Observations focused on the problems of an underdeveloped country, Venezuela, with some serendipity about the world (orchids, techs, science, investments, politics) at large. A famous Venezuelan, Juan Pablo Perez Alfonzo, referred to oil as the devil's excrement. For countries, easy wealth appears indeed to be the sure path to failure. Venezuela might be a clear example of that.
Top left: This Cattleya Mossiae does not appear to know that it should have flowered three months ago. Not bad for its firest time, note the solid lip and the flaring. On the right a Cattleya Percivaliana named Gabriela.
On the left a Phalenopsis species, Phal. Cornu Cervi, anyone in Caracas that wanst one I have a few to trade. On the left a hybrid of Cattleya Broughtonia with Cattleya Bicolor.
In a country where the rule of law gets trampled more and more, Hugo Chavez announced today that tomorrow he will find a new way to do it when he plans to nationalize the cement companies in the country. There are three companies that will be nationalized, which are majority owned by Cemex, Lafarge and Holderbank. However, the ones under the control of Cemex and Lafarge trade in the Caracas Stock market and thus are subject to the Capital Markets Law, which Chavez plans to step over.
Under the Capital Markets Law, anyone that wants to take over a company, including the Government has to first tender at a specified price for all of the shares. This applied to and was use din the case of Electricidad de Caracas and CANTV, but Chavez is gettingt more autocratic by the day and has decided to skip this bothersome legislation even if it happens to be the law of the land. By the way, the same law applies to Banco de Venezuela, which is also publicly traded.
The nationalization of the cement industry is oriented exclusively to nationalize Cemex Venezuela. In fact, it is my understanding that there have been negotiations to reach an agreement only with Cemex and not with the other two. In the end Chavez will pay whatever he wants and the people in charge of the Comision Nacional de Valores will say nothing about the Law which they are supposed to defend.
Chavez is nationalizing the cement industry because he believes he will be able to build more housing as if that was ever a limitation. Once again the ignorant Chief Economist of Venezuela ignores the laws and destroys the value he has shown for ten years he is incapable of creating.
I own a few shares of Cemex Venezuela, so indirectly my assets are being nationalized and my rights are being ignored.
Hidden in page C3 of today El Nacional (by subscription) is a statement
by the Vice-Minister of Agriculture, who goes by the name of Richard
Canan, where this brilliant official of the Chavez administration says
that he rules out the possibility that price increases and the removal
of some prices from the control list as a cause of inflation. According to
Canan, this is a rotten statement by those who pretend to toy with the
hunger of the people and their anguish. Cana proceeds to argue that
with the measures taken by the Government of increasing the prices on
many times, many under control, prices will actually go down and there
will be no impact on the new “CPI”.
A few years ago, I would have blasted Canan, explaining his ignorance
and wishful thinking, but we have gotten used to such stupidity and
ignorance that it is no longer even worth discussing it. No matter what
Canan may say and argue, the people of Venezuela will never be
convinced by arguments that go counter to everything they experience in
their daily lives. Official inflation for Food and Beverages was up
over 49% for the last twelve months and it would be hard to convince
people that somehow this is being managed well by the Government.
In fact, price increases have been surprisingly high in the last few
weeks. I am continually amazed by how much pocket money I am
spending lately on the few items I buy with the cash I take out of the
ATM every week. I find that based on my particular expenditures, “my
CPI” is up over 100% in the last twelve months on what I spend, on
sodas, coffee, restaurants, fruit, bread and cheeses which is what I
typically buy with my pocket money.
And inflation remains one of the most significant problems facing the
Government and I really see no way out for it, without a substantial
burst in inflation before the problem can be mitigated. And I really
don’t see President Chavez taking the measures required to lower it.
Minister of Planning El Troudi looks simply incapable of doing much to
fix the problem, missing one inflation target after another, and seeing
inflation rise after trying to cool the economy in the first six months
of his tenure in the Ministry. As if inflation levels were not already
high, monetary liquidity, the amount of money in circulation which was
held constant until June 20th., has since then increased by 6.7% as the
Government spends in the face of the November regional elections in
order to increase its popularity.
The Government has very few tools to fight inflation at this point. It
has spent inordinate amounts of money to import food and other items at
the official rate of exchange, which has not changed in four years, and
this has not made a dent in inflation. It has lowered the VAT,
eliminated the transaction tax and spent huge amounts of money in
lowering the parallel swap rate, none of which has really meant much to
the structural inflation present in the system.
The fact is that the Government has created an atmosphere of fear and
controls that does little to promote production to satisfy the demands
of the population. And I really don’t see much that the Chavez
administration can do to change this. As long as there are threats to
private property and controls on prices, there will be little
investment by the private sector. And Government nationalizations and
interventions do exactly the opposite as these companies become more
inefficient and increase their costs. Just this week Sidor not only
asked the Government for more money, but it was also reported that its
output is already down 15% since revolutionary management took the
company over. That impacts inflation directly.
