Archive for March 11th, 2008

Structured corruption by Veneconomia or why this regime is called the robolution

March 11, 2008

And yesterday it was Veneconomia’s turn to add its two cents about corruption in the sale of structured notes right under the nose of the almighty Chavez. Of course, by now, it is not US$ 600 million that have been sold, but US$ 750 million. Everybody denounces the hundreds of millions of dollars robbed in this way, while not a single investigation has been opened on the case, by the Prosecutor General or the National Assembly. Which must mean that much like other corruption cases in the robolution, such as “maletagate” or the precious kids jailed in Miami, who are miraculous multi-millionares thanks to the “process”, that Chavez himself has ordered that nothing be looked into in any of these cases, because in the end corruption represents a form of control.

And there is so much corruption that even superficial investigations turn up the most remarkable cases. There is teh structured notes and Argentinean bonds, which has generated almost a billion in wealth to those participating. There is “maletagate”, a small US$ 800,000 case of a suitcase full of hundred dollar bills which is small sample of what is going on in a larger scale; it was not gratuitous that the Minister of Foreign Relations asked incredulously that how could Chavez give US$ 300 million o the FARC, it would take 300 suitcases. Yes, he knows even the exact measure, it is such a regular procedure by now. But in a country with exchange controls and cash limits per person, there has been little movement in investigating “maletagate”, since the money certainly came from PDVSA and clearly with the knowledge of Minister Rafael Ramirez, who by now knows some many secrets that Chavez can’t get rid of him. And then there is the Chavez family who have gone from the fake poverty that Hugo Chavez claims he had when he was a kid to huge landowners and have created the new Macondo in Barinas State. To say nothing of Minister Rodriguez Chacin, the man who gets credentials for FARC leaders, has two indentities himself and has gone from having little to spending lots of time at his daughter’s huge ranch in teh same state. Pity that his good life was interrupted to become a Minister again, but it is a good sacrifice, who knows what unknown “guiso” (criollo for racket) he can stumble upon in the position this time around,

In any case, by now there are so many public denunciations of the structured notes racket that it should be investigated only based on these noticia criminis. Don’t hold your breath, it ain’t called the robolution for nothing!

Structured Corruption by Veneconomia

A few days ago, it was learned that, over the past four weeks, the Finance Ministry had placed some $600 million in structured notes.

Apart from that, several analysts, among them Orlando Ochoa, an economist with a degree from Universidad de Los Andes, and Jose Guerra, former Economic Research Manager at the Central Bank of Venezuela, have been denouncing a series of irregularities having to do with the fact that the government is using the sale of structured notes as a mechanism for stabilizing the swap market.

For example, Jose Guerra affirms that since 2004 “more than $10 billion have been placed in those structured notes and Argentine bonds without information having been made available on the financial terms of those placements, and with gains for the operators of more than $1.5 billion.”

Neither the Finance Ministry nor Fonden nor the Central Bank has given information on the terms on or the price at which these notes have been sold, much less has anyone revealed the names of the banks that have taken part in these transactions.
In order to explain how the mechanism of the structured notes works, VenEconomy has prepared a hypothetical transaction, in which the prices used are simply by way of example:

Let us assume that Fonden buys $100 from the Central Bank at the official rate of Bs.F.2.15:$, making a total of Bs.F.215, and that, with those $100 Fonden then buys $100 in structured notes in New York.

Let us also assume that, the next day, Fonden sells that structured note to a consortium of Venezuelan banks for Bs.F.360, so netting Fonden a spectacular “gain” of Bs.F.145.

Now, let us suppose that the Venezuelan buyers do not keep that structured note either, but sell it in New York, also for $100 and that those $100 are then exchanged for bolivares fuertes in an operation on the swap market, obtaining a “gain” of Bs.F.100.
To cut a long story short, this mechanism allows Fonden to post an alleged gain of Bs.F.1.45 for every dollar invested, while the transaction brings the intermediaries a gain of Bs.F.1 for every dollar invested. So it is that the intermediaries obtain a spectacular gain of Bs.F.600 million, equivalent to some $125 million in only four weeks.

While this is a simple operation, it is also an unorthodox and opaque one that produces fictitious earnings where there should be none, besides generating inflationary pressures.

It is worth remembering that, in 1961, the last time a government intervened in the foreign exchange market in a proper manner, it did so in a way that was totally transparent, via the stock market.