The Devil's Excrement

Capitalism, Socialism, Oligarchs, Revolutionaries, IVth. Republic, Vth. Republic. It is all empty words, rhetoric for Venezuelans when you see the plot below which shows oil export revenues (in blue) and oil export revenues per capita (in red) from a presentation by Economist Miguel Angel Santos:

As you can see, oil export revenues per capita are still below the peaks of the 70’s at US$ 3,500 per capita. So people felt better in the 70’s because of this and these same revenues keep people going today. But little has changed, there was no model then, there is no model today.

It’s the Devil’ Excrement.

If one reason to vote Si in the upcoming referendum is to pay back Chavez’s love, because “you pay love with love”, a reason to vote No is that Chavez’ hate begets hate too and a shameful act of desecration took place last night.

After the approximately fifteen men subdued the guards at the synagogue, they spent about five hours destroying property, including throwing on the floor the sacred Torah rolls and painting the walls with anti-semitic and anti-Israel slogans.As the armed men left the synagogue they were shooting int the air and a rabbi said some of the cars were police patrol cars.

While the Government tried to distance itself from the acts, it is Hugo Chavez and his Government that have introduced anti-semitism into politics and Venezuelan life for the first time in history. Recall that Chavez’ mentor Norberto Ceresole was a rabid anti semite and Holocaust denier and that the Venezuelan Government has twice raided the Hebraica Club in Eastern Caracas and twice broken relations with Israel.

The jewish community in Venezuela has dwindled since Chavez came to power and as the President of the Asociasion Israelita said today “We feel threatened and now attacked”.

This is another violation of the international law, the laws of Venezuela and an additional violations of the human rights of a group of people instigated and promoted by Hugo Chavez himself.

It is another shameful day for Venezuela.

A couple of weeks ago, Quico showed a plot I sent him of monetary liquidity (M2) in US$ divided by Venezuela’s international reserves going back to 1994. M2 is a measure of all of the bolivars in circulation in Venezuela at the official rate of exchange. Because the results were so interesting I decided to go back even further to the 70’s when Carlos Andres Perez was President and the exchange rate was held constant at Bs. (old ones) 4.3 per US$.

Getting all of the data was not easy as the Central Bank had gaps on the exchange rate but I managed to fill all of the holes and the result is shown above.

One can think of this plot as how much backing the Bolivars in circulation have. A value of 1.0 simply says that for each dollar in international reserves there is one dollar in Bolivars in circulation. Thus, at a current value of 3, the plot says that only one third of the Bolivars in circulation are backed by the country’s international reserves.

As you can see the value of 3 has only occurred once in the country’s history, right before what is known as the “Viernes Negro” or Black Friday when Luis Herrera Campins had to do away with the Bs. 4.3 per US$ and the currency devalued dramatically in the ensuing months.

I have noted with red arrows the big devaluations that occurred during this time period and as you can see, except the devaluation by Chavez (more the release of the band system in place at the time) in 2002, all of the other large devaluations were preceded by a sharp rise of the ratio (M2/International Reserves). (Some people like to plot the “implicit” exchange rate, that is how many Bs. in circulation there are for each dollar at the Central Bank, the problem is that this gives you no standard measure due to devaluations to compare things in time, thus looking at this ratio makes historical comparisons better, in any case this “implicit rate today is Bs. 6.56 per US$)

However, as you can see, a sharp rise in M2/Reserves does not suggest a devaluation is imminent, just that it is coming. My sense is that the graph says that Government’s should not let this ratio get so large so as not to get in trouble, but they usually do and eventually there is some crisis that forces devaluation. Luis Herrera held off the crisis and the ratio got so large, because the Fondo de Inversiones de Venezuela had some US$ 30 billion abroad and PDVSA was allowed to keep its excess dollars abroad. As the crisis ensued the Government grabbed the FIV’s money first and later forced PDVSA to send all its dollars to the Central Bank. Once the Government went through those, it was just a matter of time before the currency collapsed in the worst devaluation ever. (The size of the drop each time tells you how large the devaluation was)

Lusinchi on the other hand, left the second Carlos Andres Government essentially no international reserves forcing it to devalue, it was a case of the denominator going to zero, rather than too many Bolivars chasing too few dollars, there were simply no dollars to be had.

