Archive for August, 2011

The Fonden Papers part III: Why is there so little impact, when so much money was spent?

August 31, 2011

When you look at the Fonden Papers, the first question that comes to mind is: How is it that despite spending US$ 9 billion (Fonden) and US$ 2.2 billion (Chinese Fund) in 2010 alone, a huge number compared to the budget, it has so little impact on the economy, public works, visibility and the like?

The answer is simple, these are supposed to be development projects, but in the end the whole process has been perverted by ideology, lack of economic understanding and Hugo Chavez’ whims. And I bet it is those whims that delay and divert money, insuring that the few thing that could generate growth and development are not finished on time.

The problem is how the money is spent. As Quico in Caracas Chronicles has shown, the top four areas over the five years of Fonden expenditures got 70% of the money. Energy and oil was number one, Transport and Communications was two, Defense was three and Cuba was number four.

On Energy and Oil, there is the weird fact that PDVSA contributes to Fonden and then Fonden turns around and gives the money back to PDVSA. This sounds so weird that it’s fishy, but let’s assume these are bona fide PDVSA projects. The problem is that it’s well-known how few jobs these petrochemical/oil projects generate and in the end, it is a zero sum game, PDVSA gave money to Fonden which goes back to a company that is not investing what it should anyway.

Then, there is Defense. Most of the projects are about importing gizmos and toys, which simply give something to do to our military, but truly contribute little to the economy and development.

Cuba is number four, but it obviously contributes little to the Venezuelan economy.

Then there was Transport and Communications, a typical area that contributes to the economy. There are railroads and subway systems, but I decided to pick on a Chinese Fund project that I thought I could follow: The highway of the Autopista de Oriente between Las Lapas and El Guapo, line 1 under the Vice-Presidency under the Chinese Fund. This project for a 33 KM. piece of highway came to US$ 143 million, or US$ 4.3 million per Kilometer, which I have no clue if it is reasonable or not, in terms of price. You can see the stretch of road we are talking about in the map below, it is the one labelled number 3.

The earliest reference I can find to this part of the road was this Radio Mundial link, in which then Governor, now Deputy Diosdado Cabello (he was ousted by Capriles in an election) says that next week (this was Nov 24th. 2007!) they will name the winner of the bidding for the project. Cabello gloats, that once this part is done, they will build beyond El Guapo to Playa Pintada to complete the whole highway in his state.

A few months later in May 2008, the Agencia Bolivariana de Noticias carried an item (now not found on that website) saying that the Las Lapas-El Guapo road would be funded by the Chinese Fund and would be ready in two years (That would have made it May 2010, 15 months ago)

Except that this picture is from the construction of the road in October 2010, less than a year ago:

In fact, close to four years after the the announcement of the winning bid, the road appears to be about half completed, because in March of this year, for the Carnival holidays, the Government allowed cars to flow through the 15 Kilometers of only one side of the highway that was ready. In fact, I asked a friend who confirms that the road has yet to be completed to El Guapo.

The Vice-President, Elias Jaua actually opened this half of half the road, saying the money had been approved for the whole road (something that happened  already in May 2008, three years earlier) and that by Christmas 2011, these 15 Kilometers of the highway would be finished and then, they would complete the road all the way to El Guapo.

Thus, the two year 33 Km. project is now two years behind schedule and after four years, only 15 Km. of the 33 Km tranche. will have been completed.

Clearly, execution is not this Government’s forte.

But it is more than that. This Government loves to make announcements and clearly the money is not even there. When Diosdado Cabello announced a company had been chosen to build the project, there was no money for it. It was only six months later when the money was found thanks to the Chinese Fund. The rest, since then, is unknown to me. I have no idea why it has been delayed so much. If execution speed goes as badly as it has gone so far, it will take at least four more years to complete the remaining 18 Kms. to El Guapo. That is eight years or four times the original estimate!

And this shows why there is so little economic impact. Projects are drawn out for years, badly executed and the money is not being spent in the right areas, because the Chavista Government prioritizes ideology (Defense, Cuba) over investment projects that generate jobs or infrastructure. And even when they have these projects, after twelve years in power, they have not found a way to be effective and efficient. And I am ignoring corruption!

Just think, the Caracas-la Guaira highway, about the length of the first part of the Las Lapas-El Guapo road, was started on December 1950 and inaugurated on December 1953. But at the time, this was truly an engineering feat, with huge viaducts and an imposing grade, the Las Lapas to El Guapo highway is mostly flat and has little engineering novelty.

I hope the readers will look at the Fonden papers and find one project to study in their area of expertise, this way we can all pool our expertise and dissect how much waste these discretionary funds represent.

