Had to share this.
Archive for March, 2011
Today, President Hugo Chavez ordered that Venezuela’s non-existing Nuclear program be frozen because of the problems in Japan.
This is good news, nobody will lose their job, no project is being stopped, nothing is happening, some money may even be saved in trips to sign useless agreements with Russia, Iran and Vietnam.
Who should I quote? Myself? It is in bad taste, but here it is:
“I can not take Chavez’ nuclear program very seriously, beyond the exhibitionist aspects of it”
“To do anything in the nuclear field, you need people and very simply, Venezuela does not have them. It would take years for Venezuela to put together a group of nuclear scientists to perform a small project whether peaceful or not. Unfortunately, educating high level people like that has not been and is not a priority right now and there is no local talent available to even begin doing it locally. The Venezuelan science establishment is getting old and in nuclear physics in particular, the people I know of are mostly retired or in the process of retiring and there are few people coming up below them.”
“The only thing that would change my mind on this was to learn that the country was importing huge numbers of experts from other countries for such a project.”
There you have it, mas sabe el diablo por viejo que por diablo. (The Devil knows more because he is old, than because he is the Devil)
As oil prices hit U$100 per barrel, many thought this would be enough to satisfy Chavez’ voracious appetite for sometime.
No such luck.
Yesterday, Chavez said that more money is needed and that he had sent some people to China to negotiate a new loan. Chavez said that he “did some adding” and he realized that he needs more money. “I checked the Housing Mission, we need thousands of millions”
And then the man that has wasted over half a trillion dollars in twelve years dared say: “One has to administer resources with good criteria. We have to save (??). One has to add up the numbers of the country…We have to administer with prudence…we need money for agriculture,roads, schools, hospitals, culture, the armed forces, railroads…”
Chavez sent the Minister of Commerce Edmee Betancourt with representatives from Finance and PDVSA to make a formal request to the Chinese, later he mentioned “one of the largest banks of that country”
It was unclear what happened to the US$ 16 billion left, never disbursed, of the US$ 20 billion loan with China. This is the so called “miracle loan” as Minister of Finance Giordani says these loans can not be considered as debt, in a new and novel interpretation of “debt” under the revolution.
Let’s see. Even if we don’t believe PDVSA’s export numbers and believe ours, Venezuela exports about 1.6 million barrels of oil a day. At US$ 100 per barrels, the Venezuelan basket for the year would be around US$ 92 per barrel, some $25 dollars above last years average, or an additional US$ 40 million more per day, or an extra US$ 14.6 billion more. But this is not enough for Hugo.
The sad part is most of this money will be used for current spending, not investment, mortgaging the future of all Venezuelans so that Hugo may create a feeling of bonanza and get reelected in 2012. That is all that matters to him.
How irresponsible can you get?
You have to wonder where some of the Chavista “leaders” get their ideas. Reading the daily newspapers of Venezuela is truly a veritable Ripley “Believe It or Not” adventure into harebrained ideas. Today Chavismo was quite generous in its outpouring of ideas that would amaze anyone.
First it was the President of the National Assembly Fernando Soto Rojas. Fresh from telling us last week that there is no separation of powers in Venezuela and Chavez has a say on everything, he calls and tells us that:
“The Lybian conflcit is seen by Venezuela as a political opportunity to project Chavez image both within and outside the country and attempt to avoid a defeat in the upcoming presidential elections”
He even says that Chavez PSUV party “approved” a plan to position Chavez’ image in the context of the Middle East crisis.
“We need a worldwide political victory to win the Presidency in 2012”
Jeez, where do I start on the venerable (by age) Soto’s words? First, he is recognizing that the number don’t look very good despite the affable Jesse Chacon telling us today Chavez would win running away. Second, Chavez, Soto and the party appear to be more involved with worldwide politics than doing something for the people or perhaps they realize the people are so pissed (See this video for example) that there is little they can do for them that would change their opinion. But more importantly, political issues continue to dominate what the party and Chavez discuss. The strategy is to position Chavez in some international conflict because the task of doing something nationally looks sort of difficult at this time. Too much time has been wasted on politics, rather than doing something.
