Archive for March, 2011

The Eighth Housing Program in Twelve Years

March 31, 2011

(Did you see the President finally noticed us after ten years? Yes, I was starting to think the billboards were hiding us from view)

A Caracas councilman by the name of Alejandro Vivas has been keeping tabs on the housing promise of the Chavez Government and enumerated them in the radio the other day:

1.)  2000: Plan Bolívar 2000. Military-Civilian plan to build low income housing. It was the first big corruption scandal of the Chavez era. Remember General Weffer?

2.)  2004: Misión Hábitat: US$ 200 million to change the model of housing and build 10,000 units in 2004 and 50 to thousand in 2005 with an additional US$ 500 million. Wondered what happened…

3.) 2006: Fundation Misión Hábitat.

4.) 2007: Misión Villanueva: A program to redistribute the population over space, so that we are better distributed and people live better.

5.) 2008: Misión 13 de Abril: Building of Socialist Communities in 40 locations of the country.

6.) 2009:  Misión Barrio Nuevo Barrio Tricolor . “Dignification” of existing housing

7.) 2010: Russian Plan. US$ 500 million from the money not spent the previous year. 55 Hectareas in Fuerte Tiuna,

8.) 2011 Plan Vivienda Viva.

And counting….

Venezuela No Longer to Certify Oil Export and Production Numbers

March 30, 2011

Just when Venezuela needs to send positive signals to world markets, as it intends to sell more and more debt internationally, the Venezuelan Government and PDVSA do exactly the opposite and decide to cancel the contract with the independent auditor Inspectorate that was hired two years ago to try to convince the world that Venezuela’s production and export numbers as reported by OPEC and the IEA are wrong. Both of these institutions have been reporting that Venezuela’s official oil numbers are significantly above those obtained by them from their independent analysis.

Neither PDVSA nor the Ministry of Energy and Oil gave much of an explanation for the cancellation of the contract. The auditing company is closing its offices in Venezuela.

What this will do is create further uncertainties in the country’s numbers which will not aid in reducing the so called credit risk of Venezuela at a time that the country needs to issue more and more debt. This means that issuance of the country’s debt will be more costly that the country’s numbers justify. Last week, Knight Securities suggested that the country’s handling of official news and statistics and the lack of a clear spokesman for the country on financial matters is making it more expensive for the country to issue debt. In a report entitled “The Monk’s exorcism boosts our faith in Venezuela” the company suggests it costs Venezuela 200 to 300 bps because of the way information is managed by Minister Giordani.

In the same report, PDVSA said that exports in February were 16% lower than those in January and this week international reserves at the Venezuelan Central Bank dropped to their lowest level since 2007, despite the Venezuelan oil basket averaging over US$ 100 per barrel last week.

Violence, Games And The Military: Consistency Is Not Chavismo’s Strongest Point

March 28, 2011

Last week, a decree was published making military education mandatory starting in first grade. Under the “Comprehensive Military Education Plan”, kids will learn about defending the coutnry and will be trained for war.

Under this plan, outside the sphere of “military spaces,” Venezuelan children will be trained for war from the start of their formal education, in first grade, until completion of their university education, and that this will be compulsory. And to top it all off, the teachers will be members of Chavez’ paramilitary militia, which have little training beyond how to use weapons.

So, picture first grade and onwards little kids, learning to use weapons and war “strategy” as part of their early brain washing by this militaristic, autocratic, pseud-socialistic Government.

But wait!

Isn’t this the same Government that does not allow these same young kids to purchase and play violent video games, particularly those involving war and weapons? You mean to tell me that these kids are mature enough to train about killing real people, real human beings, with real weapons, but at night they are only suppose to play Pac Man so that their young minds don’t get distorted?

This Bill that bans violent video games actually punishes the manufacturing, distribution, selling, rental, exhibition and use of such video games, giving discretionary as well as punitive power to the authorities. In fact, people regularly have their games confiscated at customs. (I am sure the kids of the custom agents have a nice collection)

So, picture the scene: Hey kid, stop playing that violent war game, go grab your FAL and let’s do some target practice killing enemies of the revolution.

Clearly Chavismo’s ideological consistency is not among its strongest points…If there are any.

The Petrobras/PDVSA refinery: Another Failed Promise By The Revolution

March 27, 2011

(Lula to Hugo: You are such a Pinocchio!)