Then there are the effects of exchange controls which have not only
obliterated local production, imagine trying to compete for four years
with 25% inflation while imports are held at the same rate of exchange,
but introduce huge inefficiencies into the system. Companies simply
suffer huge delays in receiving foreign currency, which forces them to
temporarily go to the parallel swap market or simply delay or drop
production until some official in some of the ministries involved in
approvals takes the time to sign one of the dozens of approvals
required.
And then there are exchange controls. As long as they are in place, and
the difference between the official and parallel swap rate so large, it
will be difficult for the Government to induce or promote an increase
in local production which would have a significant impact on inflation.
No matter what you produce, from foodstuffs to products, the fear that
the Government will all of a sudden begin massive imports of whatever
you produce will always limit how much a company will expand its
production significantly.
In the end, the steps required to have inflation go down go counter to
the policies Chavez and his revolution stand for and believe in. Price and exchange
controls will stay in place, high spending levels will remain in place
as long as Chavez needs to prop up his popularity and the
inefficiencies and the threats to the private sector will never go away
as long as Chavez has a say in it.
Which is not to say that a new Government would be able to solve the
problem either. The solution starts by going through very unpopular
devaluations and removal of price controls which would generate a burst
in inflation that would hurt the popularity of anyone that implements
it. Add to that the populist nature of most political parties and ideas
in Venezuela and structural inflation is here to stay for the
foreseeable future.
Sad, because inflation is about the worst possible tax on poor people
who have limitations in expanding their incomes and spend most of it on
foodstuffs which always leads the local CPI. That is why I have always
been in favor of fully dollarizing the economy after a one-time adjustment in
prices. As long as oil prices stay high, Venezuela will not be very
competitive on anything but oil and dollarization of the economy would
at least provide a stable level of income to the poor, rather than the
instability and pain they have lived with for the last twenty-six years.
But I see no end to it, even if inflation may in the end represent
Chavez’ demise as it really gets out control in the next two years. In my mind, inflation and lower oil prices will lead to a sharp drop in Chavez´popularity, which will increase political tensions and instability in Venezuela.
While we have lost our ability to be outraged by the
corruption and the lack of ethics of the Chavez Government, few cases demonstrate how
putrid the Venezuelan State has become that the Maletagate scandal.
First of all, the facts of the case could not be denied, a
suitcase full of US$ 800,000 in cash, caught in a country friendly to Chavez,
arriving in an airplane chartered by PDVSA and filled with PDVSA employees and
Argentinean Government officials.
Despite this, the Venezuelan Government ignored the problem,
claimed there was no crime in Venezuela and only recently did the Prosecutor
move on the case.
But both Argentinean and US authorities did investigate the
case, leaving the Venezuelan Government totally naked in the case.
In Argentina, high-level Government officials resigned,
while in the US the FBI set up a sting operation that caught a bunch of the
leaders of the Chavista “boliburgeois” trying to extort the man with the
suitcase, Guido Antonini, into keeping silent.
Well, we heard little today again in the local press about the news revealed
in Miami that the lawyer of one of the defendants on the case told the paper that
the FBI had a taped conversation showing that the Venezuelan Government had offered to
pay Guido Antonini US$ 2 million to stay silent. The money, according to the taped
conversation, which will be revealed in the upcoming trial, was going to be
provided by none other than the county’s intelligence police DISIP.
Do you really think DISIP has the autonomy to make such a payment without approval from the highest levels of authority in Venezuela? Yes, including Hugo Chavez.
Of course, we will continue to get total denial and spinning
from the Venezuelan Government as all of the details of the case are quite
tangible and require little invention from US authorities.
But in the end, Antonini was part of the only suitcase that was caught
in a process where who knows how many suitcases filled of cash have traveled in
similar fashion. Billions, not millions of dollars to extend the reach of his
influence and popularity, while Venezuela decays morally and materially in the
name of Chavez’ empty revolution.
In any country with moral reserves, the Maletagate case
would have made heads roll all the way to the top.
In the shameless robolution,
we are supposed to believe it was an evil plot by the Empire.
The Government nationalized Electricidad de Caracas and
CANTV in 2007 and in one year the two companies have seen their earnings and service
drop sharply, but at least, they still make a profit. It will not last long, but
so far they have not become a drain in the Government and by proxy on the
people of Venezuela.
In contrast, steel company Sidor, nationalized only a couple
of months ago, is apparently already facing problems under robolutionary
management and the
new Board of Directors asked today that the company be declared in an
emergency and receive money from the Government.
That did not take very long to happen, didn´t it?