And then, today’s El Nacional where Soto’s words were quoted, aslo has a strong statement by none other than Minister of Feeding Carlos Osorio.Osprio says that wheat imports will be centralized by the Government, so that there are no excess imports that have to be sold to other countries (read Colombia). Osorio added: “We can’t continue with this vision of teh private sector and capitalism of seeing foodstuffs as a business”
As if this was not enough, Osorio said that all purchasers must be made from countries who are “allies” of Venezuela
Where does one start? First I would love to see the list of “allies”. It would be interesting to make it public. The fewer the providers, the more expensive importing stuff will be, but that does not seem to matter anyway, after all, we have the highest inflation in the world, there is nobody left to beat.
Second, this “import only what is necessary: simply does not work. This is what leads to shortages and the problem with the stuff sold to other countries is not because there is an excess, but because it is cheaper in Venezuela, where purchases are mad at the subsidized rate of Bs. 4.3 per US$ and the price of wheat flour is subsidized. But what is hard for me to figure out is where does this guy get the idea of excesses? There have been two or three shortages of wheat flour in the last two months.
But what I really wonder is if this guy knows what “capitalism” and the private sector have done, for example, in Brazil in terms of food, not only producing cheap foodstuffs but making Brazil a powerhouse producer for the world. And ot was the private sector, not the Government who did it.
It is incredible how these guys use their home made “wisdom” to make up political and economic models that are known to have failed, while failing to even study or look at the successful ones. Chile and Brazil would be a good place for them to start with. But I know, I know, it’s hopeless.
Note added: Well, according to the Association of Wheat Workers, the “excess” supply will not last until the end of march.
Pension Funds: The Same Story by Teodoro Petkoff in Tal Cual
In the scam with the Pdvsa Pension Fund, there are several things you can say that are perfectly clear.
First, Mr. Francisco Illarramendi managed the fund at will and was caught red-handed, getting rich with the money of the workers of PDVSA, which he managed anyway he wanted.
Second, thus, “Gordo” Illaramendi managed the Fund by appointment of Rafael Ramirez, thus, this gentleman knew everything.
Third, PDVSA workers, contrary to the lies of the capo of PDVSA, had no art or part in managing funds that were theirs. They could not exercise any supervision or monitoring of the dirty dealings that were taking place with their money. If it were not for the gringo institutions, who discovered the fraud, PDVSA workers still would not know anything. Fourth, while in the US there is an investigation and an open trial on the robbery to the Pension Fund, here in Venezuela from Chavez to Ramirez the issue is ignored, as if it had nothing to do with them. Just like what happened with the case of the “Gordo” Antonini Wilson. Trial and sentencing in the U.S., open trials in Argentina, but here, outside of a discrete forced retirement of Mr. Uzcategui, PDVSA’s principal passenger on the plane and veteran scammer with Argentina, the thing was covered up. Now, of course, they attempt to apply the same technique. Look the other way and let “Gordo” Illarramendi defend himself, hanging on a wire, like they left Kaufman, Duran and company in the scam from the suitcase. You can steal, but at your own risk. If you are caught, don’t count on your government accomplices.
No sooner is the Venezuelan Government recovering from one scandal than it is plunged into another.
The latest is the scandal of the PDVSA Workers’ Pension Fund revealed by the US Securities and Exchange Commission (SEC). According to the SEC, a large part of the US$500 million managed by the Venezuelan investment advisor, Francisco Illarramendi, has apparently been lost.
Now for a bit of background. Readers may well recall that, since 1999, Francisco Illarramendi has been the confidential financial advisor of three of the Chávez administration’s finance ministers (Tobías Nóbrega, José Rojas, and Jorge Giordani), besides acting as the financial advisor of PDVSA-America, PDVSA’s affiliate in the United States and the sole owner of Citgo Corp.
Apart from this complicated network of consulting services that Illarramendi has been providing to the Chávez administration, six years ago, he founded MK Capital Management, LLC, an investment consulting firm operating in Connecticut, USA, and he also set up two hedge funds, which were not registered with the SEC. And, surprise, surprise, the main client of one of those hedge funds was the PDVSA Workers’ Pension Fund.