As Chavez promises now and ever increasing number of new projects, news from Brazil is that his biggest and most aggressive project with Brazil, the Abreu and Lima refinery may not happen, because Venezuela is showing very little interest in it. The refinery was supposed to be the centerpiece of Venezuelan/Brazilian cooperation. Many times Petrobras has given up on it, but Chavez and PDVSA have always said they would go forward with it, but then nothing happens, like so many things in the revolution and in Chavez’ promises.

In fact, Petrobras has said a couple of times Venezuela’s participation in the project was dead, but Chavez and his Minister of Energy and Oil have revived it every time they went to see former Brazilian President Lula Da Silva.

In a note published in Brazilian business newspaper Valor, sent to me by a reader (Thanks!), Roberto Costa Petrobras’ Director for Downstrean operations, clearly shows his frustration over PDVSA’s lack of interest in providing adequate guarantees.

According to the note, Petrobras was going to have 60% of the refinery, while PDVSA would have 40%. Petrobras obtained financing from that country’ development bank Bndes. Bndes, which is run like a serious bank, it has a  credit rating and issues bonds internationally, asked PDVSA for some guarantees for the loans. PDVSA presented some 5-year revolving lines as guarantee, which Bndes rejected. Minister of Energy and Oil Ramirez said that by February the problem would be solved, but here is late March and nothing has happened.

If PDVSA does not come up with the guarantees, the project will die in August when Bndes’ credit approval expires.

This raises so many questions, that it is difficult to choose a sarting point:

-How can a company like PDVSA not be able to furnish appropriate guarantees if the project is considered to be so important?

-Was this another Chavez whim and PDVSA really has no interest in it?

-Is it that now that Lula is gone and the new Brazilian President is not as friendly to Hugo that Chavez is no longer interested?

-Is it simply lack of coordination and management on PDVSA’s side?

All of these questions remain up in the air at this time.

In the end, this is another Chavez whim/promise made to be in the headlines but that never materializes. Recall that Chavez made a lot of noise about another loan Bndes had given it a year and a half ago and nothing has happened, like so many other things Chavez promises.

Chavez is great at announcing and promising, but very bad about delivering, as so many of his “projects” show. The Bndes/Petrobras and the Bndes story is just another example of over promising and populism by the Venezuelan President.

But hey, it works, people buy it and he never delivers it!

Chavismo Shows Its Non-Democratic Nature in Choosing Delegates to International Meetings

March 25, 2011


Recently there was an international meeting of one of those universal, useless, multi planetary union of world countries which held a meeting.The name is irrelevant, there are so many of those boondoggles that you can no longer tell one from the other.

But our “democratic” friends from Chavez’ PSUV showed their true colors, their true democratic ideals to surface, by choosing eight, yes, ocho Deputies to go to this fun meeting. Given the unfair sixty to forty composition of the new Assembly, what did these Democrats decide to do?

Simple, they decided to go the truly democratic route, they chose seven Deputies from their own PSUV party and to show their open spirit, the eight person, the token member, was chose  from Venezuela’s Communist party that happens to support Hugo Chavez. The opposition, which hold 40% of the National Assembly got zippo.

Which proves what we know, to Chavismo democracy is simply a nine letter world, but who is counting?

Venezuelan Inflation: Structural or Self-Generated?

March 23, 2011

We were told by Minister of Planning and Finance Giordani, who has been in this Government over ten of the last twelve years, that Venezuela’s inflation problem was “structural” and in the never changing strategy of blaming the “previous” Government for everything, he accused the IVth. Republic of this problem. I guess twelve years is not enough in his mind to solve this problem, ignoring the fact that in those twelve years, the most insidious influence on inflation, that of the world, almost magically vanished, with most countries not only having single digit CPI’s, but many in the low single digits.

As a famous true and real economist said, inflation is simply a monetary phenomenon. Such a simple concept that is so poorly understood in inflationary and populism-ruled countries like ours. You see, if this were not true, Governments could just spend and make everyone rich. Life would be as simple as Chavez and Giordani want it to be.

But money does not imply wealth. Money is how we exchange things. We went from barter to money, to create a neutral way of transacting. In the beginning of commerce, you had one good and exchanged it for another or for a service. Too many mangoes on the trees and nobody wanted to give you anything for a mango, too much supply. By the end of mango season, you could probably get a lot for it, not enough supply and probably some demand.

