism is different from the Soviet Union. Not a big improvement over Giordani, much more radical.

Rafael Isea is in at the Ministry Of Finance, Rodrigo Cabezas is out. Well, Cabezas had more knowledge on economic matters but he thought he could innovate, inventing some concepts that will one day come to haunt us. Isea is a former Lieutenant, with little economic experience and certainly does not have the scope of knowledge to design the type of plan needed Venezuela to contain inflation and avoid a significant crisis in the near future. Once again, a much more radical member of the Cabinet at that position.

Pedro Carreño is out, Ramon Rodriguez Chacin is in at the Ministry of the Interior and Justice. Jeez, we changed incompetent Carreño of Louis Vuitton fame, for super spy Rodriguez Chacin, another loyal former military officer who has always been Chavez’ liaison with the FARC and foreign leftists groups. Certainly a better “operator” for Chavez, more radical, more dangerous and a man of few scruples hat should be feared by all. He will use all of the powers of the police and intelligence forces against those that oppose the Government.

Jorge Rodriguez is out, Ramon Carrizales is in. One of the few places where a radical has been replaced by someone less radical. However, Carrizales has been ineffective in many positions, including his recent entourage in the Ministry of Housing where he failed miserably at achieving anything close to Chavez’ goal of building over 100,000 housing units (less than 35,000 were built). He was appointed to that Ministry after being in charge of the Minsitry of Infrastructure and finding the solution to rebuilding the Caracas La Guaira viaduct (Hire and pay the best civil engineering firm in the country and take the job away from the Government. Sort of the anti-revolution to solve the problem)

Finally Andres Izarra is back at the Minsitry of Information, replacing William Lara. Certainly Chavez brings someone much more capable, intelligent and conniving than Lara, who was an absolute lightweight But once again, this is a more radical appointment, certainly contradicting Chavez new and gentler image.

All in all, the new Cabinet seems to be as incapable at management the country with all its difficulties, but certainly more capable in terms of playing the political game with intelligence and malice.

Thus, expect the gentler Chavez to melt away fast, the tough political moves to begin in earnest and the problems of the country and the people to be set aside once more, in order to devote themselves to the politics of power and the solidifying the power of the weakening autocrat Hugo Chavez.

This is a very good graph by Santander Investments which shows the problem that structural inflation has become in Venezuela. The gray curve shows the 12 month or annualized inflation in prices at each point in time since 2005 for items in the CPI which are not controlled.  The red curve on the other hand shows the same CPI annualized, but for items under control. As you can see, the items under control have never been able to yield an annualized inflation level of less than 10%. Moreover, you have to remember that it is precisely these controlled items that are seldom available at stores, so the “true” level of inflation is much higher. Given this, in the absence of new and effective economic policies to fight inflation, the current reconversion of the currency will become a useless exercize.

Note that for the last year the prices of items not under control have diverged from those controlled and that recently the difference is close to 20%, a huge number and while there is a suggestion that it is tapering off, the difference has only increased in the last few months.

Clearly, President Hugo Chavez needs new and more capable faces in the Cabinet to tackle these problems. One of the difficulties is that he personally pays little attention to coordinating economic policy and had left this on the hands of the Vice-President for at least the last year and a half. Rumor had it that Chavez was ready to bring new faces into the Cabinet, maybe move Tax Superintendent Vielma Mora into the Vice Presidency (He has been an effective manager, even if fairly ignorant o economic matters). Instead, Chavez has named Minister Of Housing Carrizales as the new Vice President. Carrizales managed to build less than 40,000 new housing units in 2007, while this is an improvement, in the bad old days of the IVth. Republic, 60,000 units was the norm not the exception. Thus, Carrizales has not been that effective in his position and now gets promoted to VP!

Chavez also moved Jesse Chacon to the Ministry of the Secretary of the Presidency, while moving the President of CANTV, Socorro Hernandez, to the Ministry of Telecommunications. Hernandez was thought to be way above her level of competence in CANTV and six months later she gets a promotion to Minister.