The person responsible for the PDVSA Workers’ Pension Fund is PDVSA’s finance director, under the supervision of the company’s Board of Directors, who, five years ago, handed over some US$475 million from the pension fund to Illarramendi for him to administer.
It so happens that, in January this year, the SEC accused Illarramendi of misappropriation for having taken US$53 million he was administering to make highly speculative investments in recently founded companies.
If that was a serious charge, it was dwarfed by subsequent accusations by the SEC that Illarramendi had been using a Ponzi scheme, in which the money obtained from new investors was used to pay back previous investors; in other words, a pyramid scam similar to –albeit on a smaller scale- to Bernard Madoff’s or Robert Allen Stanford’s.
To complicate things still further, the SEC has also accused Illarramendi of conspiracy to obstruct justice for deliberately misleading the SEC by submitting a false certificate signed by a Venezuelan public accountant that purported to verify the existence of US275 million in assets that did not actually exist.
Francisco Illarramendi is being held in the United States and has pleaded guilty to a federal court. That could be bad news, as Illarramendi will be sentenced without there being an opportunity to learn all the details of this scandal and without it being revealed who is at the head of this network of corruption.
Minister of Energy and Oil-President of PDVSA Rafael Ramírez and PDVSA Finance Director Eudomario Carruyo owe the country an explanation of why Illarramendi was given full discretionary powers to “administer” the monies from the Workers’ Pension Fund without any supervision or control and with no audit.
Last week I wrote about the PDVSA Pension Funds and its activities investing in some fund run by Francisco Illaramendi, wondering what the relationship between PDVSA, its pension funds and the Illaramendi funds was and asking aloud whether the Government or PDVSA would ever investigate or answer these questions.
Well, today, the US Securities and Exchange Commission filed an amendment complaint in the case, which increases the need for answers from both PDVSA and the Venezuelan Government in the case.
The SEC now accuses the Funds of misappropiation and misuse of investors assets, saying that Illaramendi and MK Capital Magement have used both Funds as vehicles for Ponzi activity, paying off old investors with new investors money. According to the SEC, the US$ 540 million held in the Short Term Liquidity fund, where PDVSA’s Pension Fund had 90% of its assets, were actually “substantially less” because funds were used to pay off investors in the MK Venezuela Fund.
The SEC further charges that Illaramendi attempted to hide the missing assets by providing the Commission staff with a false letter from an accountant in Venezuela to verify the existence of at least US$ 275 million. According to the SEC, these assets do not exist.
The complaint charges that the liabilities of the funds “vastly exceed the actual assets held by the funds”. The funds had supposedly experienced investment losses and the “gap” is as much as hundreds of million of dollars.
Besides these new accusations, the SEC extends the accusations of investment in private equity transactions, including lending to ventures without documentation.
The SEC also says it interviewed a “Pension Fund” Executive. The Pension fund Excutive said did not know about the loans.
A Pension Fund or a PDVSA Executive? Didn’t Rafael Ramirez say PDVSA had nothing to do with running these Pension Funds in the National Assembly? In the memo below, saying the investments were fine to pensioners, it is signed by none other than PDVDA’s “Internal Director of Finance” who signs here as President of the Pension Funds. Note also the suggestion that this is a “mediatic” campaign in point 8
These charges against the funds and Illaramendi raise the same questions as last week, except magnify the need for PDVSA and the Chavez Government to explain who was involved and who authorized investing pension money in these funds and how was this handled.
Will we hear something this time, or much like the Antonini suitcase, it will all be buried once again?
Note Added: No sooner (minutes) after posting this, Setty tells us that Illaramendi has pleaded guilty. Will he reveal his PDVSA collaborators?
Lina Ron, a controversial and iconic figure of the Chavez revolution is dead at 51 from a heart attack. Ron was one of those revolutionary figures that was hard to comprehend to many Venezuelans. Born in an oil industry family at the same time as Venezuela’s IVth. Republic democracy, Ron was even more “in your face” and provocative that Chavez himself. She first surfaced in 2001, leading a group that burned the US flag after the Sep. 11th. attacks.
