The Devil's Excrement

This is a picture of the leaders of Chavez’ party PSUV after they had the joy of talking to their boss from Cuba. They all tweeted in unison when this happened, but somehow the picture does not fit the news, or the faces do not fit the news. As we say in Spanish the “carometro” or “facemeter” is not the bearer of good news.

If a picture is worth 10,000 words, then judge Hugo’s health by these faces.

Thanks ErneX!

By now, you can even trade (or bet!) on the possibility that Chavez will not be President by the end of this year.

Is that cute or what?

Markets, love them and hate them!

(Thanks to you know who!)

Note added: Venezuelan bonds went up sharply today, as people bet that Chavez may be out of the picture in the future. It is not a bad bet, if Venezuela’s risk goes down 300 points, the Global 2027 bond goes up 19 points or 25%. If nothing happens you collect 13% annualized.

Given the uncertainty and rumors about President Hugo Chavez’ health, today’s warning from the President’s brother Adan Chavez is quite ominous. In a speech in Barinas State, Adan Chavez said:

“The revolution was born in the Bicentennial era and it made it through elections and we want it to continue that way, following a peaceful path that allows us to build Bolivarian socialism, but aware of the dangers that beset us and that the enemy does not rest, we can not forget as authentic revolutionaries, other methods of struggle. ”

He then proceeded to quote Che Guevara:

“It would be inexcusable to limit ourselves to only the electoral and not see other forms of struggle, including the armed struggle.”

Combined with the uncertainty over Chavez’ health, the fact that the President has no successor that could match his electoral abilities, this warning represents a very real threat to what little is left of democracy in Venezuela and should be condemned by the opposition and international organizations.

By now, the media and the country are full of rumors and tips about Chavez health. While few believe Wikileaks Argentina’s story that the President passed away, one can’t help but wonder what Foreign Minister Maduro meant by saying “Chavez battles for his life” or why Chavez’ mother said “I pray to God that he heals him fast and brings him back”.

In Venezuela, people go back and forth between Chavez’ demise and the other extreme, that this is just a ploy to bring back a triumphant and healthy Chavez as a way to prop back his popularity.

I subscribe to neither of these scenarios. I think that we are simply playing out the same scenario that led me to write a post on May 29th. , that received little attention. Now, I did not write that post because I had a vision, a particularly insight or anything of the sort, I wrote it because I received information that Chavez had something which was not the knee, it was something debilitating, something very painful, but not something fatal. This simply meant that the upcoming presidential campaign would have a diminished Chavez, which given his lower popularity and increasing protests would imply the opposition had a better chance that I give it credit for.

What seems to have happened since then is that there were sequels from the operation which have made Chavez’ condition worse, from an infection of the wound to a possible expansion of the cancerous prostate. This last part I have been unable to confirm, but it does not change the outlook dramatically. Removal of the prostate and the cancer related to it and it surrounding is not something that causes death in 90-plus percent of the cases. Chavez is relatively young (younger than me, thus young in my book), which is both good (stronger), but also bad (tumors speaed faster in younger people).

Thus, to me things look the same as they did two weeks ago, there are complications, but so far, the original story given to me is true: he has a debilitating, painful and likely non-fatal illness which will diminish his physical and likely mental ability to develop his typical frontal, twenty four hour, seven days a week campaign that he has done in the past. This weakens him at a time of weak popularity and as I said in the comments, it is a game changer.

There is also now the theory that this is simply a ploy to bring back a triumphant Chavez. While Chavismo may be thinking about that, I don’t believe for a minute that this was the original plan.The reasons are many.

To begin with, there is no question that Chavez has been ill. He was absent form the media in May, had a cane and talked about a knee problem. As I said in my first post on the subject, a painful knee does not stop you from sitting in front of a camera and give a speech, even a short one if you are taking very strong pain killers.

The subsequent events after May also don’t fit this picture. We saw no picture with Lula, but they clearly met. He then left for a meeting with Brazil’s President and he looked better, still using a cane. Then came the news from Cuba. If the ploy to bring back a resurgent Chavez began then and his operation there was fake, why have him speak for twenty minutes on Sunday June 12th., only to later silence him? Why turn twitter on and off in bursts that do exactly the opposite of their intent?

Chavze also missed too many chances to blast the enemies, when PDVSA received sanctions from the US Government or to say something about his Comptroller, who died in Cuba a week ago, or the 190th. anniversary of the Battle that seal Venezuela’s independence which was last Friday.

It may be that now that he is getting better this is what they are thinking of doing, but they have to be pretty sure that a) Chavez will recover by a certain date, July 5th. the 200th. anniversary of our Independence and b) that Chavez will look fine then. It does not appear they are.

In fact, the most damaging comment was Adan Chavez’ (his brother) comment saying Chavez would be back in ten or twelve days. Such a specific period implies a medical opinion, a procedure that last that long, otherwise you would say the President will be back whenever he wants or something like that.

And then we got the statements from Maduro and Chavez’ mother about his health. From Maduro I would belive a ploy, but to involve Chavez’ mother, I simply don’t buy it. He is sick, recovering and we will see him at some point.

That’s my take.

Seems to the best kept secret in Caracas, Chavez has prostate cancer, his prostate was removed and prognosis is not so hot. The news and the uncertainty is spreading like wildfire, even the Wall Street Journal is running with it.

The story is, at least consistent with the way it has played out.