In fact, one reads what the Board is saying and the whole
thing is simply a farce. Sidor was nationalized by Chavez on a whim (What else
is new?) when Sidor’s Board would not agree on paying the steel workers a
monthly salary above that of a Full Professor at Venezuelan Universities.
Supposedly, this was unacceptable to Chavez, who had frozen the prices at which
the company could sell its products. So, he took it over, but has yet to pay
for it or even agree on a price.
Well, today, the robolutionary management team wants prices
to be increased, because the Government has held them down for too long, which affects the company. They are discovering basic economic principles really fast!!!
Funny, how these guys now defend price increases, now that
they are managing the company while siding with the Government earlier.
But to make matters worse, these guys not only want more
money from the Government, which had not put in a cent into the company for ten
years, but actually want money because they apparently have a business plan to
open hardware stores owned by Sidor which will bypass the middleman.
So, these guys are not only dangerous because they have no
clue as to what they are doing, but they even have a business plan that needs
resources. They are robolutionaries with initiative!A sure sign that the Government will drive Sidor into the ground
really fast.
Because the first thing the government did when it took over
Sidor was to put all of the workers under contract in the payroll, so that they
will get benefits as if they were regular workers.
So, as Chavez takes over more and more private sector
companies and they fall under robolutionary management, they are managed
inefficiently and incompetently and they add to the deficit, contribute to inflation and use resources that
could have been used to reduce poverty, improve healthcare or so many other things
that the “owners” of the country, the people, truly and sometimes desperately need.
It’s all part of the clueless robolution, under the guidance
of Chief Economist Hugo Chavez.
In the last few days, El Universal has had a series of
articles beginning
with this one, on the abuses by high Chavista officials of the system which
gives and finances homes to Venezuelans. The reporter cleverly used the website of the Ministry
of Housing to discover that a number of high Government officials of Chavismo
have benefitted from the Government’s housing program. Essentially he used the ID numbers of high Government officials to see which benefits they may have received and where. In fact, the reporter
found out that some of them like multiple-Minister Eliezer Otaiaza benefitted
beyond what the law allows, receiving the housing benefit more than the one
time allowed by law.
Otaiaza’s case is the most emblematic; as he was given a
mortgage two months after he purchased a fairly fancy home from the Government. A similar
case occurred with the Minster of Feeding who benefited from a mortgage in 2000
and now received a townhouse in the same complex as Otaiza in the Tazon
entrance to Caracas. Other high ranking military and former Ministers have also
benefited from the Government’s largesse.
As usual, those that benefited seem to find nothing wrong
with it, with one Minister saying that he is entitled to it, while Otayza says
that the mortgage was not for a residential property, but for “an apartment
where I have a library and a sort of office where I prepare talks and
conferences”
Wow! In a country with a two million home shortage Mr.
Otayza clearly shows and displays his revolutionary spirit and sensibility as well as his concern for
the poor.
Which is nothing new, as Mr. Otayza jumped from one
Government position to the other, building himself a luxurious gym next to his
office at each new position in a clear show of his absolute disregard for ethics
or care for the people of Venezuela.
But what the reporter has not noted in his articles is the
fact that it was absurd for the Government to be involved in the building if
this housing complex in the entrance to Caracas. The complex is actually a
fairly luxurious complex of apartments and townhouses named “Bosque Valle” which
had no place in the priorities of the Government’s housing projects.
Because it makes no sense for the Government to be
subsiding, financing and building these homes for the benefit of its high
officials, while millions of Venezuelans live in shacks due to the incompetence
and inefficiency of the Chavez administration.
Because while the Government twists, distorts and fakes
poverty and literacy numbers, there is no place to hide when it comes to the
dismal record of the Chavez Government in building and providing housing for
the people of Venezuela. The numbers released by the Chavez Government
numerically prove the abysmal results of his administration: Despite the oil
windfall, the Chavez Government in its BEST year, has
not been able to build as many housing units as the Caldera Government in
its WORST year. (And that Government was terrible!)
And despite Chavez’ pressure, promises and dozens of
Ministers of Housing, the Chavez administration has been unable to build
100,000 units in any of its ten years in power (almost eleven now!), something
that Caldera almost did in 1997 and much-maligned Carlos Andres Perez
practically achieved in 1992. In fact, Chavez has never even reached the
50,000-unit level in any year, the average during the “terrible” years of the
IVth. Republic, when oil prices barely touched US$ 15 per barrel.
But of course today we get a new promise form the former
Minister of Culture Francisco Sesto, now Minister of Housing. that in eight years
he will solve the country’s housing problem by building 200,000 units a year.
Sesto is actually an architect who has never cared about the
subject of Housing or Urbanism, but after destroying the country’s culture now
plans to use his incompetence and destructive powers on housing.
And we are supposed to believe him.