Ron and her supporters had a total disregard for the law. She once rescued her husband from a police station where he was being held. She coordinated and participated in a number of attacks on TV station Globovision, as well as on Cardinal’s Urosa’s official home when he was still Archbishop. She always threatened with violence, not only to defend Chavez’ revolution, but to support it if it ever were to lose an election. After the last violent Globovision attack, she was ordered jailed by Chavez, only to be quietly freed a couple of months later.
She seemed like a very authentic revolutionary, but was accused of being funded by the Government to buy weapons and motorcycles. Her obviously fake blond hair was copied by admirers and seemed to some to be inconsistent with her revolutionary stance. It was copied at Carnival and in revolutionary circles. I will never forget taking a reporter around Caracas on election day and finding a large group of Ron look-alikes, with absurdly long blond wigs, dancing and signing in the middle of the street in downtown Caracas.
She was a true anarchist in a Government that uses anarchy, and used her, for its own goals, but always blames it on others. She founded a political party and only a few weeks ago said if Chavez lost the election in 2011 there would be “plomo” (lead, shooting, violence) She was a leader on her own right, even if many of us still have a hard time understanding how she came to be what she was in the Venezuela that we thought we knew.
Two years ago, I wrote a careful post on the health of the Venezuelan Central Bank entitled: Central Bank Musings: Printing Money and going bankrupt. I spent a few days working on it because I wanted to explain to the non-expert what the balance sheet of a Central Bank looks like. I remember this quite well, because I was sitting on another story, the Stanford Bank story, as Alex Dalmady had written his now famous “Duck tales”, but I kept putting it off to devote time to my Central Bank post which barely generated a beep, while the Stanford story was one of the biggest ones ever covered by this blog. But the story of the financial state of the Venezuelan Central Bank, may one day be bigger.
Some of you may want to look back at that post now, because things are much worse than they were then. That is why a group of 26 Economists a week ago published this open letter to the Board of the Venezuelan Central Bank (BCV), asking ten very simple questions:
1.- Can you explain how it is possible that an asset that has been transferred from the BCV to Development Fund (Fonden), in this case US$ 39 billion in international reserves, continues to be reflected simultaneously in the balance sheet of both the BCV and Fonden as an asset? Is this consistent with the generally accepted accounting rules?
2.- Could you make public the detailed methodology in the calculation of what you call “an adequate level of international reserves”?
3.- Why is it that the BCV has stopped publishing, for more than a year now, the table with the monetary base according to its different sources, where one would be able to appreciate the main factors of primary money creation by the BCV?
4.- Since 2004, there has been an item in the equity of the BCV denominated “adequate level of international reserves” which subtracts Bs. 9.186 billion (US$ 2.136 billion) to the overall equity. At the close of December 31st. there is in the assets of the BCV an account denominated “diverse assets in national currency” (Note 12 in the balance sheet) under the concept “adequate level of reserves” for Bs. 61.155 billion (US$ 14.222 billion). Shouldn’t this account be subtracted from the equity of the BCV in order to be coherent?
5.- Article 5 of the Central Bank law establishes that “the fundamental objective of the Venezuelan Central Bank is to achieve price stability and preserve the value of the currency”. Since the primary obligation of the BCV is the control of inflation, how do you explain that we have the world’s highest level of inflation?
6.- Can you explain why the backing of monetary issuance (International Reserves/M2) has deteriorated by 111%? Such backing was US$ 0.10 for each Bolivar in 2010, when in 1999 it was US$ 1.21 for each Bs.
7.- On July 20th. 2005, the account “Funds transferred to Fonden” was created in the amount of Bs. 12.453 billion (US$ 2.896 billion), which according to Note 11 of the balance sheet of the BCV had to be amortized by creating voluntary reserves. Why is it that after five years, this has yet to be amortized?
8.- What is the content of of the item “Diverse assets in national currency”, noted in Note 12 of the balance sheet of the BCV? What are these so called financial instruments in the amount of Bs. 15.05 billion (US$ 3.5 billion)?