Clearly, Chavez is still shuffling people around, rather than looking for experts. He wants loyalty more than effectiveness and management capability. This bodes badly for him (and us!) in the near future, as there are significant problems that need to be resolved and tackled with true expertise. The most important positions that needed to be filled were the Vice Presidency and the Ministry of Finance, we shall see what the latter brings.

Politically, Chavez needs a good economist as Minister of Finance, who may (tough job!) be able to remove the strains in the economy slowly and stop inflation. From the looks of it, he will go for another crony in this all important position.

Yes, it is the economy silly, not the FARC that matters, but in the end it seems to be secondary to the Government’s plans, as those in charge appear not to have much of a clue as to what to do.

In the latest economic tidbits from the revolution:

1) Today was the first real day of the reconversion process and there was a lot of frustration everywhere. It is still hard to tell how well it went, as most people are still on vacation and many stores did not even open. I went by the supermarket where I shop and to my surprise it was closed as the systems were not ready yet. The ever optimistic Minister of Finance called it a success only to say right after it that 75% of ATM’s are working. Sounds low to me, but he has never been one to have ambitious goals (see below on inflation).

In terms of the banking system, most online statements seem to have the right balance, but charges seem to be in old Bolivars, so that people who had a few million old Bolivars, now have only ten thosuand or so, but were charged one thousand for Internet use or the like. They will eventually get it right.

The sad thing is that given current conditions, the whole process has been futile and it will do little to slow down inflation at a very high cost.

2) Inflation was bad in December. The CPI for the full year was 22.5% after December came in at the high end of expectations at 3.3%. Basically, between the new tax and too much money chasing too few goods, inflationary pressures are still around and growing. For the Minister of Finance Rodrigo Cabezas, the numbers are proof that he has been a total failure in the policies he implemented. Every time he announced a new policy he would say that it was not inflationary and he has said all along that high Government spending could coexist with low inflation. Now he calls the inflation for December “moderate” and says policies need to be changed. Jeez, I guess he never goes shopping and he certainly should read this blog for some pointers from a non-expert.

But if the 12 month number of 22.5%, twice the Government target of 12 % per year, as recently as July of this year, it was worse for Food and Beverages, which reached 4.7% for the month of December and 38.6% for the year. Items under control, many of which can’t be found in the shelves, were up 10.7%, while those without control went up 32.7% in 2007.

3) GDP numbers for 2007 are in and it is a case of good news and bad news. The good news is that thanks to high Government spending the economy grew by 8.3%, the bad news is that the oil GDP contracted by more than 5%, continuing a very worrisome trend. Moreover, imports for the year were close to US$ 45 billion, which is clearly unsustainable.

In a day which should have been “slow” in terms of news, a couple of items should be noted:

—Chavez’ Amnesty Bill turned out to be much less than expected, as its wording left out many if not all of the most emblematic cases of political persecution, such as Henry Vivas, Forero, Nixon Moreno, Enrique Mendoza, the PDVSA workers, as well as anyone in exile. Using Chavez’ words. he would say this is an “Amnestia de mierda”… (Or in colloquial Spanish, Amnistia Chimba)

—The Minister of Finance called the “reconversion” of the currency, by which the Venezuelan Bolivar will have starting today three fewer zeroes a total success. Funny, I have accounts at two banks. One I can’t see yet, the other one is correct unless I try to see my credit card, it tells me I am not authorized to see it. But, he should be careful, as today all stores were closed, thus to claim that all systems are working has no statistical significance. The true measure of its success will be if it helps control inflation which I doubt.

In any case, it’s the New Year, a day to relax, maybe you should go visit my post on how I grow my orchids, which may be useless if you live in a wintery place, but that is exactly how I do it here, explained in detail. Enjoy!

And have a great New Year!!!