The Devil's Excrement

If it ever was difficult to understand what is going on in Venezuela it is now. In the face of adverse polls that suggest he will lose an illegal second referendum that would eventually allow him to be reelected, Hugo Chavez changes his tune, allowing other elected officials into the package and begins provoking, lying and using silly charegs of treason against some members of the opposition as if plotting a strategy and meeting with experts in an election was somehow illegal.

So, we may ask, what is the point?

Because time seems to be too short to overcome the difference in the polls. Even the absurd question that will be asked in the ballot at the referendum is so bizarre, obtuse, absurd and unintelligible, that at times, it seems to me as if the strategy is actually not to hold the referendum.

But is it? I just can’t tell. In some sense the Obama inauguration limits Chavez’ ability to do something dramatic against the US, it would have no justification. Gaza seemed like a good topic, but while the opposition did not say much on it, it did not attack Chavez’ decision frontally either, so it was hard to use that as an excuse.

So, start provoking the students and make up silly emails against opposition figures, who seem to use code for some characters in their emails, but make sure that others are easily identifiable. To top it all off, they use company emails in a world where it is trivial to open dozens of fake email accounts all over the place.

Then, get up and state with a straight face, that there are no longer street kids in Venezuela, because Chavez actually solved that problem. Or that food inflation is zero (yes he said zero, cero) for those that buy in Mercal, as if the Government did not approve dozens of price increases in 2008 and the Venezuelan people were dumb enough to believe what he says.

Of course, there is no mention of crime and the daily threat it represents to the average poor Venezuelan, or that poverty is now measured differently to improve results and is nowhere near the lows in the much maligned and ever reivindicated IVth. Republic, when oil revenues per capita were not what they are today.

So, what is the intention? Provoke to divide? Provoke to delay? Lie to convince? Pulling all the stops to overcome the deficit?

Maybe it is just all of the above…

Chavez knows he is behind and the difference may be unsurmountable, but…

If he provokes, divides, lies, buys votes and cheats..maybe, just maybe, the inevitable can somehow be avoided.

And if not, maybe we can postpone too…If we can show the opposition is conspiring because they are trying to beat Chavez, the students are just pro-US pitiyankees and Chavez has saved us all, maybe we can make it close enough for the CNE to save the day.

It is just like the way they are managing the economy. It is a huge Hail Mary pass to try to save it all in one try. For the economy, it is oil, if oil recovers before June, the revolution is saved. If not it is in huge trouble. For the election if they can close the gap, maybe Rafael Ramirez can go spend PDVSA money and buy votes nationwide rather than just in Sucre State, the CNE can swing some votes or stop counting and we can get our hands in enough refrigerators to give away and save the day.

The whole thing is simply too bizarre  for someone confident that he even has a chance. Thus, the strategy is surprise, confront, provoke and hope for the best. Don’t let the opposition develop a strategy, keep them off balance. Cheat, lie, deceive and do whatever is necessary.

Which is what worries me. Chavez and his Government have proven to have no scruples in all this. Violate the Constitution, change your mind, violate the law, violate people’s rights, accelerate the process, don’t let anyone new register to vote, forget about doing anything about the economy until the vote is over.

What else will hapen in the next four weeks? What new suprises, rabit out of the hat, challenges and lies are we going to see before February 15th.?

Scary, isn’t it?

Every exchange control system has led to huge levels of corruption in Venezuela. CADIVI is no different. What is different this time around is the lack of checks and balances and fear. With other Governments in the past, reporters would denounce graft, an investigation would be opened and even if those responsible were not punished, those involved in the graft would stop doing it or try to hide it even more. This is no longer the case. Under Chavez, few things are ever investigated and the media is afraid to report things. Moreover, even if you knew all the details, who would you go to? The Prosecutor? The Comptroller? There really is nobody to go to as everything gets covered up even when Chavez and his Government know things are going on. In fact, Chavez has removed people from CADIVI, but quietly. He has also gone after one case, the infamous Microstar case, but this seems to be more about getting someone out of the way, rather than corruption.

So, without much further ado, here is a guide to CADIVI corruption:

• The Straight Bribe: This is the most common case. Want to accelerate your CADIVI request? Maybe a payment of Bs. 0.15 to Bs. 0.3 will speed it up dramatically. As someone I know told me: There is a CADIVI guy with a very fancy car and a nice house in Florida and I paid for most of it. Except for food and medicines, if you don’t go the straight bribe way, you are likely to see huge delays.

• The Inflated Invoice: Import something, but have your supplier inflate the price, without overdoing it. Then have your supplier keep the difference abroad and you can either keep that or bring it back at the swap exchange rate thus reducing the costs. You can avoid this hiring specialized companies, but most of them are American and we want no official dealings with pitiyankee companies, so we don’t use them. This is a revolution.