With the new debt announced two weeks ago and approved by now, it is interesting to revisit the country’s debt. First, let’s look at the evolution of local debt, which with the new Bill will now grow to Bs. 135 billion, as shown in the graph below:

Of course, this debt is not as worrisome, as it can always be devalued out of the picture. In fact, if you divide each year above by the exchange rate at the time (using the official rate of exchange), then the graph is as follows:

Despite the fact that total debt in Bs. went up from last year to this year, for example (I am including half of the new Bill as issued in 2011), local debt in US$ actually went down, thanks to the devaluation in January.

That is why foreign debt is more important. If one adds Venezuela’s and PDVSA’s bonds (I am not taking into account Chinese loans, other loans and the like), then you get the following graph, in which you can see the effect of all of the debt that PDVSA has been issuing in the last few years. Essentially the Republic’s debt has barely gone up, the increase in the graph below is all coming from new PDVSA issues. (I am excluding in the graph the payment of US$ 2.5 billion coming up on July 10th., but I am including US$ 5 billion as part of the new Bill, but I just learned that PDVSA issued today US$ 1.5 billion of PDVSA 2022 which it sold to the Venezuelan Central Bank. The latter is not included)

Finally if you add both local and total external debt you get:

Since GDP is US$ 235 billion, then Debt to GDP ratio is around 40% without the Chinese funds and other loans which would bring it up to 50% or so. (Of course, GDP is measured in Bs. at Bs. 4.3, so that the true GDP measure is lower)

The reason that many investors are not as concerned is that when you look at maturities:

You can see, that there is no bond due next year, only US$ 2 billion in 2013 and a little over US$ 4 billion in 2014. It is not until 2017 that things could get hairy, as over US$ 7 billion come due (Note there are two bonds due that year) and, of course, you have to pay interest.

The big problem is then the slope at which debt is increasing. Venezuela and PDVSA can not continue issuing debt at this rate, something has to give. Total debt payments each year are now US$ 4 billion. If no debt were issued between now and 2017, that year it will be US$ 7 billion in capital, US$ 4 billion in interest, that is a total of US$ 13 billion, not exactly a small piece of change. But the reality is that under current planning by then, Venezuela would have issued another US$ 40 or 50 billion in debt, which would almost double interest payments.

And that is the real problem, the current model is simply unsustainable when the country produces less oil each year and all of these bonds are issued not to invest, but to maintain a lower rate of exchange.

Crazy!

While most people are talking about Chavez absence since his operation in Cuba on June 10th., the problems began way before that. This blog first noted Chavez’ absence and more suspiciously, his silence, on May 29th.

But the whole story really started on May 9th. when Chavez called TV Network VTV and said he had to cancel his trip to Brazil, Cuba and Ecuador. Chavez said at the time that that he had an inflamed knee, that he had gone running that day and it got worse and had to cancel the trip. He did not appear on the media to make the announcement.

Two days later, on May 12th. via his Twitter account @chavezcandanga, Chavez said that he had a problem with his senovial fluid and that the doctors were recommending an astroscopic procedure. For the next two weeks, mostly via Twitter, Chavez reported improvements, said he was treating his knee with a “magical herb” Evo Morales gave him, that it was going to be a very slow recovery for his taste, but it was not until May 22nd. that he made a public appearance, saying that his knee was still in bad shape. During this time the US announced the sanctions on PDVSA and Chavez said nothing publicly about them.

Then,  Chavez announced on June 2nd that he would visit Brazil, as he met with former President Lula in private and on June 5th. said he would cancel his Sunday program Alo Presidente for the fifth week in a row, this time in order to have time to prepare for the trip. He did go to Brazil and from there to Cuba.

Then, on June 10th, while in Cuba, it was announced that he had an operation there for a “pelvic abscess” something which is typically a sequel to an operation, an infection, appendicitis, diverticulitis, hysterectomies (not applicable) or peritonitis.

On June 11th., the next day, Chavez called TV network Telesur and used the word “malignant”, saying “there is nothing malignant, there is no infection”. But a pelvic abscess is never malignant and it certainly has to be infectious.

Since then, there has been total silence. Cuban newspaper Gramma distributed this picture of the Castro brothers visiting him:

which some claim is a photoshop version of those taken last December.

This Friday is  a National holiday in Venezuela and some expected Chavez to reappear, but the military parade in Carabobo is likely to be cancelled. And I am told the one on July 5th. for Independnce Day, will also be cancelled as we will not see Chavez in Venezuela then either.

Meanwhile, Chavez’ 5 day permit to be absent from the country has expired, the Vice-President has not been appointed to serve for him in the mean time, which is what the Constitution says should have been done. Vice-President Jaua, unloved within his party says that people want him to commit treason. Funny, following the Constitution can be considered “treason”

And the mystery continues, our take: Hugo is very sick, I am told is something debilitating but not fatal, but his ability to run a campaign is being put into question. There may be crazy jockeying and conspiring going on in Caracas, Havana and PSUV, but somehow the opposition has not focused on the illegalities and contradictions of the situation.

Meanwhile it has been 43 days since the first knee problem and 13 days since the operation in Cuba, 12 since we last heard from the once loquacious Constitutional President of Venezuela…

and counting…

(Chavez’ brother says it will be 10 to 12 days before Chavez returns, that is a three week convalescence for a relatively young man. It must not be something simple)