Archive for August 9th, 2008

As Chavez moves forward politically, the economy shows strains and distortions

August 9, 2008

Chavez’ full court press the last week seems to have taken
some people by surprise, but the handwriting was all over the place.

In fact, if anything, I was surprised by the fact that
Chavez did not do more with the Enabling Bill that he actually did. He had
promised a complete makeover of the of the Commercial Code (Codigo de Comercio)
which regulates how the private sector functions and could have done more to
hurt the private sector with one swipe. Most Bills may have been held up till the last minute simply due to the customary improvisation and lack of coordination by the Chavez administration.

Sure, the Bills on Food Sovereignty and Good and Services
provide a legal framework for expropriating anything the Government wants, but
it is not as if this has stopped Chavez before whenever he wanted something
because it was in his twisted mind “essential”.

In fact, yesterday was the one-year anniversary of one of
those whims of the autocrat when he took over the installations of the Avila
cable car, for which the owners of the concession had 24 years, left in their
contract. Curiously, those same owners have never said much in public until
yesterday, when they issued a press release telling us that the facilities are
in worse shape, attendance is down and they have not only not been compensated,
but their attempt to talk to the Government have not been answered.

Perhaps, like so many in the private sector, they have been
quiet in the hope they may
get something
(or a lot!) from the Government, but I guess they gave up by
now.  That seems to be the mode of
the private sector, remain quiet while they either make money or hope for the
best in that in the end if Chavez nationalizes them, they will be compensated
amply. Or some savior will suddenly drop from the sky, before the Government
takes them over.

In fact, if there is one puzzle about the Enabling Bill is
why didn’t Chavez wait to include the “Sapo” Bill in it and get it through
without any problem, rather than having to backtrack on it in June when it was
published? Some people actually think that was done on purpose to see if it
would fly alone, rather than create problems for the whole package.

Then there is also the mystery (or was there?) of why the opposition was not
more on its toes. In fact, when no Bills had been decreed two or three days
before the deadline, they should have seized the initiative warning that any
new laws needed discussion. But maybe it is too much to ask from their

I am still surprised the Government insisted on the bans for
those candidates that the Comptroller has ruled committed irregularities.
Having the Supreme Court ratify this mechanism creates a very dangerous
precedent for Chavista politicians. Even if someday, God forbid! -the
opposition managed to regain power; it would provide a very simple and
efficient mechanism to punish Chavismo for all of its excesses.

Then there is the takeover of Banco de Venezuela, which has
received very little criticism from either the opposition or the private
sector, which indicates to me that for politicians, nationalizations are popular,
so they avoid the subject, lest anyone think that politicians have any sort of
principles. In fact, calling this a “normal” transaction leads me to ask that
person: Normal, then what would happen if someone different than Chavez decided
to buy Banco de Venezuela and top Chavez’ offer?

The answer tells you what an idiot that guy is and that he
is simply covering his behind. And just watch what he says when other
nationalizations of banks or any other industry are announced.

But two things this week were interesting. First, food
inflation for the last twelve months came in at 49.3%. And there is no sign
that it is slowing down. This number is more significant politically in the
long run than whether the opposition wins 8 or 12 Governors in November. I still
can’t figure out how someone that makes minimum salary manages to make ends meet with such
high inflation, which has not been compensated in salaries.

The second thing that happened was that oil dropped once
again. Venezuela’s oil basket closed the week at an average of US$ 113, which
begins to get close to the point where Chavez has to think only of spending
money at home, which may not be enough to control the implosion of the
distortions in the economy.

And in trying to avoid such an implosion, Chavez went and
helped his Argentinean friends and may have discovered the trap he is in.
Argentinean Boden prices continued to drop on Friday, which I am sure
means that there is panic in the Kirchner circles
and they will bring
pressure on Chavez to stop the indiscriminate sale of the Boden’s acquired
“because we trust Argentineans”.

But the distortions are getting harder to manage and the
last thing Chavez wants to do is hold on to the billion or so in Boden he has
in stock and had meant to sell in the next five to six weeks.

And the Government has started spending, as monetary
liquidity has increased over 6% in four weeks, which will once again fuel
inflation and the parallel swap rate that the Government seems to be obsessed
with keeping down at unjustified levels.

And of course, people forget that Chavez has created
liabilities of US$ 15-16 billion when you add up the nationalozation of Petrozuata, Cerro Negro,
Sidor, Cemex, Lafarge, Holderbank and Banco de Venezuela. Not an easy Bill to foot particularly if oil prices keep tumbling.

And more to come…

And in mind, that is where the best hopes of the opposition lie,
in mismanagement catching up with Chavez and the economy imploding in his face,
which will be the best booster to the oppositions’ popularity. Even if they don’t
deserve it.