I will publish any material you send on the subject!

Hugo Chavez’ Physical Evolution part II, July 17th. to August 28th.

August 30, 2011

On July 16th. I showed the evolution of Hugo Chavez’ physical appearance during the time before and after his cancer was revealed. In this post, I show the evolution since then, using the same method of cropping his face from the front page of Correo del Orinoco. The order of the pictures is: From top left on: July 17th., July 22nd., July 25th. and Aug 6th. for the first square of four. The second one is Aug. 7th., Aug. 15th. , Aug. 22nd.and  Aug. 23,  and the last one is Aug. 24th., Aug 25th., Aug. 26th. and Aug. 28th.

Anyone that says he looks good, or has not changed, better take a look this carefully, it is after all, a 42 day span.

And BTW, what’s with the glasses? From none to high correction? Can anyone explain this?

Venezuelan Military Officers are Expensively Educated in Belarus far from Billo’s Cadets

August 29, 2011

It was a famous Billo’s song, the type of music that every Venezuelan has danced to at one point in their lives:

Por la puerta de mi casa en correcta formación
van pasando los cadetes que hoy están de graduación
unos son de la marina, otros son de la aviación
otros guardias nacionales y oficial en formación
La marina tiene un barco, la aviación tiene un avión
los cadetes tienen sable y la guardia su cañon
pero lo que más me gusta y me llena de emoción
es que pasen por mi casa en correcta formación

I guess the Cadetes are no more. Or at least, the Chavez Government wants a different type of Cadete. Why do I say that? Because under line 47 of the Fonden Papers, you can read:

“Providing training services for forty (40) cadets of the Bolivarian Armed Forces of Venezuela, according to the Program of Study of the Military Academy of Belarus”

Approved for the project: US$ 9,931,928.55, yeah, about ten million bucks!

Thus, we are talking in Fonden nomenclature (down to the cent) of US$ 248,298.21 per cadet.

Definitely not your Billo’s Caracas Boys Cadets at that price. In the sixties, you could get Billo to play 10 sets for about US$ 1,100 in one evening. But I digress.

Now, I don’t know how long it takes to train a cadet, but given that they are trainees, it is hard to imagine it can take longer than three years. It just so happens, that the Belarus Embassy in Italy has a brochure for the Military Academy and it clearly says that tuition is about US$ 5,900 per year on page 124 or maybe as high as US$ 6,000 per year in page 125. Let’s be generous, let’s give each cadet US$ 2,000 per month in stipend and the total cost comes to US$ 80,000 per cadet. Thus, either the Belarussians or someone else must be pocketing some US$ 168,298.21 dollars per cadet. No?

Sounds like the Cuban health outsourcing deal once again, but this time with Belarus.

But unless the Belarus Military Academy can turn Venezuelan trainees into super human military officers, why can’t the Venezuelan Military Academy train 40 cadets per year? I am sure they could use those 9,931,928.55 bucks in their budget.

And the cadets could march to Billos’ songs to boot!

Gaddafi on being rebuffed by Hugo Chavez and other Hugo tales

August 29, 2011

Reportedly this is a conversation between Gaddafi and his son, in which he refers to our august leader in no uncertain terms:

I don’t know what  this bloated Venezuelan dog thinks. Chavez is a coward. He has  sold himself to the Zionists. Yesterday, when probed about the possibility of moving to Venezuela in case the unthinkable happens, he began to falter like the eunuch comedian that used to make my grandfather laugh. He is a dog traitor. He told me it was not convenient for me to stay in Venezuela. And all the attentions we had for this devil!  The Libyan people’s wealth at their disposal. Our revolutionary wisdom. When he learned that we had put his name to the stadium in Benghazi he began to cry, like a mourner of the desert! Treating me like this, supposedly a comrade, a universal leader, a recognized giant of world revolution. Chavez is a miserable wimp, an impostor. A lot of verbal diarrhea, but where is the help he promised? He is unable to take risks, to confront their enemies with violence. As we have done, liquidating traitors, here and abroad. And will continue to do …

That Chavez is almost as rogue as Berlusconi. Because the Venezuelan is an opportunist masquerading as a revolutionary. Instead Berlusconi behaved with us like an open cynic, a gangster in love with gold.

I love the “opportunist masquerading as a revolutionary” part, I guess it takes one to know one…

I have no clue if the above story is true, but apparently Chavez does not even believe that the scenes from Tripoli are real, believing that it was all taped in Qatar using professional actors:

And just to make the point he once again questions whether the US got to the moon, using the old: Is there wind on the moon? in reference to the American flag on the pictures. I am sure the Cabinet took notice of his wise words.

