The Devil's Excrement

According to Colombian authorities,
this is what the material captured from the camp where Raul Reyes was killed
contained about Venezuela‘s payment to that terrorist
organization and other charges against the FARC and Hugo Chavez (You can read all of the emails here):

The US$ 300 million payment is mentioned for the first
time in a report by guerrilla leader Ivan Marquez from his visit to Caracas. This was a very public visit in
which Hugo Chávez received him at the Miraflores Palace in Caracas on Dec. 23d. Marquez informed that
he had a meeting with Ramon Rodriguez Chacin, who at the time had no official
position but was named in January as Minister of the Interior and Justice by
Chávez. Rodriguez Chacin supposedly told Marquez that from now on they will call
the US$ 300 million contribution with the key word “dossier” and that the boss
(Chavez) would be called Angel and the “maimed one” (El Cojo) will be called
“Ernesto”. El Cojo is supposedly the former Minister of Foreign Relations and
famous guerrilla member Ali Rodriguez.

One and a half months later, on
February 8^th. another report says that Chávez got a message from the
FARC’s leader Marulanda, which is reported as: “had a meeting with Angel. He
personally got the letter from comrade Marulanda, which he read aloud. He seemed
very happy. He will write to the comrade”

He adds: “We already have the first
50 million and he has a schedule to complete 200 during the year. The friend
suggested working the package via de black market, to avoid
problems”

This is interpreted by the
Colombian authorities as the Chávez Government offering a shipment of oil to
sell abroad “which will leave us a juicy profit. We will receive the dossier
creating a for profit company for investments in Venezuela. There is likelihood that we will
get Government contracts”, says the report. Supposedly a “friendly” businessman
would help hide the money.

In a separate email, it is mentioned that Chavez asked that Ingrid Betancourt be freed, but he was told that the FARC would lose its most important card if this happened. This is the most damaging charge against the FARC.

Mention is made of a Lt. that Chavez wants freed, but he was told Uribe would jail him if freed. It is not clear who they were referring to.

Separately, the President of Colombia Alvaro Uribe said today that he will accuse Chavez in international courts for supporting terrorism and that he had provided Chavez some months ago with the precise location of Ivan Marquez’ guerrilla camp in the Perija region of Venezuela, but Chavez did nothing, proving his support of the FARC. Could it be that this was what Chavez was afraid of when he told Uribe not to dare do the same thing in Venezuela?

Later in the report, Marquez talks
about a man named Belisario who lives in Bogotá and is friends with “Jhon40”. He
is sending me some samples and proposes to sell each kilo of Uranium for US$ 2.5
million and they hand it over and we see who we sell it to. Venezuela does not appear to be linked to
this part of the report, but the possible sale of Uranium is certainly
explosive in the context of the FARC. In fact, the Colombian Government is already suggesting the FARC may have been planning to build a dirty bomb.

These are certainly very serious charges against the Venezuelan President and the FARC, which appear to be well documented. In one of the pictures found in the computer, a Venezuelan Deputy of the National Assembly is present with Reyes, which the DEputy attempted to explain away saying he was attending a “Bolivarian” event, he did not explain how it happened to be in the jungle. So far, some of the accusations from the documents have been proven to be true, such as the contacts with the Ecuadorian authorities. We are sure to see more material in the next few days.

Well, charges and countercharges flew tonight from all sides and things are getting to be almost funny, just hot air, no bullets, no guns, that is something we can not afford to have shortages of:

— The Government of Ecuador admitted that its Minister of Security had met with the dead guerrilla member Raul Reyes, which happens to be in the documents which they are calling fake.

— Now the President of Ecuador claims that he was negotiating the liberation of Ingrid Betancourt in Ecuador. Likely story given that he would not steal Chavez’ thunder and that Chavez had asked last weekend for Marulanda to send her to a place where she would eb under good care. In any case, reyez clearly did not think much of her.

—And after the Colombian police charged that Chavez had paid US$ 300 million to the FARC for which they found evidence in a computer at the camp, the Venezuelan Government first says that it is all fabricated but then they come up with their own computer and accuse the Head of the Colombian police of being involved with drug trafficking. (His brother is in jail in Germany for drug trafficking). Of course they have had that computer since they detained drug lord “Jabon”, but today was the first time they ever mentioned this computer. Weird, no?