Caldera on the other hand had dollars, but inflation was getting out of control, as too many Bolivars were chasing too few goods. When Caldera decided to devalue, inflation was running at over 100% when you annualized the monthly inflation of December 1994 and January 1995.

This is what we are seeing these days. Inflation is accelerating as M2 grows and the sustainability of such a large M2/Reserves has been made possible by the large oil income that has kept reserves large, as M2 has grown excessively. But now, oil is not only sharply down, but the Government just removed another US$ 12 billion from reserves. The Government does have US$ 20 billion in various savings accounts like Fonden, Bandes and PDVSA, but in reality the “real” rate of exchange is not Bs. 2.15 per US$ as the graph assumes, but much higher.

Because what the Government has done is implement a “stealth” devaluation in which fewer and fewer items are given foreign currency at the official rate of exchange. At the same time PDVSA now, Fonden in the first half of 2008, intervene in the parallel swap market selling US$ at the swap rate which is over 2.5 times the official rate. This large arbitrage distorts things in the economy and commerce, drives inflation up and eventually will force the Government to devalue.

And the ratio will go back down to its normal levels…

If I did not know Felix Tapia and what a serious and responsible guy he is, I may not have believed this pamphlet which is being distributed around the country of the Ten Reasons to vote Yes for Hugo Chavez. If this pamphlet works, then it is clear that I have a very good BS detector and most people don’t. I simply had to translate this garbage for you:

1. Because Chavez loves us and love needs to be paid with love.
2. Because Chavez loves us and is thus incapable of harming us. If he proposes the amendment we know, we feel, he does it for our own good, that of the country and the revolution. He has demonstrated total unselfishness when it relates to the good of the people. Let us remember he placed his military career at risk to get us out of the hopeless black hole that the Government’s of the IVth. Republic used to be. None of the oligarchs has taken the risk for the people and his cause, on the contrary at the first sign of difficulties they shake like headless chickens and run to an Embassy. We now see impostors making themselves look like friends of the humble, they have always looked down on us and they have never sacrificed anything for the poor.
3. Because Chavez and us are one in our goal of providing the citizens with the largest amount of happiness possible. The people with Chavez acquire acquire true power, which is to fuse ourselves with the person governing, be one alone with him, conquering the true Government of the people.
4. Because we are all Chavez and and we express ourselves in him and and with him. To vote with Chavez is to vote for us.To vote for the oligarchs is to vote for our executioners.
5. Because together we make mistakes and together we get it right. With Chavez we are making a Government that is people and people that are Government. Together we begin the beautiful adventure of building a world where man can realize itself with no other limitations than his own abilities.
6. Because when we approve the amendment we strengthen Chavez and strengthen ourselves so that we can purify, rectify and advance, all within the revolution. And without the revolution the hope of the humble dies, we will enter the abyss reserved to the people that surrendered themselves to the praises of their predators.
7. Because without Chavez we will lose the opportunity of showing the Continent, showing humanity, that the path to hell that capitalism proposes can be avoided, that there is hope, that a viable and happy world is plausible, that humanity has a future.
8. Because if the oligarchs govern again, it will be a Government of owners against the humble and destitute, then we will be reduced once again to the life of material and spiritual misery that we had in the Fourth (Republic). Without any hope!
9. Because without Chavez we will postpone once gain the Bolivarian dream. The days of San Pedro Alejandrino can not be repeated, now we will be Paso de los Andes, Ayacucho Carabobo. The memory of the Liberators will not be dishonored. The people do not hand over their kids or their leaders, they don’t exchange their dignity for a plate of lentils.
10. Because with the amendment we will be showing: That we are people that deserve the opportunity to build a world where human relations are determined by by fraternity and love. Never again shall we be negative people, selfish, small, that exchange their future for little mirrors, for sand, for the promises of its executioners.

There you have it, this is all so ludricous, that if you can find one or two of the reasons that you agree with, I think you should consider voting for the SI!

And Teodoro Petkoff responds to the press conference by General Gonzalez Gonzalez:

Sr. General Gonzalez Gonzalez, you responded to our editorial yesterday, addressed, by the way, very respectfully to your person. I am not going to lower myself to the same level you invite me to, which is to disqualify and insult. You pointed me out as a “liar” , as a “deserter” and accused me to be “at the service of treason and anti-homeland”.

