The Devil's Excrement

Today Chavismo held a rally to remember the “Caracazo” as a “Patriotic Rebellion”. Even Chavez’ daughter Rosa Virginia took part of the strange festivity. They were the usual cries against the right and the oligarchy by the Government that after 14 years has not compensated the victims from that and the following days. The curious thing is that most of those that led the repression that day, are an intrinsic part of the Government today, while the only organization that has persistently defended the rights of those that died that day, Cofavic, is not even recognized and even despised by the Chávez Government.It is another perverse and macabre twist of history by Chavismo, their plot to upstage democracy and take over power absorbs history at its convenience, manipulating, making it its own and part of some fake feat that never took place. It is all as empty and vacuus as fourteen years of this weird revolution, whether you call it Chavismo, XXIst. Century Socialism or Bolivarianism. It’s a manipulative shell of cribbed ideas, none solid.None original. All empty.

The Government wants to turn that day into some sort of pre-revolutionary epic, but the truth and the reality say otherwise. Perhaps nobody like José Ignacio Cabrujas to tell us about it:

The Government claims that the “adjustment”, the euphemism it uses for the devaluation was due to the “speculative “attack by the oligarchy” on the Venezuelan currency. (Maduro dixit) This is actually a good line to sell to the “people”, who are unlikely to understand that in the presence of exchange controls like those present in Venezuela, it is a bit difficult to mount any sort of attack on a currency that is fixed in price and illegal to trade otherwise.

Many people ask me whether the value of the unmentionable dollar is right, will go up, will go down, etc. Given that it is illegal to mention what its value is, the discussion is not easy, as I do not want to temp the powers that be. But I can talk about monetary matters, without mentioning “that dollar” to try to give you an indication whether things are out of line or not.

The Venezuelan Central Bank long ago stopped managing the amount of money in circulation, the so called M2. In the end, if you increase M2 without control, there is inflation and you distort the economy if monetary liquidity increases faster than the availability of goods (How fast the money moves around or changes hands is also important). And in the end, that is why the Government has had to devalue repeatedly, because it has increased monetary liquidity at an average pace of 44% per year.

One way to measure this effect, is to compare M2, the total number of Bolivars in circulation, to international reserves. This is the so called implicit exchange rate, which tells you at what value you would have to convert all Bolivars into dollars, if you decided to dollarize the economy.

When Chavez got to power M2 was Bs. 10 billion and there were more than US$ 10 billion in international reserves. Today, M2 stands at Bs. 700 billion. That is, there is seventy times more Bolivars in circulation than there were in February 1999. But Venezuela does not produce 70 times more stuff, nor does it have 70 times more international reserves. That is why there has been so much inflation. Nor have international reserves increases much. In fact, they have barely doubled, despite the biggest oil windfall in the country’s history.

Let’s first look at M2, the raw number of Bolivars in circulation and how they have increased since 2005:

That is money printing at its best, an almost of factor of 15 increase in seven years . To be precise, monetary liquidity has increased by 1400%(By comparison, since the 2008 financial crisis M2in the US has gone up by 23%, which is a lot too). During the same period, Venezuelan international reserves have barely changed, the economy has grown by 32% and the price of the Venezuelan oil basket has increased by 236% (I also placed an arrow on when the Government stopped the swap market in 2010, M2 has increased by a factor of 3.4 since then)

Obviously, something has to give. You create so many Bolivars, you don’t produce more goods, you import more and you are in distortionville: High inflation, devaluation and shortages. Note the comparison between the increase of the price of oil (236%) and that of the economy (32%). This guys have done little in terms of sowing the oil.

Now let’s look at M2/Reserves in the same period. You have more Bolivars, reserves should increase at least in some proportion.

Except they did not. The implicit rate has gone from being less than Bs. 2 per US$ in reserves to being Bs. 25 per US$ in reserves. Note the arrow when the Government stopped the swap market in 2010. At the time M2/reserves was near Bs. 8, around the last value traded in the swap market.

Finally, another way to look at this, is to look at the implicit rate divided by the official rate of exchange as a way of comparison:

The dashed vertical lines are the four devaluations since January 2005. The arrow, is when the swap market was shut down. As you can see, in the 2010 and 2011 devaluations, the ratio of the Implicit/Official was pushing 4 when it was adjusted down. This time, when the Government devalued to Bs. 6.3 per US$, the ratio went down only to this value, an indication that the official rate is still overvalued compared to this indicator of the implicit rate. Thus, at Bs. 6.3 it is still cheap to buy anything imported at that rate.