The Fonden Papers Chapter II: Visiting Pajaritos and getting the Fonden Papers

August 27, 2011

About two weeks ago I told the story of Deputy Carlos Ramos of the National assembly who provided us with an excel spreadsheet of the projects financed by Fonden after I wrote to him. The sequence of how this spreadsheet came about was somewhat unclear, the Congressman saying that there was some US$ 29 billion, give or take a billion simply missing. He made this discovery when he added all of the numbers provided by the Minister of Finance and realizing the total was different, the Minister saying US$ 69 billion had been approved for projects, but the addition of the numbers totaling only about US$ 40 billion.

Quico at Caracas Chronicles then decided to call the Deputy’s assistant to see if we could obtain the original information. But it just so happens that XXIst. Century Socialism, uses XIXth. or XXth. Century tools. There isn’t a scanner to turn the 30 or so pages turned in by Minister of Finance Giordani to the National Assembly into digital form, thus, unless Quico, who lives 2,448 miles away from Caracas, could drop by and pick them up, he (and we) were out of luck. Fortunately, the Devil had to go to Caracas and could go get the papers.

Thus began my trek to the Pajaritos building. The building (pictured above) is actually called the Jose Maria Vargas building, but nobody calls it that, everybody calls it Pajaritos, the name of the “Esquina” (corner) where the building is. I made the mistake of showing up five minutes past noon, which meant that I could not enter the building. (The building is shared by the administrative offices of the Judiciary and the National Assembly, each has its own reception, which opens into the same hall, you can get into the Judiciary at any time, but not to the Assembly between noon and 1:30 PM)

I called Deputy’s Ramos office and they told me they would come down and give me the info we had requested. Waiting there was an experience in itself, I could not go in, but the guy in the mortuary suit that controlled the people allowed a few ladies, buddies and officials to go through. While I waited (He asked me three times what I was doing standing around there, I studied the dozens of people who showed up looking for help. Quite an experience, from Guajiro indians to students wanting to talk to their Deputy, mostly to see if they could get some money (preferably cash).

Finally, the extremely efficient assistant of the Deputy came down and gave me a folder with copy of all the material. You can find the projects all here. Essentially, the story is that Deputy Ramos, as a member of the Comptroller’s Commission, requested on April 6th. that Giordani give him a full list of projects approved not only for the development fund Fonden, but also for the Chinese fund, the Fondo Chino. On April 28th. Minister Giordani sends the info to the head of the Comptroller’s Commission, Hector Navarro and on August 2nd. Deputy Ramos sent Giordani a letter asking about the fact that there seems to be some US$ 29 billion missing from the project list.

The problem is that, as you can see in the link, Minister Giordani provided the complete list of 140 projects, giving the name, the Ministry, the amount awarded, the amount disbursed over the years and the amount disbursed in 2010 (Which is actually the only thing the Deputy was asking for) But Giordani sent all of of the info, and when you add up the total amounts approved and disbursed historically, the information provided says that projects were awarded some US$ 69.446 billion (down to the cent as Quico shows) of which US$ 66.057 billion has been disbursed and US$ 9.621 billion was disbursed in 2010.

Except…that if you create an Excel spreadsheet put all 140 numbers and add it all up, the total is “only” US$ 29 billion short, as discovered by Deputy Ramos. Now the Deputy is asking for even more information, including who got the contracts for each project.

It’s interesting to note that the total given  by Giordani is roughly what was contributed by the Venezuelan Central Bank, under the screwed up concept of excess reserves, and PDVSA, whose contributions are now set by law, as shown in the Table below, where I have used all public sources from the BCV, Fonden and PDVSA to come up with the grand total of US$ 69.80 billion contributed to Fonden.

We can speculate all we want: Were projects removed from the list? Was the total simply faked? Was this intentional? Was it sloppiness? Can they provide the information or they just don’t have it? Is the money somewhere else? Is the money missing?

But no matter what, the point is the same, US$ 29 billion is currently “missing” or unaccounted for from the parallel fund Fonden, which is managed by Chavez and Giordani at will and in an extremely discretionary fashion. (They used part of the money to buy a new Embassy in Russia, for example)

This would be a scandal in any country in the world, but apart from Deputy Ramos and a couple of nutty bloggers, it just seems to have not even induced a yawn in Venezuelan politics.

Hopefully, we will help bring the issue more into the spotlight.

And again, kudos to the Deputy and his efficient and diligent assistant!