Because it was Chavez that said ten years ago that he would
solve the country’s housing problem in the next ten years. But despite much
higher oil prices that he ever dreamed of, during Chavez’ tenure the deficit in
housing has actually increased and he has managed to destroy the capability of
the Government building housing through mismanagement, political clientilism and inefficiency.
But there is efficiency by the robolution in building
luxurious complexes like “Bosque Valle”, assigning the units to Chavez’ closest
collaborators and even allowing them to move and expand the units even before
they obtain the permit to occupy the units.
It is robolutionary housing at its best.
Just for the record, the paper “Analysis of the 2004
Venezuela Referendum and the Relation between the Official Results and the
Signatures Requesting it on automated centers” by Gustavo Delfino and Guillermo
Salas has been accepted
for publication in the Journal “Statistical Science”. (You can download the
last version there)
I discussed this paper in
this blog before and have always believed that anyone that takes the time
to understand Figure 3 will never believe again that there was no hanky panky
in the 2004 recall referendum. The paper concludes that the results of the vote
were not accurate and that there were significant issues associated with the
results of the automated centers which showed and excessive correlation with
the results of the recall petition signatures. They also show that the conclusions
of the Carter Center report are exactly the opposite of what is found in their
paper.
Curious that a
Chavista Deputy goes to the Supreme Court to ask for an injunction to block the opposition mayor of Naguanagua in Carabobo State
from running to be mayor of the city of Valencia and the Court accepts the
injunction and nullifies an article allowing people within a single
municipality to run in the other, but in the process ratifies that candidates
have to be residents of the city they are running in for the least the last three years.
Curious because if the
idea was to block opposition candidate Julio Castillo of Proyecto Venezuela
from running, with the decision the court also reminds the CNE about the three
year rule which applies (And was not respected) to two of Chavez’ most visible candidates in the
Metropolitan Area of Caracas who are in the same situation, former CNE President and country’s Vice=President Jorge Rodriguez for
the Libertador District of Caracas and fomer multi-Minister Jesse Chacon in the Sucre District.
The Court is clear, in
reasoning the case of the municipalities, it says:
“A propósito de lo anterior, el artículo 85 de
la Ley Orgánica del Poder Público Municipal exige como uno de los requisitos
para ser Alcalde o Alcaldesa residir en el municipio de que se trate, durante
al menos los tres (3) últimos años previos a su elección”
which can be translated
as:
“Speaking of the above, Article 85 of the Ley Organiz del Poder Publico
Municipal, demands as one of the prerequisites to be Mayor to reside in the
municipality involved during at least the last three years prior to the
election… .”
What is most puzzling
is that the decision seems to go against precedents in Metropolitan areas which
are regulated by the Suffrage law which gives a wider definition of residence
to the whole Metropolitan area, while it is the Constitution which requires the
three years of residence in the city for which the person is running for Mayor.
Of course, maybe the
whole thing is a Machiavellic plot by Chavismo to get rid of two candidates who
reportedly are not taking off and replace them without giving an image of
division or dissent within Chavez’s PSUV.
In fact, a pro-Chávez
member of the Electoral Board said the CNE would have to respect the decision,
while the lonely voice of the opposition within the CNE Vicente Diaz, said that
the CNE should appeal the decision as the exception for Metropolitan areas has
been used in previous elections.
But then, just when I
am puzzling over the whole thing, out comes Jesse Chacon and saying it doesn’t
apply to “us” because they have never been Mayors, as if the residence
requirement had anything to do with the Art. 85 mentioned above. The law
happens to be the law.
But who knows, maybe
the CNE will allow Rodriguez and Chacon to run and block Castillo, since the
law is not applied uniformly in the revolution. Of course, now comes the President of
the CNE and backs Chacon’s interpretation.
Does Article 85 of the
above mentioned law only exist if the Court rules that it exists?
Not much surprises me
any more.
These are some questions I have been pondering about that I would ask Hugo Chavez if he called me (I will not call him!):
—When are you going to condemn Russia’s imperialistic invasion of Georgia?
—Why didn’t you go to Beijing, all other world leaders are there?
—Why did you introduce in the Tourism Law the possibility that YOU may change the day in which holidays are celebrated?
—Did you really cancel today’s Alo Presidente because of the Olympics or did you just have diarrhea?
—If all PSUV’s candidates for November can be changed at any time according to Diosdado, what was the point of the Primaries?
—Shouldn’t you have changed the name of the People’s Ombudsman to the Government’s Ombudsman?
—Do you really plan to nationalize the food division of Polar?
—Aren’t you worried Comptroller Russian may disqualify you from running?
—Do you plan to sell Argentinean bonds next week?
—Does the Miami trial in September of the Maletagate defendants worry you?
—Do you understand what inflation does to poor people?
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
strategists.
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.
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