You qualified our paper as “junky paper” and a “pamphlet. A curious pamphlet this one which has deserved the honor of a public response from you, accompanied by a group of high officials and the Vice President, from no other place than the Miraflores Palace itself. I thank you for the honor and I am sorry that you spiced it up with personal adjectives that have nothing to do with the problem. With that, you lost, not me. The tone of our Editorial was inviting a serious response, because it is far from our mind to attack the Armed Forces, but it is to point out, side by side with the acknowledgment we made of the “impeccable behavior” of the majority of the the officials of Plan Republica, those cases which are not few, in which officials assumed in recent electoral processes, behavior that is contrary to what it is said in the Constitution and the laws that guide the Plan Republica.

Allow me to ratify such cases because they are true. Moreover, you yourself stated that supposedly, it would be the role of the military to “revise credentials” of witnesses and members of the electoral polls. Well, you are wrong, Sr. General. The revision of the credentials of witnesses and members of polling tables is the exclusive competence of the personnel of those  poling stations, which are all civilians. The Suffrage law establishes clearly that the members of the Armed Forces as part of the Plan Republica have no other purpose but to maintain public order. The law does not give them the attribute you refer to of verifying credentials and determining who may be or not be a witness. That is the exclusive attribute of the President and the members of the polling table. We repeat: You were wrong on that.

We ratify, Sr. General, that there were cases in which electoral polls that had reached closing time without the presence of voters in line and thus should close down the voting process, were forced to and/or there were attempts to force them to remain open, in some cases, to give time so that voters transported by Chavez’ party could arrive. Indeed, Sr. General, as you said, it is only the competence of the Electoral Board (CNE) to establish extensions to the voting process, not the Armed Forces, but unfortunately there were cases in which some officials took that attribute upon themselves and pretended to decide up to what time such polling tables should be opened. You were right, Sr. General, when you said that once a polling table is closed down, within the legal schedule, it can not be reopened. Unfortunately, Sr. General, there were cases in which some officials pretended to (and in some cases they managed it) open the polling stations that had been closed after the time was past and with no voters in line, so that a group of voters transported in a rush by activists of the ruling party coul cast their ballot. All of these cases were denounced to the Electoral Board.

It seems to us Sr. General, that to point out these irregularities not only does not constitute an “attack” on the Armed Forces, but it should have been received as a contribution so that the role of the armed forces is not distorted by some officials that assume the position of political parties, which are constitutionally banned to the armed forces.

Finally Sr. General, I would like you to show Venezuelans in which article of the Constitution it says of the Aremd Forces that “it is at the service of the revolution”, as you allowed yourself to ascertain. I am sorry, but Article 328 of the Constitution says in extremely clear fashion that “In the fullfillment of its functions (The Armed Forces) are at the exclusive service of the Nation and in no case at the service of a person or any political partiality“

In the first serious poll to come out after Chavez decided to include all elected positions in his indefinite reelection proposal, Datanalisis reports that the pro-Chavez Yes vote is slightly ahead by a margin close to the margin of error. According to this poll, if the vote were held today, the Si would get 51.5% versus 48% for the NO. The poll was made between January 13 and 18th. before the recent repression to student protests and Chavez’ threats against the students.

The bad news is that the opposition seems to have squandered its 17% lead in only one month by the lack of  a focused campaign, while Chavez has used all of the resources of the State to promote his position. Unfortunately in polls, one has to watch the trend and the trend is right now very unfavorable to the NO vote and the opposition.

My concern is not that Chavez will be eligible for reelection, I really don’t think he has a chance if oil prices stay down for a while, but the fact that a win will propell him to move forward with his project and the deepening of the economic and moral destruction of our country.

• PDVSA is late in making payments to suppliers and companies that provide services to it. Sorry, I should say PDVSA is very late in making payments to suppliers and companies that provide services to it. How late? So late, that PDVSA today seized a drilling rig owned by ENSCO, after ENSCO decided to stop drilling unless PDVSA paid it the money it is owed.

• In the first 23 days of the year CADIVI, the foreign exchange control office had paid up US$ 839 million for travelers credit cards almost a quarter of what it paid in 2008 when the travel quota per person was twice as large. Clearly, Venezuelans have become quite adept at playing markets and arbitrage. Oligarco Burguesito lives on!

