Archive for July, 2012

The Mystery Of The Dysfunctional Optical Cable Venezuela Gave Cuba

July 10, 2012

It was another one of those Huguito gifts to the Castro brothers, an undersea optical cable to communicate Venezuela with Cuba in order to improve communications in that island. The cable was quickly laid down by the Chinese contractors and Venezuela’s Minister of Science and Technology, Chavez’ son in law, hailed it as if his office had contributed more than just $68 million dollars or so to purchase it. He said it was “fully operational”. Another triumph of Venezuelan technology, sorry, funding.

But nobody has seen any evidence that it is working.

Something happened with the gift, which so far has apparently not transferred a single byte or bit. Apparently many Cuban Government officials involved in the project have been jailed and the base station purchased to connect to the cable is apparently not compatible with it. There are also charges that both Cuban and Venezuelan officials were involved in some hanky panky with phone cards to call the island.

Thus, another great gift by the autocrat goes to waste, another 70 million or so dollars belonging to Venezuelans goes down the drain. Who cares, really?  We have a pipeline of gizilion dollars coming in every day and Chavez thinks it is unlimited. I just wonder whether the corruption was imported into Cuba or into Venezuela. Maybe this time it was truly a joint project.

Hope the Cuban don’t export their cholera to us next…

Another Day, Another Control In Venezuela

July 8, 2012

Given the huge arbitrage between gasoline prices in Venezuela and Colombia (There is a factor of 65 difference in price!), contraband between the two countries is a very profitable enterprise. But rather than attacking the problem at its roots, the Chavez Government always has to invent a new form of control, when it can not impose order in a more rational way.

Thus, the Government introduced a form of rationing, which they call the “chip”, which is nothing more than a bar code attached to the windshield of your car. You are assigned a monthly quota and before you are dispensed gasoline, the gas station reads it and if you have not consumed your quota, the gas is dispensed

The system was first implemented in Tachira state, where it raised some noise. But now that the Government wants it installed in what is probably the most anti-Chavista state in the country, Zulia, it has become a campaign issue as Zulianos feel they are being picked upon for their anti-Government stance.

But the truth is that it is the huge difference in gas prices which promotes this business, but it is not the individual cars that contribute the most to the problem, but large vehicles with huge tanks, which cross the border to Colombia under the eyes of the Venezuelan National Guard, which has been duly paid off to look the other way.

Of course, implementing the system is a mess, long lines, the sale of the free chip for a price, being able to acquire a second chip if you want and accusations that the “chip” is sold to the Government by the son of the Chavista candidate for Governor of Zulia. The whole thing is a mess, as people now will likely go to other adjacent states in Venezuela in order to fill up when their quota runs out.

But more ominously, people fear that the chip will become a nationwide system and the perverse gasoline subsidy will become a rationing system as the price of gas has not been changed in 13 years.

Thus, rather than deal with a problem of their own making, the Chavez administration simply creates another expensive and perverse control mechanism, which is unlikely to stop the real problem of the “bachaqueros” (Professional gas smugglers) but creates yet another from of control and supervision.

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.

Mercosur Shows Lack Of Ethics

July 4, 2012

It is truly sad to realize that so many Latin American leaders lack ethics. But what else can you say about Mercosur’s decision to suspend Paraguay as a member until a new President is elected and then have a few Presidents meet to rush to allow Venezuela to become a member using that loophole? This could only be done because Paraguay was the only country objecting to Venezuela’s entry into this “free market”. But Paraguay is still a member of Mercosur, even if its rights have been temporarily suspended.

Only some Uruguayans seem to be worried about what happened and while that country’s President was part of the back room deal, it is being questioned on both legal and moral grounds. There may be some hope in some countries after all, when the Vice-President of Uruguay warns that “it may be that the institutionality of Mercosur is so weak, that it will become useless” because of this perverse act.

And useless it will become, when a group of Presidents act like a bunch of hoodlums, making a mockery of Paraguay’s rights within Mercosur to allow them to take advantage of Chavez’ grandiose plans to belong to a free trade pact that we can not export anything into.

Because that is all they want, to be able to shove down Venezuela’s throats their products, knowing full well, our country will gain little from being a Mercosur member. We only have oil for export and any country in that weird “free trade” zone can impose tariffs on oil if they want.

And as the world watches Venezuela’s Foreign Minister interfering in Paraguay’s very internal affairs, video included, Mercosur’s leaders take sides with their less than democratic, but rich Venezuelan partner, in order to get back at poor Paraguay’s principled opposition to Venezuela’s membership in Mercosur, because they do not believe a country led by an autocrat should be part of their club.

But ethics has not been the forte of Latin American leaders as of late. Human Rights have become secondary to commerce and the gains of the 80’s and 90’s in that area have been eroded by the new Latin American Left. One day, when the pendulum swings against them, they may come to regret it.