Archive for June, 2009

WSJ: It’s all about Chavismo

June 30, 2009

The WSJ, makes it all about Chavismo. Sad, when politics in our countries are reduced to the whims of an autocratic Dictator who cares only about perpetuating himself in power and tried to have Zelaya do the same.

The Wages of Chavismo

The Honduran coup is a reaction to Chávez’s rule by the mob.

As military “coups” go, the one this weekend in Honduras was strangely, well, democratic. The military didn’t oust President Manuel Zelaya on its own but instead followed an order of the Supreme Court. It also quickly turned power over to the president of the Honduran Congress, a man from the same party as Mr. Zelaya. The legislature and legal authorities all remain intact.

We mention these not so small details because they are being overlooked as the world, including the U.S. President, denounces tiny Honduras in a way that it never has, say, Iran. President Obama is joining the U.N., Fidel Castro, Hugo Chávez and other model democrats in demanding that Mr. Zelaya be allowed to return from exile and restored to power. Maybe it’s time to sort the real from the phony Latin American democrats. [Review & Outlook] Associated Press People against the return of ousted Honduras President Manuel Zelaya participate in a rally at the central park in Tegucigalpa, Tuesday, June 30, 2009.

The situation is messy, and we think the Hondurans would have been smarter — and better off — not sending Mr. Zelaya into exile at dawn. Mr. Zelaya was pressing ahead with a nonbinding referendum to demand a constitutional rewrite to let him seek a second four-year term. The attorney general and Honduran courts declared the vote illegal and warned he’d be prosecuted if he followed through. Mr. Zelaya persisted, even leading a violent mob last week to seize and distribute ballots imported from Venezuela. However, the proper constitutional route was to impeach Mr. Zelaya and then arrest him for violating the law.

Yet the events in Honduras also need to be understood in the context of Latin America’s decade of chavismo. Venezuela’s Hugo Chávez was democratically elected in 1998, but he has since used every lever of power, legal and extralegal, to subvert democracy. He first ordered a rewrite of the constitution that allowed his simple majority in the national assembly grant him the power to rule by decree for one year and to control the judiciary.

In 2004 he packed the Supreme Court with 32 justices from 20. Any judge who rules against his interests can be fired. He made the electoral tribunal that oversees elections his own political tool, denying opposition requests to inspect voter rolls and oversee vote counts. The once politically independent oil company now hires only Chávez allies, and independent television stations have had their licenses revoked.

Mr. Chávez has also exported this brand of one-man-one-vote-once democracy throughout the region. He’s succeeded to varying degrees in Ecuador, Bolivia, Argentina and Nicaragua, where his allies have stretched the law and tried to dominate the media and the courts. Mexico escaped in 2006 when Felipe Calderón linked his leftwing opponent to chavismo and barely won the presidency.

In Honduras Mr. Chávez funneled Veneuzelan oil money to help Mr. Zelaya win in 2005, and Mr. Zelaya has veered increasingly left in his four-year term. The Honduran constitution limits presidents to a single term, which is scheduled to end in January. Mr. Zelaya was using the extralegal referendum as an act of political intimidation to force the Congress to allow a rewrite of the constitution so he could retain power. The opposition had pledged to boycott the vote, which meant that Mr. Zelaya would have won by a landslide.

Such populist intimidation has worked elsewhere in the region, and Hondurans are understandably afraid that, backed by Chávez agents and money, it could lead to similar antidemocratic subversion there. In Tegucigalpa yesterday, thousands demonstrated against Mr. Zelaya, and new deputy foreign minister Marta Lorena Casco told the crowd that “Chávez consumed Venezuela, then Bolivia, after that Ecuador and Nicaragua, but in Honduras that didn’t happen.”

It’s no accident that Mr. Chávez is now leading the charge to have Mr. Zelaya reinstated, and on Monday the Honduran traveled to a leftwing summit in Managua in one of Mr. Chávez’s planes. The U.N. and Organization of American States are also threatening the tiny nation with ostracism and other punishment if it doesn’t readmit him. Meanwhile, the new Honduran government is saying it will arrest Mr. Zelaya if he returns. This may be the best legal outcome, but it also runs the risk of destabilizing the country. We recall when the Clinton Administration restored Bertrand Aristide to Haiti, only to have the country descend into anarchy.

As for the Obama Administration, it seems eager to “meddle” in Honduras in a way Mr. Obama claimed was counterproductive in Iran. Yet the stolen election in Iran was a far clearer subversion of democracy than the coup in Honduras. As a candidate, Mr. Obama often scored George W. Bush’s foreign policy by saying democracy requires more than an election — a free press, for example, civil society and the rule of law rather than rule by the mob. It’s a point worth recalling before Mr. Obama hands a political victory to the forces of chavismo in Latin America.