With respect to the question that people always ask, the second graph should give you  a guide. Think about what the rate was when it was legal and what the implicit value was then and think about where it is today. With SITME eliminated, more buyers will have to go to the unmentionable market, so there will be even more pressure now.

What this all shows is that speculation has nothing to do with the devaluations and the shortages. It is simple an idiotic and ignorant policy by Giordani et al., which does not appear will be changed in the short or medium term.

But he is still smiling…

The truth is that it is really hard to figure out what is going on. If there was one thing Chavismo was very good at, was at using the same script, everyone saying the same thing, even if it was an outright lie. But somehow the message with Chavez’ health has been anything but uniform in the last few days.

After Chávez return, which reportedly was engineered and orchestrated by none other than Diosdado Cabello, the message was that Chávez was well enough to travel and there were celebrations indicating that he was getting better not only from his respiratory problems, but also from the underlying ailment. The “people” celebrated” and the message remained uniform until mid week, when Minister of Information Villegas said in no uncertain terms that Chavez’ respiratory problem was getting worse, not better.

And reading today’s newspapers, you can take your pick at a story with a different opinion. First is Minister of Foreign Relations Jaua, who from Equatorial Guinea, where he went in the Presidential plane, tells us that Chavez’ respiratory deficiency has increased, but the cancer is getting better.

Meanwhile, Minister for Feeding Osorio says that Chávez is recovering in order to take back control of the country. And in the most positive note of all, purported Vice President Maduro, says that Chávez spent five hours meeting with his very selective team of coworkers, during which he communicated by writing.

But a five hour meeting sounds strenuous for someone that we were told required mechanically assisted breathing a week ago for a respiratory insufficiency which has only gotten worse, not better. Someone we have not seen in over seventy days. Someone that was reportedly brought back almost six days ago, but has been unable to take the oath of office that would give legality to a large number of things going on in the country. Chavez’ swearing would have appeared to be Maduro’s first priority (But Diosdado’s last?) to give legality to the tenuous one he has as Vice-President. To allow him to be temporary President if the respiratory insufficiency got even worse in the future.

And Chávez was well enough to hold a five hour meeting with his collaborators, but was unable to see his buddy Evo Moarles even for five minutes on Tuesday, Evo’s second trip to try to see Chávez in the last month and a half. He definitely needs something from Hugo, it must be money that Maduro apparently does not want to release.

And today to top it all off, Dilma Roussfe gets into the game saying Chávez illness is not worrisome and everything is “under control”.

You could have fooled me. Maybe she should try to visit him too.

As for myself, I have no clue what is going on. On Monday, I thought that Chávez would be sworn in speedily to straighten out the possible legal mess of the last 43 days. I had no doubt this would happen before the end of the week. And it is already Saturday and nothing has happened.

Curious, puzzling and surprising, but most of all, the message is as confusing as it has been in the last 74 days, since Chávez first went to Cuba to be operated on.

And a mixed message is the worst thing for the Chavismo faithful, who cling to the hope and the word of their leaders that Chávez will get better yet.

Through his Twitter account, silent for the last two months, President Chávez himself said he arrived in Venezuela in stealth mode and will be at the Military Hospital in Caracas.

Was this all planned: Devaluation, swearing in, resignation, elections in 30 days?

Would make sense…

Being a multinational in Venezuela is not easy. The numbers are outstanding, the sales and/or return on equity are fabulous and you are the envy of the region.

Except…

It has been five years since the Chavez Government last allowed you to repatriate earnings. Since then, those fantastic earnings have followed a roller coaster ride. You used to register them at the request of your accountant at the parallel swap rate, which was banned in May 2010, while it was hovering above Bs. 8 per US$. At that moment your earnings were actually revalued to the Sitme rate of Bs. 5.3, only to be devalued last week to Bs. 6.3, as SITME was disappeared and only the official rate exists now.

But wait, the rate exists, but companies have had no access to it for repatriation for the last five years. Thus, they are “virtual” earnings, virtual revenues, virtual returns on equity, they only exist in your books, but can not be transferred to your home office, let alone distributable to your shareholders. They only exist in local currency. And no end in sight.

You may wonder if your business is even real!

