Archive for March 12th, 2010

The world without guilt of Venezuelan Minister Jorge Giordani

March 12, 2010

While I had always believed that Minister of Finance and Planning Jorge Giordani was quite ignorant, I have never believed he was intellectually dishonest…

Until today.

For eleven years, Giordani has been in and out of the Chavez Government spending eight of the eleven years at the Ministry of Planning (As Minister!). From there, he did things like cancel the hydroelectric power plants of the Alto Caroni, because ideologically he was against them. But he not only failed to replace them, but he made no long term plan for the electric sector and managed to get rid of those that did that work well in Venezuela.

Giordani, en Electrical Engineer by training in his Bachelors degree, later got a Ph.D. in Planning, where he concentrated in Urban Planning, not in Economics, like many think he did and he began working on the Orinoco-Apure axis concept, a harebrained idea by which the population of Venezuela would be moved to the banks of the Orinoco river, because the water is there. Giordani clearly never has lived in the heat of those same banks, where 35-40C is a normal temperature. When he became Minister of Planning in 1998, the Government assigned a billion dollar budget to that project, but somehow we never heard about that anymore. Wasted? Down the drain? Robbed? We have no idea. Money that could ahve been used in improving the lot of many Venezuelans was thrown down the Orinoco drain.

Giordani also spent the first three years of the Chavez Government gloating over the savings in the macroeconomic savings fund FIEM,  until his buddy Merentes, then Minister of Finance, spent it all in six months(nobody has ever figured out what he spent it on) and the maxi devaluation of February 2002 (well before the April 2002 events) took place.

Throughout it all, Giordani has maintained an image of being honest, both materially and intellectually, even if somewhat limited in his ideas and conceptions about the world. And of course, he has never accepted any criticism, he lives in a world without guilt.

This image was valid until today, in my own opinion. Let me explain…

Because today, Giordani either showed how ignorant he is or what a remarkable liar he is (or both) when he said that the “mutuos” created an inflationary “avalanche” in 2007 and 2008.

Jeez, recall that the mutuos were eliminated at the end of January, when it was discovered that the “bolibourgeois” bankers had used “Mutuos” to rip-off bank depositors. Mutuos were a sort of repo, where brokers could received deposits from the public, in exchange for a yield and the re-lending of the security to the broker, who could lend it back to another investor. In this way some brokers became like small banks, lending 15-30 times their equity. Then the bolibourgeois financeers discovered that they could use them to buy banks with the depositors money and the ignorance and lack of supervision led to the failure of many banks and later many brokers who were intervened by the Government’s Comisión Nacional de Valores.

Of course, through all this, the regulators were nowhere to be seen, as they seemed to be concerned with enriching themselves rather than with regulating. In fact, of the three heads of the Comision Nacional de Valores during Chavez, one is in jail, another is being looked for by Interpol and the third one was in the Board of one of the brokers intervened! That is an incredible indictment of the Government, if there ever will be one.

And whose fault was all this? Nobody’s apparently…

Because today, Giordani dared to suggest that it was the Mutuos that created this “avalanche” of inflation, due to speculation with them in 2007 and 2008 (Why not in 2009?). And, oh yeah! now that the mutuos are over, things should get better. Sure Jorge! Tell me a story about Buck Rogers now!

Where do I start? Mutuos were never more than 5-6% of all of the monetary liquidity in the country (M2). So, how could it possibly be that such a small amount of money could create the “speculation” required to yield a 30% level of inflation for the whole country?

It is simply impossible, which Giordani should either know, and if he doesn’t, he is quite ignorant, and if he does know it, he is lying through his teeth. But he lives in his peculiar world, where he is never responsible for his decisions.

But whether it is one (ignorance) or the other (lying) or a combination or both, it is simply remarkable that a member of the country’s Cabinet, who has been on the Board of the Central Bank (now illegally holding that post, by the way) for practically ten of the eleven years of the Chavez administration, that he would try to skirt his own personal responsibility in the 700% inflation since Chavez took over the Presidency of this poor (in the Biblical sense) country.

Giordani’s whole press conference, curiously available only to pro-Government reporters, has no logic or substance, other than, as usual in this irresponsible Government, to blame others for their ignorance and incompetence.

Because when Hugo Chavez became President, monetary liquidity was about Bs. 10 billion and international reserves were about US$ 15 billion. That is, there were about Bs. 0.75 in circulation for each US$ in international reserves. The free exchange rate was about Bs. 0.600 per US$.

Today, eleven years after, international reserves stand at US$ 30 billion, only double that of 1998 thanks to the biggest oil boom in history. But monetary liquidity (M2) stands today at Bs. 235 billion, a full 23 (twenty three) times higher than in 1998. (Yes!, 2,300% higher, veintre tres veces más!)

Who printed all those Bolivar bills?

Giordani was present practically all of the time at the Central Bank. Nobody else was as responsible for this.

Well, reserves double, but Bolivars go up by  a factor of 23, what do you get?

Easy, we now have Bs. 7.83 for each US$ in international reserves. And thus, we have lots of inflation, lots more Bs. chasing the same goods, the country is less productive today than it was then.

And where is the parallel swap rate?

At Bs. 6.9 per US$

Funny, in 1998, the exchange rate was Bs. o.6 in practice versus Bs. 0.75 “mathematically” or a ratio of 0.8 between the two.

Today, eleven years later and after so much printing the ratio is Bs. 6.9 in pratice versus Bs. 7.85 “mathematically”, which gives you 0.88, not that different given that the swap market fluctuates so much.

But Giordani blames the “mutuos” rather than trying to find the irresponsible monetary policy he has presided over in the last 11 years.

Ignorance, dishonesty or both?

You be the judge