Wikipedia, Alek Boyd and the “truth”

June 30, 2009

Alek Boyd has been trying to insert into Wikipedia’s section on “Criticism of Hugo Chavez”, the following paragraph:

Hugo Chavez has expressed in no uncertain terms his support for the Revolutionary Armed Forces of Colombia (FARC). High officials of the Chavez administration, such as Ramón Rodríguez Chacín have been accused by the Office of Foreign Assets Control of “materially assisting the narcotics trafficking activities of the FARC”. [81] Hugo Chavez held a minute of silence [82] over the assassination of Raúl Reyes, about whom he referred to as a “good revolutionary” and whose death prompted Chavez to push Venezuela and Colombia to the brink of war. [83] This was not the first time that Chavez would bring relations with Colombia to a standstill over the FARC. In 2004, Chavez halted diplomatic and commercial relations with Colombia over the capture, in the streets of Caracas, of FARC leader Rodrigo Granda.[84]

However, the Editors of Wikipedia want to remove it and Alek has been fighting over it. As you can see here, Alek’s arguments with the so called editors are absolutely bizarre. Alek documents each accusation and after all, it is a section about Criticism of Hugo Chavez. Moreover, despite claims to work with him, they don’t get back to him.

Remember this next time you use or read a Wikipedia entry.

Why is Zelaya’s Constitutional coup attempt ignored by the world?

June 29, 2009

Let’s review the stages of what happened in Honduras:

-President calls for a vote on having a referendum to allow his reelection

-Supreme Court and Assembly say it is illegal and Court rules so. Military warns that the law should be obeyed. Constitution actually says even promoting reelection is illegal.

-President removes Chiefs of Staff of military, Court tells him he can’t do that.

-President continues with plans to carry out vote on Sunday. On Sunday, military arrests him.

-National Assembly votes unanimously to name a new President, Supreme Court backs it.

-World is in outcry over Zelaya’s overthrow but was not over outright coup against Constitutional order.

The first question is why was the removal of Zelaya illegal, despite all independent institutions backing it, while similar removals of elected Presidents in Ecuador and Bolivia did not even raise an eyebrow in the world’s international “democratic” institutions and Nations?

The second question is why it appears as if democracy in our Hemisphere refers only to the fact that Presidents are elected, but somehow they can ignore the laws, the institutions and the Constitution once they get there and its fine with the world, but any attempt to force these elected Presidents to respect the institutions is somehow ignored and even considered suspect by world opinion, particularly if the elected President seems to be left wing. There is clearly a double, if not triple standard in all this.

Finally, why is it that the OAS can meet so fast to meet in these cases but has yet to look at the rape of the Venezuelan Constitution by Hugo Chavez or even his role in the Honduran affair. Chavez was indeed elected by the people but that does not give him the right to violate our rights, anymore than Zelaya attempted to violate everyone’s rights in Honduras by carrying out an illegal vote.

Until institutions like the Supreme Court, the National Assembly and others are not allowed to curtail Presidential power, by maintaining checks and balances and limiting what Presidents can do, our countries will not have a true democracy. The Constitution is there for everyone and the President should be the first person to defend it and promote. If not, it is the people that are left defenseless from the Dictadorcitos that fate throws upon us like Hugo Chavez and wannabe Zelaya.

Zelaya simply tried to stage a Constitutional coup because he was the President, but somehow the world seems to have ignored all of this, against the background of institutions that in the end did follow the law and the Constitution in order to remove him.

Coup in Honduras, military arrests President

June 28, 2009

The Honduran military has arrested the President over the conflict of the removal of the Chiefs of Staff, this is an old fashioned coup, no laws were followed in  the process even if Zelaya was trying to violate the law or not following it.

Will Chavez really intervene?

Note added: Chavez offered the military of Honduras “war” if the Venezuelan Ambassador was hurt or the Embassy violated. The Venezuelan Ambassador was briefly detained, so we may never know. El Heraldo says the presence of Cuban and Venezuelan troops prompted the coup, also says troops turned back at border. Honduran Supreme Court issues strange communique justifying coup, Assembly says Zelaya resigned.

PDVSA modifies terms, bond will trade in US$, but…

June 28, 2009

Well, the Government spent two months thinking about how to structure the Petrobono and came up with the strange animal I described before. Well, it took only two days for the “strangeness” to be removed, the schedule to be modified and turn into a plain vanilla zero coupon.