And as the Venezuelan officials had the lack of courtesy of making the announcements while markets were open (Revolutionaries don’t believe in markets), shares of Colgate, P&G, BBVA, Telefonica, Unilever and others dropped. Some like Colgate, said how much this would cost them, US$ 120 million in a one time charge, while Merck said it would cost the company US$ 200 million in income. P&G says between US$ 200 and 275 million and I imagine Telefonica knows it’s about half a billion euros, but prefers to say it later.

CADIVI has accumulated US$ 2.8 billion in requests for dividend repatriation and there is an estimated US$ 13  billion total repressed in local currency (at Bs. 4.3 per US$). But after five years, most multinationals are learning that saying “We are here for the long term” sounds tough and audacious, until it feels that this is the long term and you have lived through the whole thing. And it ain’t over…

So, they are trapped, apparently forever.

But the irony is, their trap has by now also become the Government’s trap.

You see, one of the main reason the Government can not create any sort of alternative, parallel, whatever you wanna call it, market, is that currently, all of these multinationals register those dollars at Bs. 6.3 (as of two days ago). This means that they lost 15.9% of their dollar earnings this week. (Only that much, because their accountants probably forced them before to register the Bolivars at the highest “legal”rate of Bs. 5.3 per US$)

But if the Government allowed any sort of floating market, that went to the levels of the black one, these companies would lose say 73.5% of their earnings at Bs. 20 per US$. And if the Government allows any form of parallel real market, that is what accountants will tell these companies they have to do and use. And if they are forced to take this huge loss, hey! they might as well go to the market, buy the foreign currency and take the money home. At least it will be real foreign currency and in their pockets!

But that will only push the new rate higher, as all these companies scramble to buy!

Which is the real reason the swap market rose sharply in 2010 before the Government shut it down. Companies began realizing that their earnings were being devalued day after day, so they mostly decided they might as well take the money home, because it became clear there would be no Government autorized repatriation. When the Government shut down the market, they actually had to revalue from around Bs. 8 to Bs. 5.3. Their numbers looked great all of a sudden! But they were all in Bolivars.

But for the Government, it became a trap. Before, the swap rate would slide in time, companies would adjust, buy what they could, and manage.

But any approval for an “alternative” market implies a huge amount of money that would look to buy after almost three years of being frozen out of any form of dividend repatriation. The new rate would soar, would set prices and the spiral would continue.

A virtuous or vicious circle or spiral for both the Government and multinationals. A trap. Except companies only care about their bottom line and the Government about staying in power. So the Government keeps digging deeper, until the hole will reach the other end of the planet.

On Friday, Miguel Angel Santos, who is a Professor at Caracas’ business school IESA, wrote this wonderful article in El Universal in response to the interview of Minister of Finance and Planning Jorge Giordani. In it, he shows how Giordani uses superficial arguments to explain why the Government is doing certain things, while not being self-critical of all of the blunders the Chavernment has made in economic and monetary policy. I would only add to the article, that I wish the interviewer had asked Giordani, how much were oil exports and private exports fourteen years ago, and how the latter has collapsed due to Government policies, while the former increased due to exogenous causes. Enjoy, and thanks to Miguel Angel for letting me publish it here.

The Grand Inquisitor by Miguel Angel Santos

The Grand Inquisitor sits in front of the reporter from the Venezuelan News Agency (AVN). Long ago he decided not to face the opposition media. Over the years, not only has he been running out of ideas, but also out of patience and tolerance with those who think differently. “The private sector produces US$ 3 billion a year and demands US$ 30 billion.” If that is the demand: why was it necessary to devalue? According to the BCV, our oil exports totaled in 2012 US$ 92.23 billion. What is the problem of allocating one-third to private imports? The Grand Inquisitor knows what the problem is, but the AVN reporter will not ask him about that.

“They say we are bleeding PDVSA because we devote a large portion of the proceeds to social programs.” But in reality, what is bleeding PDVSA is, on the one hand, which it is being forced to pay royalties for more than a million barrels a day that it produces and does not charge for (those that go to Petrocaribe and the Chinese Fund) and on the other, the contributions to Fonden. To the latter, PDVSA has handed over more than US$ 50 billion, which together with the contributions from the BCV total over one hundred billion dollars. What has been done with that money? What has happened to Fonden and the Chinese Fund? Is the Grand Inquisitor ready to be accountable, to show in detail how much went in, what was specifically done and how much remains in it? “We live the insatiability of the dollar, a kind of dollarized nymphomania “. Is there a larger greed, a bigger ” dollarized nymphomania” than that of the government itself?