But I digress…

If the Government “creates” too much money, without the underlying productivity or supply of goods and services increasing, the money will lose value, there will be inflation and it will be worth less. So, that is what Central bBank’s are supposed to do, try to fine tune the amount of money to balance it out with the supply of goods and services.

Thus, if you want to see why there is inflation, you have to look first at monetary liquidity, the so called M2, which measures all of the money available out in an economy. This number is supposed to be made public weekly by the Venezuelan Central Bank under “Agregados Monetarios” here. Lately, there is some delay to have this number published, but more ominously we no longer see its components, it has been over a year since we can see what is increasing faster in all the parts of M2. I will not bore you with the technicalities.

When you look at M2 since Hugo Chavez became President, the picture is quite scary at first and at second sight, as seen in the plot below:

As you can see, since Chavez became President and Giordani Minister of Planning (He has been in the Board of the Central Bank ever since he was named the first time in 2001 or 2002) M2 has gone from Bs. 8.9 billion to Bs. 302 billion. That is an increase of a factor of 33! Or there is 3,200% more money floating around in the Venezuelan economy, than there was when Chavez became President. (This is all Bolivares Fuertes BTW)

Clearly, someone has not been doing their fine tuning job and to call it a “structural” problem is cynical at best and as we will see, simply an outright lie.

Because in the graph above you can see that for at least the first three or four years of the Chavez Government, the growth in M2 was slower than it became at around 2003-2004.

But when a number changes so much in time and at such different rates, it is better to change the scale of M2 to a logarithmic scale. Why? Because with a log scale, all changes of say a factor of ten are the same. If a variable goes up from 1 to 10, it will look the same as when it goes from ten to one hundred, a ten fold increase. The changes look the same, not like in the above curve, where the change from Bs. 10 billion to Bs. 100 billion can barely be discerned and it is the largest and fastest in the plot.

In a logarithmic scale, M2 looks like this:

You can see in the above graph that there are three very different periods in this plot. First, there is one slope from 1998 to 2002, then from 2002 to about 2007, M2 grows much faster and then it slows down to something that looks more like the first stage, even if with a higher slope.

Basically, in the first stage M2 increased by about 66% in four years, in the second one, it increased by about 666% in five years and in the latest one, it has increased by 162% in four years.

These are really bad, awful numbers, simply because the Venezuelan economy has not grown at a comparable rate during any of this periods. In fact, the increase in M2 during the first four years is larger than the growth of the economy in all of the twelve years of Hugo Chavez. Certainly this means that inflation is induced by this mismanagement of monetary liquidity, there is simply too much money chasing basically the same goods.

There is nothing structural about this, it is structurally unstable to allow M2 to grow this way, except there are elections, of course.

Even worse, all of this money has almost the same backing in foreign currency than it did in 1998. In 1998, when Chavez came to power, there were almost US$ 18 billion in international reserves, today there are US$ 26 billion, barely a 44% increase when the number of Bolivars has changed by a factor of 3200%. This says that when Chavez got to power, there was a half a Bolivar per US$ in reserves (roughly), while today there are eleven Bs. for each dollar in international reserves. Oh yeah! Modern economists believe in “fiat currencies” . But that concept stops working in the face of such irresponsible economic policies. People stop believing in the “fiat” part, they tell their Governments: “Show me the money!” In Venezuela, there has been little “fiat” since 1982.

And the reason reserves are so low, is that some Chavista economists created the concept of “excess reserves”, allowing Chavez to withdraw every year some billions of dollars so that he can spend this as petty cash and without control. We are talking about US$ 64 billion so far removed from reserves. If they were at the Central Bank, inflation would be lower as that bank would have a cushion to control M2, imports, capital flight, etc. as needed. To date, it has so little room for maneuver, so much that it even carries those US$64 billion in its balance sheet (most of them have been spent!), to avoid showing that it is bankrupt. But that is another story.

Finally, if you look at month to month yearly inflation, you can see why the “structural” argument holds no water:

Between when Chavez took over and Dec. 2001, twelve month inflation was actually going down! This happened for two reasons: M2 was being controlled and extra income from oil was being saved in the Economic Stabilization Fund (FIEM). But then, oil went down, and none other than Jorge Giordani decided it was time to use the FIEM, which was drawn down very fast. So fast, that in February 2002, Chavez had to allow the “devaluation” of the currency, which up to that point was only allowed to trade within some bands set by the Government. It was a “light” form of exchange controls, and as expected, it failed to work.