Basically, the Government removed the prohibition of having the bond trade in the international markets (Or will do it by changing the foreign exchange agreement with the Venezuelan Central Bank) so that people can buy it in Bs. and turn around and sell it in US$. It also changed the schedule because the Government seemed to have forgotten Monday is a financial holiday and it would be essentially impossible for individuals to participate.

Note added: The notes have not been registered in any international market including Euroclear or Cedel so far. Thus, investors will have to have them in Venezuelan custody, these limits, for now, how interesting they are.

I think US$ 3 billion of a PDVSA bond may be a little too much at this time, given international markets. Be careful if you decide to participate. I recommend you sell it right away uf you do, there will be an indigestion of Petrobono 2011 in the international markets as Venzuelans turn around and sell.

PDVSA bond announced and it’s a strange animal

June 26, 2009

PDVSA finally announced tonight the PDVSA Bond 2011 and it is a strange animal indeed:

—It is  a zero coupon bond to be paid in local currency and denominated in US$. (Zero coupon means no interst payments, it just pays 100% of its nominal or face value the day it matures in 2011)

—It will trade only in Bolivars at the official rate of exchange after it is issued.

—The final payment will be 100% of its nominal value. That is, if you buy 100,000 dollars at whatever price they sell it, at the end, only at the end (in two years) will you get your 100,000. In the meantime you can only sell it for Bolivars at the official rate of exchange.

If I understood correctly, you can only trade it in local currency at the legal rate of exchange. It says specifically:

“El PETROBONO 2011 podrá ser negociado luego de la fecha de liquidación  exclusivamente en el mercado local, en moneda de curso legal al tipo de cambio vigente para la venta.”

which says

The Petrobono 2011 can be negotiated after its payment date exclusively in the local maret, in legal currency at the rate of exchange available for sale.

I interpret this to mean that you will have to multiply dollars by Bs. 2.15 per US$. This would mean that if the price does not change (which could be one interpretation) nobody, absolutely nobody would want to sell it and will want to keep it until the end. Very strange if this is correct (I dont this this the case but…). The second interpretation is that the price can vary, so you will multiply the price x 2.15 x nominal value, and that is how many Bolivars you have to pay. While the first case it’s strange, the second one is too, as there are no dollars in the transaction until the end. How does this help push the swap rate down?

Here is the Prospectus.

Paraguay’s President: “We will imitate Venezuela’s Dictatorship”

June 25, 2009

Paraguay’s President Fernando Lugo just hit one out of the park when he said:

“We are going to imitate the Dictatorship of the Venezuelan President Hugo Chávez”

I guess it takes one, to know one.

Duddy’s Surprise! Back to Caracas and is not a Stephen King movie!

June 24, 2009


Imagine the scene somewhere in Maine last night, former Ambassador to Venezuela Patrick Duddy is sitting there eating some clams, some nice yellow corn on the cob and a nice boiled lobster with drawn butter, wondering with his friends where he will be sent next.

As he serves some more of that nice Chalone Chardonnay from California, he is wondering whether he will get Argentina next. Sounds cool, may give him a chance to learn more about those nice Malbecs from Mendoza. Chile would be nice too, interesting politics going on there, good cultural life, country doing well. Colombia is not his top choice. Complicated country with Uribe not running again, the FARC  and Chavez next door.  After Caracas and Chavez, Duddy deserves a break. After he behaved so well, the ultimate diplomat till the end, Chavez ended up kicking him out on one of his temper tantrums.

It’s a nice Maine summer evening, sun setting late, water calm, a little chilly to be eating outside, but hell, it’s summer and the Red Sox are leading the Nationals in the background, pass the corn.

Phone rings. It’s DC, maybe Hillary decided where she wants to send me. Hello! He hears the words normalization, Chavez, Venezuela, Barack wants it, back to Caracas. Seems like a nightmare. Simply unreal. He tries to wake up, thinking this is a Stephen King novel, King actually lives down the street and he knows him, but not even good old Steve would send me back down to Caracas!

Hello! Hello! as Hillary tells him he did such a great job, dignity, professional, all of those nice words, coming from the lips of Bill’s wife’s mouth. There is no going back, I am going back! Have to put up with Maduro again, visit Chavez, listen to boring Ali, the long speeches, the traffic, start reading again the Devil, Daniel and Quico, what a nightmare!

Give me some more lobster and please, lots more of that nice white wine!

Well, I could eat a nice arepa again. Just trying to see the bright side.

Pdvsa bond coming? Last chance for cheap foreign currency!!!