The Grand Inquisitor lambastes Venezuelans because they do not to leave their money in bolivars, earning interest rates which in no case reach even half of inflation. Because that is how, with the loss of the value of everyone’s savings, the revolution finances itself. Nor does the sanctimonious tartufo make any reference to the fact that since the implementation of exchange controls, the government has placed in circulation 3,650% more in coins and bills (44% annually). “If we eliminate Cadivi and let everything float freely, reserves would not last three days.” With the amount of money that he has printed and the panic that is fully and widely distributed here daily, we have no doubt about this. There is no mention of the connection between these monetary ravings, inflation and devaluation?

Instead, he resorts to the mortification of the flesh, “it can not justified that people gorge on junk food … that is why there is so much obesity.” It is curious that he used this example of obesity in a derogatory manner (for us) and didactic (for the government): “They question that we use the word adjustment. Cretins! If a guy is a hundred kilos overweight, he better get fit or he may get a stroke or a heart attack.” This is true: An 18% deficit, financed by printing banknotes, puts any economy in the neighborhood of a heart attack. “If this is a “paquetazo” where are the privatizations?”. The monk asks this question in a country where the most precious right, the defense of life, was privatized a while back. So have Healthcare and Education. If he has any doubts, he could ask his colleagues in the Cabinet which school do they send their kids to, or to which clinics they take their relatives to.

His Twitter: @ Miguelsantos12

Today there were protests by Venezuelan students in front of the Cuban Embassy in Caracas. The National Guard decided to repress and seven students were jailed (later freed). Some students went to where the others were being held, while twenty six of them chained themselves in front of the Cuban Embassy, where there is a sot of Mexican stand off at this time.

Meanwhile, the Government no longer knows how to explain the devaluation. Maduro says that it is a speculative attack by the private sector, in a country with draconian foreign exchange controls. Jaua says that the “people” were not benefiting from the “cheap” dollars. Giordani says that they have screwed up all along, that SITME was “genetically perverted”, that Venezuelans have a “dollarized nymphomania” and he knows all about the tricks to get CADIVI dollars illegal but has done nothing about it. Merentes gives Globovision a rambling non-sensical interview. (As a former scientist, I loved (cringed?) at his statement that scientists never rule out anything. Really Nelson?)

Meanwhile, Jaua cancels his visit to Peru to go to Cuba in the middle of rumors that Chavez is back in intensive care, while Marquina (@Marquina04)  says “La razón de la falla respiratoria es sin duda las metástasis a nivel pulmonar e invasión del drenaje linfático” (The reason for the respiratory failure is without any doubt the metastasis at the lung level and invasion of the lymphatic fluid”

A normal day elsewhere in Venezuela. Historian Napoleon Pisani, a fellow blogger,  was killed in a robbery at a museum, while a former national water polo champion was killed in a robbery.

Something seems to be reaching boiling point in Caracas.

So far, reactions to the announced devaluation have been somewhat depressing from both the Government side and sadly so, from the opposition side.

From the Government side, the outright defense of the devaluation as something “good” rather than needed and the implication that this is somehow the fault of the opposition has been truly laughable. Some statements have actually been pathetic, like pseudo Foreign Minister Jaua who said that “It’s a way of protecting the dollars of the Venezuelan “pueblo” from the speculative attack of the Venezuelan bourgeois”. Hey Elias! If this is so, why not devalue to Bs. 20? He also said this would increase Venezuelan exports, as if the current currency had all of a sudden made the country competitive, or even worse, as if Venezuela’s non-oil exports were of any significance to the economy at Bs. 4.3, 6.3 or for that matter Bs. 8.

But the Minister of Information was even worse, suggesting the country’s economic parameters “improved” thanks to the devaluation and among others, saying the Debt to GDP ratio went down significantly, because the Bolivar denominated debt went down with respect to the dollar GDP. Unfortunately, he failed to realize that GDP is measured in Bs, not in US$ as per his tweet. He adjusted the numerator in Debt/GDP, but held GDP constant in US$:

How convenient! That US$ 328 billion number comes from dividing the GDP in Bs.  by Bs. 4.3. While the GDP will not go down by the full amount of the devaluation (neither will the debt in Bs. stay constant all year!) the argument is really terrible.  Mr. Villegas has rather quickly lost his image as a “serious” person.