—And the “small” camp in which Reyes lived with “small” weapons, according to Ecuador’s Ambassador to Venezuela, occupied a full four hectares and had been in place for only three years. The Ecuadorian military was ordered off the area.

—Venezuela expelled Colombia’s Ambassador to our country and Ecuador broke relationships with Colombia. Of course, Chavez does not dare brake commercial relations with Colombia as shortages will simply intensify to intolerable levels.

—And why did Chavez tell Uribe not to “dare do the same thing in Venezuela” that he did in Ecuador. The “same thing” would imply that there are camps here (of course there are, in Barinas and Apure state!) and the Colombian military knows where they are, which I am sure they do, as Chavez has called various leaders of the FARC over time and the Colombians know exactly where.

For those that speak Spanish, I have posted in the Spanish section the article by the former Chief Economist of the Venezuelan Central Bank Jose Guerra, which appeared in today’s Tal Cual on the biggest corruption scam in the country’s history, the sale of structured notes to friendly financial institutions. According to Guerra, those involved have made some US$ 1.5 billion in profits, certainly surpassing any corruption scam in the country’s history. Guerra’s description is quite similar to my recent repeat article on the subject.

We woke up this morning to news of documents surfacing from the guerrilla camps which had severe implications for both Ecuador and Venezuela. In the first batch, documents obtained from the computer of the dead guerrilla leader Raul Reyes talk about contacts with the Ecuadorian Government in which an emissary of that government offers guarantees for a meeting which supposedly was going to take place in the capital of Ecuador. It even suggests that Ecuador is asking the FARC for training in mass events. Separately, it describes a meeting between Reyes and the Minister of Security of Ecuador, which the Ecuadorian Ambassador to Venezuela confirmed was happening n Venezuelan TV, but said it was all part of humanitarian efforts.

The documents suggest that the relations between Chavez and Correa are not enjoying their best moment. In the same set of documents, the FARC Secretariat explicitly says that the release of the hostages frees the FARC from that “load”while giving Hugo Chavez a leading role and there is some relief from the pressure to release the hostages.

In one of the most cynical statements, Reyes says that the Ingrid Betancourt remains the “dark” point in the whole affair and proceeds to call her “rude” and a “provoker”, because she has a volcanic character in dealing with the guerrillas in charge of talking care of her. What did he expect after the way she has been treated? Some sweetness?

Then in the afternoon, Colombian authorities revealed that other documents compromise the Venezuelan Minister of Justice and that there is a communication from guerrilla leader Ivan Marquez, who visited the Venezuelan Presidential Palace in very visible fashion last month and who says that Venezuela will finance the FARC to the tune of US$ 300 millions of dollars. The note also expresses that Chavez is quite grateful because the FARC contributed abut US$ 50,000 to Chavez when he was in jail at the Yare prison in the nineties after he sated his bloody coup in 1992. It also mentions the FARC acquiring 50 kilos of Uranium, but no details were given.

The Venezuelan Government declared all of that to be simply lies, while the Colombian Government said it would not mobilize any troops near the border.

Meanwhile the Venezuelan Government continued its strident speech, defending the FARC as if they were a humanitarian group, while condemning the Colombian Government for killing Raul Reyes. The French Government revealed that it had been Reyes who they had been in contact with in Colombia, releasing the news before it was known elsewhere.

There were of course no explanation from the outraged Ecuadorian as to why they had allowed the guerrilla groups inside that country after persistently denying their presence in that country. And there were clearly suspicions that Chavez was doing the same on this side of the border, protecting FARC leaders and even hostages.

Of course, Colombia did wrong by daring to attack the guerrilla camp inside of Ecuador, but that in the end is a sovereign problem between Colombia and Ecuador and has little to with our own country.

Curiously, there is absolutely no evidence of the so called mobilization ordered by president Chavez yesterday. Everyone has been on the lookout for military convoys and tanks but so far there is little evidence that any movement is in place, raising the issue of whether this was once again Chavez hot air, which was simply disregarded by the Venezuelan military.

But even worse is the fact that President Chavez irresponsibly announced these mobilizations and the possibility of a confrontation with Colombia, without any prior consultation and on National TV.

The truth is Venezuelans don’t want a war with anyone and the ties between the two countries are too sentimental and strong for this.

But this is the problem when a country elects a military officer as President. More so, when this man has shown that he does not understand that democracy is not the obliteration of your enemy with laws and maneuvers, but respecting and working with them so that everyone can live in peace and prosper in the country. But such is the adventure that having Chavez as President has become. As he has lost his popularity, his actions are becoming more questionable and dangerous to Venezuela and our future.