June 23, 2009

If it were not absurd enough that PDVSA was thinking of issuing US$ 2 billion in bonds, today’s rumour du jour was that the bond was coming and it was going to be for US$ 3 billion, just  to make things even more entertaining.

Now, it will be easy to sell US$ 3 billion of this supposed bond to Venezuelans, that’s the simple part, the tough road ahead is for all of these Venezuelans to be able in turn to sell the bond abroad to international investors, if that is what is coming as rumored locally and strongly today.

Let me try to explain the problem. Venezuela has some US$ 24 billion in bonds already trading in the international markets and PDVSA has another US$ 7.5 billion.

Who buys these bonds?

Mostly international funds interested in either making money by collecting the interest payments from the bonds or by speculating that the price of the bond will go up in the near future. These funds are limited in size and number because Venezuela does not have a good credit rating. Venezuela’s rating is currently at BB- while PDVSA’s is at B+. This says if things get tighter PDVSA will have a hard time paying.

In this market, prices are set by supply and demand. If there are lots of sellers, prices go down and viceversa. Additionally, it is not an infinite market, the market is right now somewhere between US$ 50 and US$ 100 million each day.

Currently Venezuelan bonds are yielding around 12-16% depending on when they mature, i.e. when they have to be paid. Let’s take a simple example, the shortest Venezuelan bond, the 2010, has a coupon of 5.375% per year, that is, you get paid twice a year half of that on the amount you hold.

Let’s say you have 100,000 dollars, you get US$ 5,375 per year in two installments on August 7th. and February 7th. and the bond matures (ends or has to be paid by Venezuela) on August 7th. 2010. Currently that bond costs around 93% of its nominal value, which means to buy $100,000 of the bond, you pay 93,000 dollars.

Thus, if you buy it tomorrow, between now and its maturity there are around a year and 40 days of interest. But in addition you will get 100,000 dollars at maturity, for your 93,000 dollars investment. That means you will make around US$ 7,000 for the increase in price and another 5,375 dollars plus 40 additional days which is like another 500 bucks. So, you get a total of roughly 12,875 dollars on your 93,000 investment or around 12.7% annualized.

So, now PDVSA will issue a  two year bond, supposedly a zero coupon, i.e. it pays no interest but just appreciates in value to 100% at maturity. Based on when the Venezuelan bonds are trading today, it should yield 15%. That is, roughly it should sell in an ideal world at 70%, so that it gives you 15% a year, since you will gain 30% in two years.

Thus, the Government will sell you the bond at around 190% at Bs. 2.15 per US$. This means that if you order US$ 100,000 (and are lucky enough to get it), you pay Bs. 419,000  (195% x 2.15) for each US$ 100,000, then if you can turn around and sell it for 70,000 dollars, then each dollar you get cost you (419,000/70,000)=Bs. 5.98 for each dollar you got.

However, this is the real world. If the Government sells US$ 3 billion that corresponds to the volume (additional volume at that!) that is done by the market each 30 days, so it would take at least a month and half in terms of working days to absorb the full amount, if everyone in Venezuela turned around and sold them Thus, there is too much supply and not enough demand. Which means that the equilibrium price will not be 70% but lower, or the yield to maturity will be higher.

But suppose you are a fund that owns the 2014 Venezuela bond which yields 16% and all of a sudden the 2011 “new” PDVSA bond yields 18%, you quickly sell the 2014 and buy the new Pdvsa bond. But if too many people do this, the price of the 2014 Venezuela bond will then also go down in price.

Get the picture? By selling US$ 3 billion of the two year 2011 zero coupon, the bond itself will likely yield more than the typical Venezuelan bond due to the over supply, which will make people sell all the other bonds to buy the new one.

Now, under normal circumstances that would be ok, except that Venezuela’s yield is quite high already!

Now, the interesting part, is that if the PDVSA bond 2011 dropped below 65% of its price, or a yield of 17%, it would be cheaper for you to buy the foreign currency in the swap market on Thursday at Bs. 6.4 per US$,  than pay Bs. 419 thousand for 100,000 dollars of the bond which will sell at 65%.( (Bs 419,000/65,000)=6.44 per US$)

It seems to me to be a little close for comfort. So, my recommendation is that when conditions are announced, you do the math and likely the best option available would be to just go and buy the dollars in the swap market, this may be the last chance to buy foreign currency so cheap at Bs. 6.4 per US$ or lower.