• The Forgotten Debt: In contrast to all previous exchange controls, this Government has given out foreign currency to pay debt. Find a business that is bankrupt or under impossible conditions to pay back the debt, buy the debt for ten or twenty cents on the dollar and then go to CADIVI and ask that you get paid the dollars at Bs. 2.15 per dollar. You will have to pay a little for this, but the margin s so huge it is worth it. This mechanism is practically exhausted as most of the debt available has been found and paid for at a huge profit.

• The Official Export: Find something you can get the Government to sell to you, say a Diesel tanker, an iron ore barge or a steel products, but pay them at international prices, but at the official rate of exchange. Turn around and sell the goods abroad in exchange for US dollars and turn around and sell the dolars in the swap market. Huge profits, just need the contact at the appropriate Government industry. CADIVI does not even have to get involved as long as you can get the export permit.

• The Carousel: Find something innocuous to import from Colombia, let’s say school notebooks, not food or anything that will get custom officials suspicious. Import it form Colombia at the official exchange rate of Bs. 2.15 per US$ and ship with a truck via one Colombian border point and immediately send it back to Colombia via another. Start the process again, getting import permits to bring the trick back. Same stuff, you just never sell it, just recycle it and move it around like a carousel.

• The Phantom Container: Set up a company in Panama that sells widgets. Get a permit to buy a couple of million dollars of widgets from it. Bring in a container full of boxes of widgets, but just fill the outside boxes with widgets, the rest are empty boxes. You get a couple of million to bring a few thousand dollars of widgets. The rest is pure profit.

• The Nouveau Travel Agent: Set up or buy a travel agency. Find people who have credit cards but cant afford US$ 5,000 for travel (plus a cash advance of US$ 500). Promise to take them to Panama, Aruba and the like, pay their hotels for a couple of nights and arrange a way to get them all of their quota. You pay their expenses, give them some cash and you keep 60-70% of the dollars purchased at Bs. 2.15 per US$, which you sell at the swap rate which is almost triple that.

• The Software Reset: I am told this is no longer being offered as new software is in place. But it used yo be very simple:You would pay somebody a fee to reset your quota so that it appears as if you have yet to spend your foreign currency. You can then travel again and take advantage of the Government’s largesse.

Have a different one that you know about first hand? Let me know…but you can see how huge fortunes have been made in the name of the revolution, but there is nobody to keep it in check.

• Between Dec. 29th. and Dec. 30th. Venezuela’s International Reserves went up by US$ 5 billion, which remains largely unexplained until today. Obviously, this was some last minute manipulation by the Government. In the old days, PDVSA was obligated to turn over to the Venezuelan Central Bank all of its foreign currency, except what it needed for expenses. This is no longer the case, so there is little transparency as to what the numbers mean.  My theory is that this was done in order increase reserves so that Chavez can get away with withdrawing this month US$ 7 billion from reserves and give it to development fund Fonden and today El Nacional gives a very confusing story that seems to confirm my theory. The story says PDVSA owed the Government a dividend from 2007 and some of the money came from Fonden.
• Inflation for the year did indeed close above 30% whether you used the new and improved national index the INPC, up 30.9%, or the old Caracas CPI, up 31.9%, a little bit off the initial Government target of 11% last January (Cabezas even talked about 3% at one point), 18% in June and 27% in September. More ominously, Food and Beverage prices were up 41.6% according to the INPC or 46.7% according to the Caracas CPI. Of course, the Minister of Light Industries and Commerce came in with his revolutionary and idiotic theory that the poor are not affected by inflation as much as the rich because the poor purchase their goods at Mercal, as if controlled goods were not at the heart of the measure of the CPI. (Which ean inflation is higher) Moreover, the fraction of a household budget spent on food is much higher for the poor than for the better to do. This shows how indolent and ignorant these officials are.
• And PDVSA announced that it will cut 189,000 barrels a day of production in January to comply with OPEC’s cuts. However it said it had cut in October and November, 46,000 and 129,000 barrels a day, but the November and December OPEC reports showed cuts of only 29,000 and 20,000 barrels a day. Moreover, the cuts seem to have been imposed on the joint partners projects which are being asked to cut 20% of their production. The good news is that if OPEC keeps cutting, PDVSA and the Government will have to stop lying as their virtual production, now at 3.1 million barrels of oil a day, will converge to the real production of around 2.4 million barrels of oil a day.
• And funny man Juan Barreto, the former Metropolitan Mayor of Caracas, authorized additional expenditures for US$ 87 million in the week after his party lost the election. I wonder if the Comptroller will ban him from running for office in the future. The new administrators also found more than 500 phantom workers in the Metropolitan mayors office. These workers had no formal functions except to be ready to receive orders from three Deputies of the National Assembly to mobilize for spontaneous protests as well as providing protection for political figures.
• And monetary liquidity, M2, the measure of how many Bolivars are out in the Venezuelan economy closed the year at US$ 89 billion, up from US$ 71 billion on January 1st. 2008, or an increase of 25.2% for the year. In order to attempt to sterilize this, the Central Bank had issued by the end of the year a total of US$ 24.7 billion in short term CD’s to the banking system. And the Government wonders why there is so much inflation…

