Archive for July 7th, 2012

Fudging Venezuela’s Economic Numbers

July 7, 2012

One of the reasons Venezuela has to pay high interest rates to issue bonds is the lack of transparency in the country’s numbers. When so many of the numbers are iffy and manipulated, investors demand higher interest rates. This is costing Venezuela a lot of money, between Minister Giordani and Ramirez not talking to the markets and even deceiving them and gray numbers, Venezuela is likely paying between two and three percentage points unnecessarily. By now, the Chavez Government has been fudging, kneading and faking numbers so much, that it is hard to even guess what the real ones are.

This week we saw a couple of funny ones. The first one is the most significant on: the manipulation of Venezuela’s international reserves. This number is very important, because if reserves are drawn down, investors could become worried about Venezuela’s ability to pay its debt. Since Chavez has been transferring funds from reserves to the development fund Fonden, reserves have not increased as oil jumped up and as the number of Bolivars in circulation has increased dramatically.

But the Government cares little about this. Despite very high oil prices during the first few months of the year, international reserves dropped to worrisome levels, because actual “liquid” reserves were about US$ 1 billion a week ago. Total reserves during the year are shown here:

As you can see, despite record values for Venezuela’s oil basket the first few months of the year, reserves simply dropped from US$ 30 billion at the beginning of the year to between US$ 25-26 billion as oil prices began to drop. Clearly the Government was spending it all as it came in. And some more.

But then oil prices began to drop and liquid reserves were dangerously low and then magically, without explanation, they actually jumped up last week by a little over US$ 3 billion dollars in two days. That is a 12.5% jump. Crazy.

The Government has said nothing about it. Most likely, Fonden transferred the money to the Central Bank. The same Fund that most of the time we have had no clue as to how much money it has. No financials, no audits for Fonden most years. Thus, it helps investors in the country’s debt very little to have the money moved around like that, but Giordani and his combo seem to care very little about a few hundred million dollars in additional payments because of their manipulation of the international reserves and the like.

If reserves drop again, nobody knows if there is more money somewhere to prop up reserves, so it becomes a guessing game, which is completely unnecessary. It costs us Venezuelans a lot of money to manage things this way.

While less significant, there has always been strong evidence that the Government fudges inflation numbers too. What goes in the various groups is modified at will to try to lower inflation levels and few people beelive the official numbers. Despite this, Venezuela has had the highest inflation in the region for years and it has definitely been higher than what the Government says.

Last month, this document was leaked from the Government’s “Inflation” Committee in the middle of the month (Shouldn’t it be called the anti-inflation committee?)

View this document on Scribd

As you can see, half way through the month, the National Institute for Statistics and the Central Bank had projections for the month for various inflationary groups. While not all the groups are the standard ones used by the Central Bank, what is interesting is that in the final numbers published last week, they all came below the projections in the leaked document.

The most blatant case is Transportation. In the “projection” in mid-June, the estimate was that this group would go up 6.7%. This was due to the fact that the Government approved increases in parking fees,a s well as in public transport. But the funny thing is that these increases, which were projected at 6.7%, suddenly dropped to only 4% in the second half of the month. If the rates and the fees had been increased, how did they magically go down in the next two weeks?

Clearly, there is manipulation to boast that inflation is going down ahead of the election, but people feel inflation directly, no matter what the Government says. And once again, the Government claims inflation will be in single digits in a couple of years.

Sure, I recall Rodrigo Cabezas saying that in 2006 and he never managed to lower it below 20%.

But these guys are good, convincing people of their lies and manipulations. It is just a pity we have to pay for all of it.