But I have also been disappointed by the reaction of many opposition politicians and even economists, criticizing the devaluation itself and not its causes. The impact of the devaluation should have been presented as a consequence of the policies followed by Giordani and his combo. Yes, the devaluation is terrible for the people, but they made it sound as if it could be avoided. In fact, very few politicians noted that it is probably not enough and we will likely see another one before the end of the year. The best comments, in my opinion, were those from the opposition that noted Chavismo accused Capriles of planning a devaluation if he was elected, only to have Chavismo do exactly that.

But that we are becoming a country of beggars was demonstrated by those that oppose Chavismo who were crying because they will now have to travel at Bs. 6.3 per US$, order from Amazon at a more expensive prices and not have access to SITME at Bs. 5.3. Don’t people realize how absurd all of these things are? Only those that are actually well off have the money to travel and thus have access to this foreign currency, to say nothing of those that could manage to get a single dollar from SITME. These were (and are!) ridiculous subsidies that simply sustain the distortions of the Venezuelan economy.

And I will point out to those that think the Government will create a new foreign exchange market sometime in the future, that I think this is highly unlikely. This was all a victory for Giordani and his ideology. The same way he shut down the swap system in 2010, he is now shutting down the SITME, which provided a highly ineffective and inefficient escape valve for importers and manufacturers.

But Giordani believes that by creating this new entity with the bombastic name of “Superior Entity for the Optimization of the Foreign Exchange System” he will somehow direct the foreign currency to the right areas. This will be nothing more than another bottleneck in the Goldeberesque foreign exchange system that has been constructed by adding complication to complication, over the last ten years. Just think this new Über-Cadivi will be composed of the Minister of Planning AND Finance, The President of PDVSA AND Minister of Energy and Oil and the President of the Venezuelan Central Bank. As if they did not have anything to do.

Anyone that thinks such a system can work, has never managed anything productive.

In fact, what is likely to happen is that there will be more delays now, leading to even more shortages. Somehow these  guys think, or want us to think, that their 20/20 system, 20% inflation, 20% shortages, represents a successful  and “shielded” economy. And, of course, reducing inflation, according to Giordani is very “complex”, in a planet where the large majority of countries have managed to reduce inflation to single digits for the last ten years.

Because now, the Government will have to start thinking about salary increases to compensate for the devaluation. Later, they will ha to figure out how to pay for them and the inflationary spiral will feed on its own, because in the end, all that was done was devalue. Nothing else.

But as long as the opposition politicians don’t try to educate the population and have such differences among them, maybe Chavismo will be able to sell once again these nutty concepts to the people. The only thing working on the opposition’s favor may be that Chavez’ absence may suggest to the people that these new leaders of Chavismo have no clue as to what they are doing, in contrast to their deity, who could do now wrong. Despite Chavez’ six devaluations and 1000%-plus inflation in the last fourteen years.

An so it came. The much predicted, expected, delayed and surprising devaluation arrived today. Reportedly, this was ready before Chavez’ illness, postponed until after his return, who nobody thought would take so long. And then, as all sources were saying nothing would be done, boom, Friday before Carnival, the Government devalues the currency 46.5% to Bs. 6.3 per US$ (more correctly 32%)

And there is more…

Because at the same press conference, the Government announced the elimination of the Central Bank’s SITME foreign exchange system. The same one hailed by the Central Bank’s President at its creation as being so “good”, it could last 100 years. It never made it to its third anniversary.

And when Merentes said that it made no sense to have the country issue new debt to supply SITME, one did not know whether to laugh or cry. Because the Government issued over US$ 10 billion in debt in the last two years only for that: To maintain an absurd and artificial foreign exchange system with cheap dollars at Bs. 5.3.

And today’s decision has to be related to today’s CPI announcement for January. Despite all the controls, threats and new institutions created to insure prices don’t go up, the January CPI came in at 3.3% (22% for the last 12 months), with the all important Food and Beverages coming in at 5.3%. In December, Food and Beverages was 5.7%, keep it at 5% per month and we are talking an annualized value of 80% per year for the group that poo people spend 80% of their income on.

