While Hugo Chavez was worrying today about a US invasion, he should ahve really be paying attention to the problems of the country. Because two or three months ago there was little mention of water and electricity problems by him and his Government and all of a sudden they have taken center stage and they represent a sign of things to come.
Because these problems are not isolated, but represent the result of eleven years of mismanagement and incompetence. Take electric problems as an example. When Chavez got to power, there was a plan. Whether good or bad is besides the problem.Two large dams were going to be built. One was finished four years later than expected and the other one is still under construction.
The second is Tocoma, a dam that would have generated 14% of the electric needs of the country. This project is being financed by the IDB, but delays have made the project much more expensive, not only because times is money, but also because fixing the currency at Bs. 2.15 per US$, combined with 30% inflation has made cost simply soar.
At the root of the delays are the constant changes in management of the electric sector. While Rafael Ramirez has been Minister of Energy and Oil since 2003, there has been a string of Generals presiding over Edelca, CADAFE and Corpoelec. Corpoelec was a typical unnecessary step, it was simply a copy of CADAFE, a holding company for all electric companies underneath. But nobody told Chavez about it. And even worse, there were no economies of scale. Corpoelec was created and additional structures were formed. And now we have the Ministry for Electric Power or whatever it is it is called.
And part of the problem for Corpoelec, was that rather than being concerned with planning, funding, financing, investment, it had to worry about all of the companies that Chavez was nationalizing. Who would run them? Who to appoint? And more military was called in, as if that guaranteed anything.
But imagine now the funding problem at the Tococa dam. You get US$ 750 million to build it, but there are delays as General after General goes through the Presidency of Cadafe. The project has two parts, the turbines and equipment that is bought abroad and local costs. Unfortunately. local costs increase by local inflation, so any delays add to the cost of the project like you would not believe. And on top of that, the currency has been held constant for five years.
Take, for example, an engineer in the project. He cost you Bs. 2,150 a month five years ago, but you have given him or her, 25% salary increases every year. Except that those Bs. 2,150 five years ago, were $1,000 from IDB, but now have to be $3,015 from the same source and the project was not completed. And now, despite the huge windfall, Venezuela is going back to much hated IDB to get more. Mismanagement, overvaluation and inflation are coming back to haunt Hugo, but he does not seem to know it.
Because the problem is even more complex than that. While new infrastructure is being delayed, old infrastructure can barely be maintained, because electricity rates across the board have been held constant for seven years. This implies two things: First, electric companies have not kept up their revenues with inflation. This means they have to ask the Government for more or cost costs. You can bet they decided to implement cuts. Second, the few that pay (I count myself among them for both water and electricity) pay so little, that there is little incentive to save (I do collect all rain water to water my orchids). In the end, it is like a vicious circle, every policy is aimed at making sure that the whole system will collapse.
And when I say “everything”, I mean everything. Gas (oline) is being subsidized, it is a huge subsidy, if PDVSA did not have to fund it, it would not have had to issue any debt this year. Chavez nationalized a bunch of companies, including Sidor, which will have losses of US$ 410 million this year. Not only did he have to pay US$ 1.4 billion for it, but the company ahs to come up with the money to finish the year, satisfy unions and the like.
It’s the same everywhere, housing, ditto, health care, ditto, mining, ditto, all mired in a sea of mismanagement, lack of funding and investment and ideological BS that will force a collapse one day.
So, while many of us were expecting the symptoms of the collapse elsewhere (in the financial system), they are sprouting everywhere else, in the real economy for once. Not the usual way things collapse in Venezuela.
But sadly, the truth is that there is nothing, other than the fact that Chavez has increased awareness of the plight of the poor, that has improved in the last eleven years under Hugo. So, rather than worry about an implausible US invasion, he should be paying attention to real problems, from no maternity wards, to no water, to no electricity. Everything is simply malfunctioning and I see no way out, other than a huge spike in oil prices.
The fanatics, the hard core cheerleaders of Chavez and his fake revolution always say that we have been predicting disaster for the last eleven years. They forget that Chavez was forced in February 2002 to allow the currency to float freely and devalue sharply and that oil prices have saved the day ever since. But water and electricity rationing are the symptoms and not the cause. The crisis has arrived, the water and electricity problems are just an indication, a true measure, of the country’s problems. Attacking them today (It’s funny to hear Ramirez talking about increasing electric rates after seven years of neglect) will not solve the problem as long as the economy is mismanaged. Overvaluation, inflation and only worrying about the swap rate are the real problems, while Hugo worries about a US invasion an his 100 year war and blaming the opposition and Colombia for the problems of his revolution.