• And how about funny man Rodolfo Sanz, President of CVG saying that the aluminum companies are almost collapsed. According to Sanz rhe companies are obsolete, have huge debt with suppliers and need about US$ 3 billion to save them. What is the main problem? That the price of aluminum has fallen 66% and the stuff is being sold below cost. Well, in July 2008 the price of a Ton hit an all time high and we never heard Mr. Sanz talk about investing or anythig like that, no?

• And another one of the famous Chavez announcements came to nothing, as Brazil’s Petrobras says it will go alone if PDVSA does not participate as it becomes increasingly clear that PDVSA is not that interested in the project.

• And the shortages of coffee, sugar, milk and toilet paper are of course blamed on a conspiracy to sabotage the upcoming referendum vote. If rather than blaming it on conspiracies they worried about why this is happening maybe they could ease the problem. Additionally, maybe since the whole Government is working on the referendum, nobody is paying attention to unimportant things like importing food. Brace yourself, it will only get worse. I can live without coffee, sugar and milk, but toilet paper? No way…

Housing has been a true puzzle under Chavez. Despite the billions of dollars in revenues, the Hugo Chavez Government has been unable to build more than 50,000 housing units on any given year, despite the fact that in the hateful days of the IVth. Republic, 50,000 was considered to be a “bad” number. Caldera II, as an example, considered to be a terrible Government by all, managed to build more than 40,000 units in 1994, a cataclysmic year for the Venezuelan economy. And in 1997 and 1998, despite what is now extremely low oil price levels, Caldera II managed to build more than 90,000 and 60,000 units.

Venezuela is estimated to have a shortage of about 2 million housing units, so that the problem of building housing has always been considered to be a priority by all Governments, including Chavez’. This Government has gone through many Ministers of Housing, but somehow none of them have been able to do a decent job. Not that Chavez has not given it the priority it requires, as year after year, the Venezuelan President announces ambitious goals for housing.

But it just does not happen and last week the Government announced that it had built only 23 thousand plus units in 2008 and once again it projects that it will build over one hundred thousand houses in 2009.

But what is the problem? I have talked to many people about the subject and everyone seems to blame something different. When Hugo Chavez came to power in 1999, the people he named to the Ministry of Housing had the outlines for a very ambitious project to build between 1.5 and 1.7 million housing units and if my memory serves me right the price tag was US$ 60 billion.

Remarkably, at the time such an amount was considered to be a little bit too large, so the plan was to obtain multilateral financing for it over the next five years and devote fairly large amounts from Government resources to it. The idea was that the plan would have a two fold effect: It would not only build the housing, but would become a driver for the economy. Of course, given the high oil prices of the last few years, it would have been rather easy to implement the plan without even borrowing the money.

So, what went wrong? Mostly that the experts Chavez first appointed to the Ministry of Housing were not loyalists and they were quickly displaced by more hard core Chavistas, many with no expertise, including the current Minister Farruco Sesto, who was Minister of Culture for a few years before being moved to Housing. Sesto is an architect by profession but has expressed all his life that he is not interested in urban matters. But Chavze even announced his Mision Vivienda in 2005, but we have never heard anything else about it.

My understanding is that the Government has never assigned huge amounts of funds to housing, believing instead that forcing banks and the like to lend to housing would help in increasing the number of units built each year. On top of that, the Minister of Housing has apparently been terrible at assigning funds for projects and deciding who gets how much and every time a new Minsiter has been appointed, he has suspended projects until he could understand the situation. Then, there is of course corruption, with funds spent erratically and not always assigned to those that have the best capabilities.

But in the end, none of the people I talked to understands the ineffectiveness. Each one blames a different aspect, but in the end suggests that the number of housing units built should have been much higher. some of them always expeceted the next year to have a boom because the number was so low and then nothing.

Thus, the low numbers remain a puzzle and are probably due to a combination of leack of epertize, management, corruption and the like. One person I talked to today even suggested that the Minsiter of Housing did not execute even half its budget in 2008 and the funds are now part of Chavez’ Miranda V fund, a sort of huge petty cash fund Chavez has that we know little about. Maybe he should use it for housing…

Even as inflation hits 200 million per cent, the Head of Zimbabwe’s Central Bank, still thinks he has done a good job (including helping solve the cholera epidemic), proving autocrats will always defend what they do. So, get ready!