Got Milk? Yes, if you fight for it in Maracaibo, Venezuela

August 24, 2011

Island Canuck sends us this video of what some people have to do to get something as simple as milk in the revolution.

Of course, there are no shortages, just absence of some products.

Got Milk? Yes, but some have to fight for it…

No room for being astonished in the Chavez revolution

August 23, 2011

-Remember the “Arepera Socialista”? That outfit that was going to make the Venezuelan staple cheaply and accessible to everyone and compete with the private sector? Well, they have been turned into “franchises” and thus privatized and the heroic workers that joined the experiment, one of dozens of Chavez’ costly ocurrences, were simply fired. Of course, in Chavista doublespeak, they were not fired, they were “let go”, a euphemism for a massive firing which is prohibited to the private sector under the current eight year hiring freeze.

-And weekly “Sexto Poder” was shut down and its owner/reporter Leocenis Garcia is being sought, its Chief reporter jailed, because they wrote an article about the powerful women of Chavismo. The crime? The article was accompanied by a composition of these powerful women faces, dressed as Cabaret dancers. The article itself said little. In bad taste? yes, but hardly noticeable given the obscurity of the magazine. But certainly incredible how fast the action took place to shut down a magazine in a country where there is freedom of expression. Meanwhile Mario Silva, Chavez’ official voice in VTV, continues ridiculing, insulting and disparaging anyone he wants night after night. Mr. Garcia was already jailed once under Chavez in this country where there is no”censorship”, but lots of persecution of the Government’s enemies.

Chavez goes on national TV, nationalizes the gold industry for the second time in a week and third in twenty years, says the gold is not being moved to pay debts, because “Venezuela has no debts” and ratifies that every single bar of the country’s gold will be returned to the country very soon.  Oh yeah! And Venezuela is the only country left that will recognize Qaddafi as the legitimate ruler of Lybia.

-An Iranian website writes this report up, video included, Bloomberg news aggregator picks it up and investors in New York thought there was an ongoing coup in Caracas, sending Venezuelan bond prices plunging as much as 3%, before people realized there were no shots in Caracas.

Simply no room for astonishment and the rate seems to be increasing…

Smoking Egg Rolls in Venezuela’s Bolivarian Revolution

August 21, 2011

“Fumarse una lumpia” or smoking an egg roll is a Venezuelan way of saying someone had to smoke something really weird in order to have said something so silly or absurd. Aristobulo Isturiz used that sentence to refer to Hugo Chavez a long time ago, but soon after that he rejoined his Government and even was Minister of Education, which showed his ideological consistency.

But in the video above, Hector Navarro, who has been Minister of a variety of things with Chavez, appears to have smoked a gold dusted egg roll when in min. 4.35 or so he says “It is crazy to pay someone else to custody our gold without getting any interest”

Jeez, a gold bugs dream! You not only speculate with the gold but get interest on it!

I wonder where Minister Navarro thinks this “interest” would be coming from? From the dust that comes off the gold bars?

There are other pearls in the video (Sorry, it is a little long!) like when he says there will be a financial crash because of the money printing by the Obama administration. I wonder if he has noticed that Giordani’s money printing since Chavez took power has been 17 times larger than that of the US in the same period (Factor of 2 for the US, factor of 35 for Venezuela). I guess in that case Venezuela will not suffer a financial crash, but a financial avalanche…

Navarro is the same guy who said the gold report had been leaked by the CIA. I always wonder why these guys never seem to worry about how the CIA obtained the documents.

It must be the gold dust in the egg rolls that limits the thinking…

(Kudos to reader JMA for noting this jewel by Navarro and captainccs for providing the link!)

S&P last to downgrade Venezuela to B level

August 19, 2011

So, S&P decided to downgrade Venezuela’s debt to B+ today.

Let’s put this in perspective first, there are three large rating agencies which people follow (there are more, but they generate less noise): Fitch, S&P and Moody’s. Of the three, the only one that still had Venezuela at the “BB” level was S&P. The other two had Venezuela at B+ (Fitch) and B2 (Moody’s). The latter rating, B2, is exactly one notch below B+ and is equivalent to S&P’s and Fitch’s “B”.

Thus, S&P was the first of the agencies to downgrade the US to AA+, but it was the last to downgrade Venezuela to B+ (Six levels below that of the USA, so much for Giordani’s claim of a crisis in the USA, ignoring his)

In any case, part of the reason that S&P cites for downgrading Venezuela is that it actually has changed its methodology and is giving more weight than it used to, to political risks. But it does mention that both Chavez’ illness and the repatriation of the country’s reserves had an important influence on the decision.

In any case, Venezuela trades with yields that are more like CCC or CC than B.