Note Added: Funny, one of the “lies” that appeared on the documents, that the Ecuadorian Minister of Security met with Reyes, has been confirmed by the Minister himself. Of course, everything else in the documents is fake. Does that include the presence of the FARC in Ecuador?

It is always good to look at what they are saying on the other side of the confrontation, here is yesterday’s Editorial in Bogota’s El Tiempo:

Inadmissible Reactions, Editorial in yesterday’s El Tiempo

While in Colombia, in a funeral ceremony presided by President Alvaro Uribe, in the north Canton of Bogota, national honors were rendered on soldier Carlos Hernandez Leon, who died in the battle which killed Raul Reyes, in Venezuela, Chavez decreed a minute of silence in honor of a “consequent revolutionary”, victim of a “cowardly assassination” by the Colombian Government.

One has to be quite nutty to ignore in such a way the sensibility of the Colombian people, to so crudely ignore the sensibility of millions of Colombians who less than a month ago in the most massive mobilization in the history of the country, went into the streets to shout their repudiation to everything that Raul Reyes represents. The reaction by the Venezuelan President reveals also that his relationship with the leaders of the FARC is deeper and more sentimental that what we had feared. And that his influence over President Rafael Correa of Ecuador is much stronger than ever imagined.

Unheard of and paradoxical then that a fact received by millions of Colombians as somewhat legitimate-and without precedent-that the State gets a victory in the long confrontation with the FARC, generates at the same time a diplomatic clash with Ecuador and has taken Chavez to escalate his confrontation with Colombia and with President Uribe to levels without precedent.

Who would have said that the death in a military operation in the tough conditions of this irregular war, of the second in command of an armed organization responsible for the sorrow of hundred of thousands of people could be qualified by Chavez as a “cowardly assassination”�

It is a lack of connection with the realities and feelings that prevail in Colombia, very similar to that of the magazine Anncol, the news agency of the FARC, that entitled the death of Reyes as:”Uribe assassinates another union member”. But, beyond the eloquent demonstrations of proximity and sympathy, this weekend delicate tensions appeared between the two neighboring countries, that need to be managed with agility and intelligence.

Besides discharging Uribe with unheard of epithets, Chavez has ordered the militarization of the border with ten battalions and tanks and has closed the embassy in Bogota. He declared that what happened was a violation of the Ecuadorian sovereignty, saying that Colombia, with the backing of the US, is turning itself into the “Israel of America”and threatened with a war if a similar incursion took place in Venezuelan territory.

And President Rafael Correa of Ecuador-who initially had reacted more calmly, after Uribe’s call on Saturday morning, in which he explained the events-called his ambassador for consultations, send a note of protest because he considered the operation against Reyes and act of aggression and a violation of the Sovereignty of Ecuador and suspended his prior visit to Cuba to take care of the emergency. He said that he would go to the end to clarify the episode about which, his Colombian colleague is “badly informed or is shamelessly lying about”

Even if it is not easy, the first thing that needs to be done is to separate both crises. It is symptomatic of the change of attitude of President Correa that after his conversation with Chavez, which as was stated by an international analyst made him look like a “puppy of the …Venezuelan Empire”. Despite this, the Colombian Government has to make all of the efforts to clarify its position with the Ecuadorian Government and normalize relations. In Quito, they also have to consider the iron dilemma faced by the Colombian authorities when they were facing the opportunity of landing a decisive blow to a guerrilla movement that has been using the border for a long time as a revolving door.

With Venezuela, things have a different price (The same way, even if at a smaller size, with Nicaragua, whose President Daniel Ortega also talked about assassination and called Reyes a “brother”) the relationship Bogota-Caracas that was going badly, has received a mortal blow. The shutting down of the embassy is equivalent to a break in relations. This has no precedent in the interamerican system and on top of it, it happens due to a successful operation by a legitimate Government against an organization qualified as terrorist by half the world. To argue, as did the Venezuelan Foreign Minister Nicolas Maduro, that the death of Reyes is a “slap in the face” and a “tough blow” to the humanitarian exchange is not to recognize the armed confrontation taking place in Colombia, of which the drop by drop release of hostages and the exchange itself are eloquent episodes.