And even worse, the scarcity index went from 16% to 20%-plus, as Venezuelans hoard and buy whatever they can get in basic staples. (Luxury goods are available, mostly through SITME, so maybe wine, foie and caviar hoarding will begin now)

But all the 46.5% devaluation does, is to provide a little bit of fiscal relief for a little while. The problem is that it still leaves a fiscal gap that is too large, which is likely to require another devaluation later in the year. Because this devaluation only covers about 60% of the expected deficit. At least another Bolivar in devaluation is needed now, which will only make a devaluation later much larger.

I see Bs. 8 by the end of the year.

Because in the end, the problem is not that the Government devalued by 46.5%, the problem is that the gap between the official rate and the black market illegal rate, went from 318%, to 272%, making arbitrage still very attractive and making prices of goods imported at the official rate of exchange too attractive to pass up. And the black rate sets many prices today.

Because in the end a devaluation is not a policy, it is the result of bad policy, and if it is not accompanied by a bunch of other measures, all it does it postpone the adjustments.

And when the President of the Central Bank announced that SITME was eliminated and there will be no alternative to it, what he was doing is insuring that the black market rate never goes down. Because SITME accounted for US$ 10 billion in imports last year and ALL of that will move to the black market, implying more inflation and a higher rate for that price which can not be mentioned in these pages.

Thus, ten years and four days after establishing exchange controls, the Chavez Government devalued once more. It has been a long road. First, it devalued in February of 2012, when the “band” was moved from Bs. 773 to Bs 980 (old Bs.). Then came the real controls and the price was fixed at Bs. 1,600 (old Bs.), then 1,900, the Bs. 2,150, which created the “strong” (jaja) Bolivar. Then Bs. 2.65, then Bs. 4.3 and now Bs. 6.3 per US$.

Some record no? Seven devaluations in fourteen years.

And Merentes and Giordani still suggest things are peachy, the economy is strong and we have to be more “efficient” (with US$ 15 billion in fake imports)

Oh yes! I forgot, part of the problem will be fixed with the creation of a new control body, above CADIVI, which will be an office to “Optimize the use of Foreign Currency”.

Merentes also announced that accounts in dollars in Venezuela will now be able to receive dollars from anywhere. I am still wondering about this one. These accounts were created to receive dollars from Sitme, now Sitme is eliminated, so that they will allow money to come from everywhere ,for those demented enough to have dollars in Venezuela’s revolutionary banking system.

Things that make you got uhhh???

But both Giordani and Merentes actually even managed to smile during their surprise announcement. In the end, it is the poor, the “people” who suffer most from devaluation and inflation and neither of them is in that group. And they really don’t seem to care

And you had to laugh when Giordani said that economics is hard. It’s hard when you know so little and do so many idiotic things.

About the only “good” news to come from this, is that the country’s bonds will go up next week, not only because a devaluation improves the country’s ability to pay, but because the elimination of SITME also means there will be no more idiotic issuance of bonds to supply that market.

But the bad news, is that these announcements reflect that Giordani is still in control of economic policy. Which means more ideology, less pragmatism and more distortions.

And Maduro said he backs all these measures, which must have Diosdado smiling…

He must be the only one…

When reader Arco posted this link as a comment, saying (or translating it): “On the border of Holland and Germany in Dusseldorf, a man from Iran was arrested for having a check for 300.000.000 Bsf (54 million euro) from Banco Venezuela in his suitcase. He could not explain why or for whom he had so much money. He risks a fine of more than a million euro. Check is confiscated.”, I found the news so strange, that I not only went to the web, but contacted Caracas’s two largest newspapers to see if they knew anything about it.

But they didn’t.

Then reader Gold, translated a story in Die Welt and I decided to Tweet it, to see if I could get more info on this mysterious matter. Soon afterwards, El Universal published a note, then El Nuevo Herald and soon afterwards, the Iranian Embassy in Caracas tried unsuccessfully to explain the thing away.

Which made it even more intriguing.

Think about it: An Iranian man arrives in Germany from Turkey, fails to report that he is carrying more than 10,000 euros in financial instruments, a check for Bs. 300 million (more than US$ 60 million at the official rate of exchange) is found in his briefcase and he seems to care little if the check is taken from him.

What is wrong with this picture?

1) A check in Bolivars is useless, unless you are in Venezuela, due to the absolute exchange controls the country “enjoys”

2) Why do you need to bring it from Iran, to anywhere? Why not declare it, given that most countries just want to know that you are carrying it, they seldom do much about it. Why take the risk?

