Archive for June 22nd, 2009

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.