The fact is that in this case, Chavez really blew it in a very definitive manner. He is taking the side of the FARC in a more open fashion. Which is a product of his deeper affinities with the guerrilla and also, due to his tactical political needs, after his defeat in the December referendum and in the face of critical elections next November, in the middle of an economic situation that becomes each day more unmanageable. Chavez seems to be full of reasons to escalate his confrontation with Colombia.

His reaction in the face of Reyes’ death has another effect beyond the opposing position that exists in Colombia with respect to the Uribe Government, the large majority of the country closes ranks in the face of what it perceives as a hostile and inadmissible intervention by Chavez in internal Colombian matters.

We will see which steps are taken next, but, for now, we enter in a tense period of confrontation, hopefully only verbal and diplomatic, between Colombia and Venezuela, To the prudent silence with which the Government has responded so far, maybe it is time to add international mediation or to look for the interamerican system to begin looking for an active role in a crisis that can destabilize the whole region. Things with Venezuela are turning to a dark color and that can’t be good for anybody.

It’s even hard to figure out where to begin on this one, but let’s try: Country A kills the second most important terrorist in the organization that has wrecked havoc into civilized life in that country. The terrorist, a prominent guerrila member with more than 50 charges of murder in his credentials is reportedly killed in country B. Country A says it did not violate country’s B sovereignty. The President of country A thanks that of country B for its help and this one in turn says that he needs to find out the details before he makes a statement. Meanwhile the President of another country, lets call it C, with a common border to A but not to with country B breaks diplomatic relations with A and sends troops to its border with country A. Country B also calls back its Ambassador. To top it all off, the terrorist organization itself says the dead terrorists was not in country B, but somewhere else when killed.

Even though it may sound like a Marx brothers dialogue a la -Who is on first?, such is life in the Hugo Chavez era that Venezuela is country C, which had nothing to do with with what happened in countries A, Colombia and country B, Ecuador, but comes out defending one of the worst Colombian terrorists, a man without humanity, principles or scruples, who now Chavez callas a “great revolutionary” and wants to get our country into war because of it. To make it even more ridiculous, if not depressing, Chavez actually held a minute of silence on national TV in memory of the dead terrorist.

But wait, why is Chavez sending troops to the border? Why would Colombia want to send troops over the Venezuelan border? Could it be that there are FARC guerrillas on this side of the border despite all of the denials?

After all, Ecuador, much like Venezuela has always denied that there are any FARC guerrillas within its borders and look where Reyes was reportedly killed. The same with Venezuela even if Rodrigo Granda, the Foreign Minister of the FARC was found happily living near Caracas, a Venezuelan citizen to boot, with legal identity under his won name, who got his papers aided by the man who happens to be the current Minister of the Interior and Justice under Chavez.

Because the reality is that the killing did not take place anywhere near the Venezuelan border as country B, Ecuador has no common border with us and this all happened on the other side of Colombia, at least one thousand miles away from Venezuela.

Thus, the fear must be that Colombia may decide to violate Venezuela’s border to speed up what is starting to look like the demise of the FARC as in a very short period of time, half of its top ten leaders have been either captured or killed and the organization, already worn out and tired as its goals have been perverted from the original ideals and turned into a mercantile drug and kidnapping operations, may be ready to unravel for lack of leadership.

In fact, Reyes’ killing will put to the test whether the top leader of the FARC Marulanda is alive or not, as if he isn’t ths should unleash a fight for control of the organization.

Chavez of course thinks that this distracts the attention of Venezuelans from shortages and crime, but it is as yet unclear to me that it does. In fact. the bickering of Chavez with Uribe right before the December referendum may have cost Chavez as many as two percentage points at that time, according to one well known pollster.

But it would be even worse if Hugo Chavez actually wanted to involve Venezuela in a conflict with Colombia in order to attempt to have the people forget the incompetence of his Government. It certainly seems more and more like that is the case, as Chavez even threatened Uribe with sending his jet fighter planes to Bogota, something which has no place and no justification over this incident. But much like other foreign leaders who look outside their borders when their luck turns down within their countries, Chavez may think that this will turn him into a hero.

Except that in the end, somebody has to fight the war and it will certainly will not be Hugo. And it is unlike going to be the Venezuelan military either, which on Dec. 2nd. forced Chavez to accept the results of the referendum and is unlikely going to want to fight Hugo’s personal war for him. Chavez no longer enjoys the high popularity levels that he did a few years ago, a gamble that a conflict with Colombia will prop up his popularity, may turn out to be his final gamble.