After that, the one to one correspondence between inflation in time and M2 breaks down because of exchange and price controls. Initially, M2 was allowed to increase like crazy, all those bolivars were chasing dollars and inflation jumped up as the currency and devaluation expectations devalued sharply the currency in a country with so many imports. Then in January 2003, the Government began to totally control the exchange rate, introduced price controls, all of which drove inflation down for a while.


Because at the beginning the Government became very stingy with its dollars, refused to allow price increases and like exchange and price controls everywhere, there is an initial positive effect, but it always breaks down. Markets are like that!

Holding the currency constant delays inflation adjustments. That is why inflation first went down and even as the Government reduced the increase in M2 in 2007, inflation has not gone down, because prices and the exchange rate were held back by artificial controls.

But in 2006, the increase in M2 was so large that all the positive effects of controls disappeared and inflation began to grow. And the Government decided to not allow M2 to increase as fast, but inflation did not go down.


Because it did not allow for devaluations, holding back the currency, subsidizing everything and eventually, even that became unsustainable. Thus, even though M2 has not increased as fast, inflation is at the same levels because the Government has to adjust prices and the currency periodically when things get really tough.

Now, that is really structural!

It is built into the absurd system of controls that Giordani, who is not an economist, has built around this Government. And as long as the controls are in place, inflation will not go down for the simple reason that there will be periodic devaluations, periodic price adjustments (This week it was wheat and bread) and the risk of higher inflation is probably higher than that of lower inflation.

Thus, it is all self-generated and is becoming structural, but by structures that were not in place twelve years ago. This is not a chicken and an egg problem. Giordani laid the egg and Chavez allowed him to do it and out of it came this weird chicken who nobody can control.

And if nothing is done, which will be the case as long as Giordani is where he is, inflation, the worst tax on the poor, as the cartoon shows, will remain as high as it is today, if not worse.

Capitalists Are From Mars, Venezuela To Become Venus

March 22, 2011

Whether Hugo Chavez was kidding or not, his silly and foolish statement about capitalism probably destroying life in Mars represents another not so funny irresponsible moment by the Venezuelan President. If he was kidding, he went on for too long, speculating whether this could have happened or not, when he talks to a public that tends to believe what he says. If he was serious, it is no surprise that an ignorant lieutenant so full of himself now wants to extend his creativity to science. Why not? He has innovated in so many fields by now, destroying the economy, trying unworkable ideas and spending money on his whims and mostly useless capricious ideas.

Even bad ideas are the subject of a nationwide address as amply covered by Daniel today. A country where running water was the future for all, now faces a step back into water delivery trucks, with the Government as the provider of tanks and water. Chavez is truly leading Venezuela into a primitive society, that is as far as his limited mind and gigantic ego can take us. Only backwards seems to be his motto.

To make matters even worse, those surrounding him are as limited or as blinded by ideology as the Venezuelan President, which only reinforces problems. Cabinet members seldom have any experience in their responsibilities, let alone managerial experience. Look at Giordani and Merentes, out of place and out of their league in their respective, and very important, positions.

And it shows. If capitalists destroyed Mars, Chavez’s fuzzy socialist project will turn Venezuela into Venus, frozen in the past, run by ignorants and not hospitable for living.

And yes, for this blog, as for Daniel and CC, here is the video, impossible not to add it to twelve years of our foolish history under Hugo.

Stopping Gaddafi Not An Easy Decision, But The Right One

March 20, 2011

People seem to be acting as if the decision to stop Gaddafi from killing his own people was an easy, black or white decision. Tough decisions are simply never that clear or easy, if they were, this would have happened close to two weeks ago, when the Libyan Dictator decided to begin the genocide against his own people.

As such, the decision is simply very black and white to anyone that has a high regard for human life above all. If one life is precious, no leader of any country should be allowed to use the weapons supposedly purchased for defending the country from those outside, against his own people. It is not only criminal, but it is a battle no civilian group in the world can expect to survive or even fight against

The problem is that there are not only no rules, but there is the question of who gets to make them? The United Nations, much like most multilateral organizations like it, has always been quite a failure about assuming its proper role in the world. It failed to act in Cambodia, went in too late in Bosnia and has failed to even speak in too many other cases.

What has made Libya and Gaddafi different this time around, is that the forty year old Dictator was quite overt about what he was doing. Once he realized that the fight against him was winning, he decided to use his last weapon: The country’s weapons against his own people.