9.- What was the economic cost of the monetary reconversion?
10.- What have been the benefits to the citizens of the creation of the strong Bolivar, since its introduction on January 1st. 2008?
The country demands sincere answers
This post dedicated to Setty. My friend, if this stuff was fiction, nobody would believe it…
I will not bore you with the details, Setty has done an outstanding job in covering (and uncovering!) them, but basically a fund in the US, a very capitalistic hedge-like fund, is halted from operations by the SEC. It turns out that 90% of the money in the fund is money from PDVSA’s employee pensions funds. Then, it turns out that the fund was involved in illegal foreign exchange operations. But with whose money? PDVSA or the PDVSA pension funds? And when the investment funds are stopped from functioning, two private companies in which the funds invested (the very reason for the SEC intervening) need money that was coming to them, but the money is trapped in the funds.
Who comes to the rescue?
None other than PDVSA, who is willing to “help” on demand, just like that
So, what gives?
The funds are managed by a Venezuelan, Francisco Illaramendi, who acted as an adviser to PDVSA in the past. But these days, he seems to be a vehicle for PDVSA acting. Except that initially PDVSA was hiding behind its pension funds. Or so it seems.
This leads me to ask a simple question: Who was PDVSA acting for, the funds or PDVSA? Who made money from the deals, PDVSA or its employee funds? Why did the funds invest in a company developing small nuclear reactors? Was Illaramendi simply acting on PDVSA’s orders? How was he being paid? (Other than getting US$ 482 million into his funds)
The funny (not funny ha, ha, just weird) thing is that Minister Ramirez said last week in the National Assembly that PDVSA had nothing to do with the managing of the funds. Union workers and pensioners say they have seen no information on how the funds are managed for years, ever since PDVSA’s Treasury Depratment took over its management.
And Ramirez looked very uncomfortable answering these questions. And he should. What the funds/or PDVSA/or Illaramendi were doing was simply illegal in Venezuela and the details of the flow of money could be even more illegal.
But nobody knows. Nobody answers, nobody says anything. Nobody questions it. The Comptroller is nowhere to be seen. Ditto the Prosecutor.
But this memo from the fund’s lawyer shown by Setty is simply priceless, almost as good as a suitcase with $800,000 in cash, opened at customs in a Buenos Aires airport.
“As MKG has indicated, in order for STLF (Short Term Liquidity Fund) to conduct Venezuelan currency transactions in the permuta market, it must furnish its own Bolivars…”
Except the permuta market has been illegal since May, so what the hell is this lawyer talking about?
but then, this same memo, dated Jan. 04th. of this year says:
“MKG has stated that the Bolivar providers need to be paid, in no small part to assure that they will be willing participants to future transactions requiring Bolivars”
This says, we have been involved in transactions which are illegal in Venezuela and need to pay our counterparties in order to keep participating in them.
And PDVSA was right in the middle of things. And this is all managed from PDVSA’s Treasury Department and PDVSA’s pension fund contributed 90% of the money to the investment fund.
Not clear enough for you? How about:
“STLF purchased Bolivars from non-US participants at an agreed exchange rate, to be paid at this point in the transactions”
Jeez, last year in May, the Chavez Government shut down 46 brokers and jailed people who were doing legal transactions and banned currency exchange transactions and these guys are doing them now, with PDVSA money to boot?
As far as I know, the only country that trades and accepts Bolivars is Venezuela, where any of these transactions is illegal. Where do these Bolivars flow? In Belaruss? Or Zimbawe? Or is it Lybia? I bet it is more likely to be in Caracas.
And PDVSA is in the middle of all this?
No wonder Ramirez and Giordani talked openly about lowering the parallel market! They are apparently running it!
The revolution never ceases to amaze me!
(P.S. And don’t forget, these same funds invested US$ 1.15 billion dollars in the PDVSA 2017 bond earlier this year. Add it up: US$ 1.15 billion plus 482 billion is 1.632 billion. How much money do these funds have? Is this the revolutionary idea of “diversification”?)