Watch any public statements by General Raul Baduel today or tomorrow, it will tell you where the military stands.

If we may call it that without insultng economists, the new “economic” team in the Chavez Government has been in place for eight weeks and we are finally seeing some important changes in policy, which if all true are in the right direction in terms of removing some of the distortions in the Venezuelan economy. While the new team has no economists or economic expertise to speak of, it appears as if the advisers are better than the ones Rodrigo Cabezas had, curiously the main adviser to the new Minister of Finance reportedly comes from that very capitalistic, oligarchic world of hedge funds.

While it may be too early to judge what they are doing, I am sure we are only seeing some of the things they want to do, it is clear we will get more news soon and the parts we have seen are parts of a larger picture. But so far there is a definite change to what they are doing and is in the right direction.

The first thing they did was to start selling structured notes into the parallel swap market. While this process is full of corruption and lacks transparency as I wrote earlier this week, it is clear that there is some method to what they are doing. Essentially, they have sold a huge amount of money into this market at a rate which is unsustainable. At US$ 150 million a week, Fonden will run out of their notes very fast and then the swap rate will jump up again, unless the whole idea behind it is simply to lower it to a certain level before a new policy is announced. (This week Fonden contributed US$ 2 billion to the China fund, further drawing down its funds). My theory is that they will simply announce the creation of a second official rate of exchange, but before they do, they want to lower the parallel swap rate to a level such that the arbitrage opportunities that have been present in the current scheme of exchange controls will go away. This huge arbitrage opportunity has been one of the biggest distortions in the system for the last two years.

This is clearly a step in the right direction as long as they play it right to insure that the swap rate does not jump up again in the future.

According to today’s El Nacional, and this is something that has been discussed before, the Government is also considering selling structured notes and bonds in the Caracas Stock Market. If true, this is a good step also. First of all, it removes corruption (which is why I am still skeptical that it will be implemented). Second, the Government will maximize the number of Bolivars it gets for each US dollar. Third, there will be a regular supply of dollars to the swap market.

Of course, there is a sort of artificiality anyway to all this, as what the Government is doing is recognizing that the official rate of exchange is not Bs. 2,150 but much higher. If the swap parallel rate stayed where it is today, it is still double the official rate and if the Government sells into it the average weighted exchange rate is much higher than the official one.

Of course, this policy will fail, if the Government continues generating monetary liquidity in the way it has for the last three years, but it is clear that the Government also wants to reign that in in various ways and that it wants to cool off the economy.

Yesterday, for example, the Venezuelan Central Bank increased regulated interest rates and their minimum as well as their caps. Credit cards will now have a cap of 32%, up from 18% and the maximum interest rate for lending and the minimum for savings have been increased. The effect of this will be to cool off the economy, contract credit demand and increase savings. This is also in the positive directions, even if the fact that it is all regulated and controlled is bad.

It is in the right direction, because it will encourage savings and reduce inflation as credit demand cools off. Part of the consumption boom, as well as the fact that people save in dollars was due to the fact that savings rates in Venezuela have been negative (less than inflation) for three years. They are still not quite up there, but when the Central Bank increases savings rates to 13%, commercial paper will come out at 20%, almost the same level of inflation. Only a year ago, people were issuing commercial paper at 7-9% and buying dollars, it was a bet that could not lose.

The problem in the end is that it is all controlled, so that if the Government does not react fast to changes, it may create other problems. It is a difficult equilibrium to maintain, particularly in an election year, the economy could cool off too much. In fact, while the Venezuelan Central Bank estimated GDP growth at 8.4% for the last quarter of 2008, apparently it was much lower, as Government spending slowed down in November and December.

Finally, in a somewhat unrelated area, the Government decided to control the country’s registrar’s and notaries. These institutions, have been out of control for decades as they had their own fee structure and compensation, making the positions very desirable as you could get very rich by running a registry of properties or a commercial registry in a city. Of course, the workers of the registries and notaries are going on strike on Monday, hopefully the Government will truly impose the reform.

It has not been usual in the last nine years for me to find something positive in the economic actions of the Chavez Government. While I still think the task facing them is daunting and very complicated, it looks like they are trying to tackle some of the problems and that in itself is good news. Let’s hope it does not stop there, although ideology will always limit their ability to reduce the distortions in the Venezuelan economy.