The strange thing is that PDVSA does not need dollars, it needs Bs. which it will get. But why they want to sell a bond in dollars is what I do not quite understand. Why not sell and indexed bond in Bs.? After all, even if the swap market goes down with this new dollar bond, it will be only very temporary and people will forget that it even wnet down, let alone lower prices of products.

As usual, there has to be a trick somewhere. What it is may not be known, if at all, until the bond and its characteristics are announced. Or it may be that the conditions to sell you the bond are such that there is some specific and particular way for someone to make a few million bucks from the bond.

They don’t call it the robolution for nothing!!!

Has Chavez been told how tight things are getting?

June 22, 2009

Even with increased oil prices, things are not well in revolutionary Venezuela. The only question is whether anyone has told Chavez about it. My feeling is nobody has, because he continues acting as if everything is fine, as his Government continues to get into contradictions which simply can not be explained.

Take for example Chavez gloating yesterday that while the capitalist world was losing, jobs he was creating them in the thousands, but unemployment, which ended 2008 at 6% is now at 7.7%, so even the Government’s magic fake statistical institute can not push it down, as the country has lost some 120,000 jobs in 2008.

And after General Motors announced that it was shutting down for three months because it was not receiving foreign currency from the Government, some genius in the administration decided to blame it on GM’s bankruptcy in the US, saying the flow is normal. The truth is that none of the automakers has received much these year in terms of real dollars. They get the approvals from CADIVI, but after the autoparts are here, no payment is made. The result? CADIVI owes the auto and autoparts companies of this world some US$ 3 billion. These are cars have mostly been sold and at the official rate of exchange to wit.

But just to prove the lie, and the veracity of both points above, the Government rushed today to announce that it would give automakers and autoparts companies US$ 2 billion in 2009, not even enough to cover the outstanding debt, but they think (hopefully, cross your fingers) that car companies will not start firing people right and left.

And then, as Chavez nationalizes a Japanese hot iron briquette company and he bickers with the Japanese partners of the Aluminum complex to the point that they are leaving the country and he owes Japanese Toyo company a bunch of money, it looks like the Japanese may not be here to stay. In fact, the loan that Chavez sent Rafael Ramirez to Japan for, seems to be in peril and maybe some US$ 33.5 billion which Chavez claimed he had gotten from that country too (I donit believe that figure for one minute). And if Nippon Export and Insurance stops insuring investments in Venezuela, you can kiss the whole kimono and pachinko goodbye.

The truth is that things are bad and getting worse. The question is whether Chavez has any inkling about what is going on. I hear the pharmaceutical sector is not getting foreign currency, that Brazil’s Bndes has not approved the loan nor received the paperwork required from this side to have it approved, that Brazilian companies are owed US$ 2 billion, car companies US 2 billion, airlines US$ 1 billion, local banks US$ 600 million, PDVSA owes the companies it did not take over a few billion and owes the Government a few billion in taxes.

And the second half is only going to be worse. Companies that have been holding off in firing are doing it. Spending will slow down, imports are already down sharply, inflation is the pits (Coca Cola from Bs 2,000 to 3,500 so far this year, to give you a very important indicator) and the only plan the Government seems to have is…

to have PDVSA issue US$ 2 billion in bonds…

which I think is absolutely crazy. It will do nothing for the swap market, it will kill the country’s yield curve and unless the bonds are sold really cheap to Venezuelans (like 20% below the swap rate), people participating may lose money by the time they manage to sell their paper in the international markets.

At this point Chavez has only one terrible choice: devalue. The problem is that doing it just that does little except temporarily balance the fiscal picture, but creates huge inflation and likely shortages. Not pretty, no? But it is the natural result of not making any decisions and postponing some tough ones. No country can go on forever and ever owing everyone money and that is what Chavez has been doing so far this year. And it is unclear what his cohorts have promised, but things must have looked really bad for Chavez to bring back Jorge Giordani and his Garcia Marquez block of ice on the form of economic rules he invented ten years ago and have not served Chavez well, but are as inopportune today as they were in 1998, 2000 and 2002. Because Giordani’s pseudo-voodo economics have not ridiculed him because oil prices have always managed to climb beyond anyone’s imagination.

But he is back on the helm of idiotic and revolutionary economic policy, ready to produce a crash that will make the world economy look healthy in comparison. In the next six months the Venezuelan economy will shrink, conservatevily speaking, by 5% and the Chavez administration will have gone through all of the savings in Fonden. Thus, unless oil hits $100 a barrel again before then, imports in 2010 could collapse to US$ 20 billion and people will be asking for Chavez (not Giordani’s) head.

Does he know this? Does he even have an inkling? is he being told anything..

I seriously doubt it.