In order to leave no doubt that Venezuela is living in an autocracy, the Venezuelan Electoral Board (CNE) today approved which Electoral Registry will be used in a future referendum that has yet to be approved and/or requested by the Venezuelan National Assembly. Of course the request  is coming, but the problem is that if Chavez is to get his illegal way and hold the referendum on February 15th. , everything has to be accelerated. Thus, the CNE approved that the Registry that will be used if/when/whenever this referendum occurs will be the Dec. 11th. Registry.

Which of course is absolutely unconstitutional…

Because Art. 64 of the Bolivarian Constitution of Venezuela says that any citizen eighteen years of age has the right to vote. This has always been interpreted as anyone who is 18 on the date of the vote, can register to vote and will vote in that election. Not doing this violates their rights.

Except for this referendum, because Chavez is above the law and the Constitution and his whim has to be satisfied.

Legality can only be complied with by opening the registry so that everyone who turns 18 by the date of the vote may register. But the regulations say that the registry has to be open for at least 30 days and the vote has to take place 90 days after the Registry has been closed so that people can check and change any errors or omissions in the new registry.

Except this time. I guess article 1 of the Bolivarian Constitution approved in 2000 should have said: Anything in this document can be violated if the autocrat so desires.

There is no way around this one, the CNE is violating the rights of everyone who turned 18 between the last vote and whatever date is estabished for the referendum. Their political rights are not being respected.

This represents the first formal violation of the laws and the Constitution in order to hold the referendum to allow for the indefinite reelection of autocrat Hugo Chavez.

Right before the end of the year, the Government made the decision to cut in half the travel quota for foreign currency given to Venezuelan residents to travel abroad. The quota was reduced from US$ 5,000 for credit card use to US$ 2,500 and the cash advance was reduced from US$ 500 to US$ 400.

The decision makes sense. Last year the Government gave out almost US$ 5 billion (US$ 4.76 billion to be precise). Thus, by reducing the allocation in half the Government should save at least US$ 2.4 billion, more than ten percent of what I estimate the Government will receive in foreign currency in 2009 if oil prices stay at current levels.

But the savings are likely to be much larger than that. First of all, the Government also gave out US$ 1 billion for airfares, which is likely to be reduced significantly as people travel less or closer, given that they have less money to spend using this subsidy to the rich.

But beyond that, the reduction also limits arbitrage opportunities which I mocked in my Oligarco Burguesito post a year and a half ago. In fact, the Government has wasted huge amounts of money by financing people who take travelers to Central America and the Caribbean for a weekend, all expenses paid, in exchange for a fraction of the quota. The organizers of these trips would then sell the dollars obtained in this way and sell them in the parallel swap market at the prevailing rate, which today stands at more than twice the value of the official rate.  Since the total amount is now smaller, profits will be reduced significantly and the business is likely to be quite limited in 2009. Thus, the Government will probably save much more than 50% of the amount given last year.

The fact that this was the first measure by the Government to save foreign currency in 2009, indicates that there are no plans to devalue the currency so far, since reducing the gap between the fficial and the swap rate would have generated savings in itself.

Of course, the Government is simply reducing a distortion introduced by the Government itself. Besides the waste in the arbitrage created, the quota represents a perverse and silly subsidy to those that are better off and certainly makes little sense economically and least of all for a Government that calls itself revolutionary.

The decision to cut the quota also indicates that the Government has given up on trying to attract the middle class which was the main beneficiary of the subsidy and is likely o reduce the Government’s popularity within that strata of the population.

In fact, I have been amazed at how unpopular the measure has been, with groups going to the Supreme Court to argue that this was somehow a right that the Government could not take away as it represents a limitation on the freedom of movement.

Of course, what is perverse and incredible is that while Venezuelans are restricted in this way, the oil subsidies to Cuba, the Caribbean, Argentina, Central America and yes, the US, as in the previous post, continue in earnest. Venezuelans are indeed second class citizens for the robolution. Politics rules and Venezuelans be damned!!!

Those that can afford it will continue traveling by going to the parallel market, which will see more pressure in 2009, as the Government has moved many items off the CADIVI list. It is in some sense a stealth devaluation as more goods have to be purcahsed at the higher rate and it is the Government that sells foreign currency in the swap market to get Bolivars at the higher rate.

Quite a convoluted and distorted economic framework which Chavez still dares call as being part of the robust economy he has created.

Nothing robust about it, as we are likely to learn slowly over the next few months.