The rest? Well, nothing you don’t know about, but here is the economic part in the S&P report:

“In our opinion, changing and arbitrary laws, price and exchange controls, and other distorting and unpredictable economic measures have undermined private-sector investment and hurt productivity–weakening Venezuela’s domestic economy.    Furthermore, the recent developments regarding President Hugo Chavez’s health could add to policy uncertainty. The country’s vast oil and gas reserves, which are key positives in external and fiscal performance, somewhat offset the policy uncertainty. Venezuela regularly posts current account surpluses and–with capital outflows constrained by foreign exchange controls–records a net external asset position.    The current account surplus improved to 6.1% of GDP in 2010 from 2.6% in 2009, and it likely will remain at a similarly strong level in 2011 because of higher oil prices. As a result, Standard & Poor’s expects the central bank’s foreign exchange reserves, which have covered seven or more months of current account payments in recent years, to remain fairly stable. That said, recent reports about plans to repatriate the sovereign’s gold reserves as well as foreign exchange add uncertainty to the actual level of those reserves. We expect that economic activity, which was hurt by several factors in 2010, to recover in 2011, fueled by government spending. As a result, real GDP per capita likely will expand by 1.4% in 2011. However, the heavy spending levels in preparation for the 2012 presidential election likely will take the general government deficit to 2.5% of GDP in 2011 and about 4% in 2012.  “

Moving Venezuela’s International Reserves for All the Wrong Reasons

August 17, 2011

It was quite comic, if not tragic, to watch the idiotic trio of Merentes, Giordani and Chavez try to explain why they were moving Venezuela’s international reserves. As I have said before, I believe the gold should be in Venezuela, not elsewhere, as a normal policy, the problem is why these clowns are making this move right now. I initially dismissed the news about the reserves being moved, there was not much to be moved besides the gold, which I did not believe would be moved (and was not the main focus of the proposal) But these guys truly plan to move the gold, never mind how much it will cost. Time to worry!

Let’s hear some of the bizarre explanations given today:

Chavez: How long are the countries of the South going to finance the rich ones?

Hugo, when you have something in custody, you have it there for safekeeping. There is no financing involved, least of all with gold. They keep it, protect it, charge you a fee. Period. If it is a bond, the same. These are small fees, I bet moving the gold will cost more than a decade worth of fees.

Chavez: It is a “good” decision for the Venezuelan people

Each Venezuelan will go to bed each night peacefully and sure that his/hers Bs. 3,460 in gold is safe in Avenida Urdaneta in downtown Caracas, under the custody of Merentes and Giordani. Unless they take up Chavez’ invitation and put it in the basement of Miraflores Palace.

Giordani: We did it to diversify the assets

Jorge, Jorge, how stupid do you really think we are. While it has worked really well to keep the gold, Venezuela’s reserves are far from being “diversified” with you running the show. Gold is 63% of reserves. You hold about US$ 2.7 billion of Venezuela and PDVSA bonds, less than US$ 5 billion in really liquid reserves. So, in terms of investments, there is no diversification.

If you are talking about geographical diversification, then I ask: Why do you have US$ 42 million in Panama? Panama is BBB, while the US, even after the downgrade is still AA+ and AAA (according to two of the rating agencies)

BTW Jorge, this silly move is going to cost you in future financing.

Nelson Merentes: Measures avoid losing money because of the financial crisis

Oh Nelson, you know quite well what custody means. Lehman went bankrupt, but those things under custody at Lehman were returned to their owners, that’s not how the world works and you know it.

Nelson Merentes: There are countries in better shape

Funny, not one of those you mention has a better rating than the US, or even close! In fact, Brazil has the same rating as Panama for that matter.

But the scariest sentence was Hugo’s:

We have difficulties…

Oh baby! If you have difficulties at US$ 90 per barrel, I hate to think what will happen if there is indeed a financial crisis.

In the end, it is clear (to me, at least) that this is political. Chavez wants to avoid sanctions if…that’s the hard part to guess, but I can only think of two things: US sanctions because of the Iran connection or UN sanctions if the Constitutional order is broken.

You can bet on the second. The gold will take a few months to get here. The timing is perfect! When the Constitutional order is broken, the gold will be here and the reserves will be depleted! These guys have a plan and it goes back to the Jose Vicente intreview two weeks ago, Chavez still has doubts about democracy.

(A final note: I used to say that when people where I used to work were interested in stocks, it was time to sell. Now that Chavez and cronies nationalize the gold industry in order to “build” reserves and they decide to bring back the gold to Venezuela, maybe it is time to sell gold, the dumb money is on it. This must be the top!)