But the key here is “forty year old” regime. For forty years Gaddafi ahs been an immoral leader in terms of human rights and has been tolerated off and on by the world. Similar things have happened to many others that come from less fortunate or relevant countries.  But Gaddafi the Dictator, was followed by Gaddafi the terrorist, then by Gaddafi the statesman as, like most autocrats, he twisted and turned looking for the only thing that mattered to him: His own survival.

And the West and the East and those in between forgave him and accepted him, even if his hands were bloody from one of the most despicable terrorist acts sponsored by a Government.

And how difficult the decision is or was, can be seen in its backing by the Arab League, many of whose members have incurred in similar, albeit in smaller scale, human rights abuses against their own people. Or are backing them today as I write.

But to invoke peace or oil as the excuse, like Chavez did,  is simply ridiculous, from a Government that could have either abstained from saying anything, or simply could have attacked its own allies, like Saudi Arabia, but failed to do so, as it defended its own selfish interests.

Personally, I am glad the decision is to stop Gaddafi’s forces from killing the civilians and hope it does not go beyond that. If one life is saved the effort would have been worth it.

Unfortunately, this does not seem to have a clear ending. By now, the only possible one is for Gaddafi to leave power and face international Courts. His sons, or relatives, or whomever he chooses, could try to grab power fairly and honestly, nobody really knows in a country divided by tribes if Gaddafi’s own cluster of them is stronger or weaker than others.

But history suggests that conflicts like this one can only be solved and sorted out from within. This should be more so in the case of a tribal country like Libya. If it is not, Libya may be facing decades of additional instability. And that in the end is the worst option, as such a scenario would certainly cause more deaths and poverty for that country.

Chavez’ reaction not only shows his total disregard for human rights, for which he has a long track record that the world refuses to see, but also his fear that this is a precedent that may obligate him to walk the democratic line one day and force him to leave, which I am sure was not in his plans. And I certainly hope we never get even close to a Libya-like scenario and Venezuelans resolve their conflicts internally and peacefully. We would never recover from outside interference or force.

If anyone thinks I exaggerate, you only have to look at Chavez’ trail of blood in ’92 and ’02, his disregard for human rights, today’s interview in La Razon with Che-look alike Humberto Lopez from Colectivo La Piedrita, or remember that some close collaborators of Chavez remain to this date admirers of not only Gaddafi, but also of Pol Pot and his Cambodian revolution.

For now, I am just glad that there is this limited action to stop the genocide by the UN, however inconsistent it may be with its past and that of its members.

Hugo Looks At The Mirror, Sides With Gaddafi

March 19, 2011

In a forward looking move, Hugo Chavez condemned the military action in Lybia, calling for “a return for the path of peace”. He must mean to allow his buddy to continue killing the people who oppose him.

If anyone out there is surprised, just remember, Hugo is a Fidel Castro supporter and admirer, a Gaddafi admirer, a former Saddam admirer, a Mugabe supporter and the author of one bloody coup attempt in which innocent civilians were killed and openly backed another coup in which supersonic aircraft was used to threaten civilian populations. He also ordered the deployment of “Plan Avila” in 2002, a plan that had been classified as being in violation of human rights by the OAS.

Just Hugo being Hugo.

Generic Revolutionary Mismanagement at Venezuela’s Government Generic Plant

March 19, 2011

On May 3d. 2009, President Chavez inaugurated the already existing generic pharmaceutical plant, which had been supposedly upgraded and refurbished since it was shut down in 2006.

Since I have a personal interest in that business, I paid attention, wondering how much real competition this generics plant would create for the private sector.

I worry too much.

Almost two years after Chavez’ bombastic ceremony, it turns out the plant, built and upgraded under Cuban advice, has yet to open, according to none other than the annual report of the Comptroller who controls almost nothing, Clodosvaldo Russian. (He seems to look for only small corruption cases)

Imagine how stinky the whole deal must be for Clodosvaldo to take notice. Five years have gone by and the plant has yet to reopen. The report questions the controls of the plant in its construction, as well as asking that those responsible for “planning, contracting and executing” the building of the plant be made responsible for their mismanagement.

Just think, when Hugo opened the plant two years ago, he said this was the only one in the country producing medicines for malaria and tuberculosis and then Minister of Health Montilla marveled at the fact that the plant was built in record time, faster than the private sector.

Just don’t get malaria, please, you will be out of luck.

Maybe Chavez should order this project frozen too, maybe nobody will notice.