3) Why doesn’t he care?

Easy. First of all, this was not just a “man”. This was Tahmasb Mazaheri, a true insider in post revolution Iran, former member of the Iranian Central Bank, former Minister of the Economy and Financial Matters.

Except that the Iranian Embassy in Caracas, says it is not the same Tahmasb Mazaheri, but somebody else. Then Russian webpage Russia Today, reports that the “true” Mazaheri denies having been detained:

except that the Iranian Ambassador comes out and says that there was no irregularity in the check and that the man was indeed the former Minister, who is an adviser to the Kaystor company of Venezuela, who is participating in the “Gran Mision Vivienda” by building 10,000 housing units and recently receiving a new contract for an additional 10,000.

Even aporrea.org, got into the act, saying this is much ado about nothing (can’t find post now) and this is Iran’s heroic aid to Venezuela in building housing.

Then,the local Kaystor company (located in Parque Cristal, Los Palos Grandes) says that the important Tahmasb Mazaheri, has been an advisor to Kaystor for the last year and has been visiting the country every two or three months. That having Mr. Tahmasb Mazaheri carry the check is the same as any “messenger” and there is no irregularity, because the check can not be cashed anywhere but in Venezuela.

Except that the laws are the laws and if you have more than 10,000 euros in cash or financial instruments, you have to declare it in Germany and Mr. Tahmasb Mazaheri, was carrying US$ 69 million at the official rate of Bs. 4.3 per $, US$ 56.6 million at the Sitme rate of Bs. 5.3 per US$ and “only” 16.66 million at what I am told the unnamed black market rate is at today.

Thus, we are told that this is Mision Vivienda money, which we don’t know why the checks have to be written in Teheran and carried by such an expensive messenger.

Except that then we learn in El Mundo (by subscription), that Kayson de Venezuela appears in the Sistema Nacional de Contrataciones as “empresa en proceso de descapitalización”, loosely translated as “Company in the process of losing its capital”, i.e. bankrupt.

and none other than the fascist persecutor of corruption, Diosdado Cabello, says that Kayson built 10,000 housing units and has been hired to build another 7,000, despite being “en proceso de descapitalizacion”.  Diosdado’s explanation agrees with the Iranian’s Ambassador explanation. Even more curious by now…

Which gets curioser (does this word exist? I just needed to use it) when you find from El Nuevo Herald, that the man who was not Minister, but was, who was not caught in Germany, but was, is also a member of the Board of Directors of Venezuela’s Banco Internacional de Desarrollo, an affiliate of the Export-Import Bank of Iran, sanctioned by US authorities in 2008 for providing Iran’s Minister of Defense for ways to bypass sanctions against that country.

So, what is going on here? Well, I don’t know, but I can guess. The biggest business in Venezuela today is arbitrage. Ecoanalitica reported on Monday, that fully 40% (Or US$ 8.7 billion) of last year´s public imports were fictitious, just fake, and that US$ 6.6 billion of private imports were also fake, for a total of US$ 15.6 billion or 28% of the total in fake imports.

What does fake means? It means over billing, it means empty boxes imported as if they were full, it means worthless stuff imported and left abandoned at the ports, it means many other things. (Diosdado: If you are so worried about corruption, you may want to look at this, this is REAL money we are talking about!)

But there are also lots of fake financial transactions that take advantage of the same arbitrage. From here on, I am just guessing: The contract to build the houses is an Iran-Venezuela Government-to-Government deal. The Iranian Minister of XXX comes to Venezuela and signs a deal to build YYY housing units for Bs. ZZZZ billion and appoints a company to execute the contract. Venezuela transfers the ZZZZ billion, in US$, at the official rate of exchange of Bs. 4.3 per US$, to whatever account in the world the Iranians want or need. A fraction, is exchanged at the black market rate and sold to someone in Venezuela to get Bs. for the execution of the project, with the remainder, which today is like 75% of the contract, being used by Iran for whatever purposes it needs “clean” money. Except that the guy who signs the Bolivar checks is a big shot in Teheran, who signs the check and sends it over with his high class messenger to give it to the company that supposedly will build the houses.

There are many variations and possibilities, but I bet my guess is not that far from the essentials of the arbitrage underlying this. Venezuela and Iran are involved in arbitrage and laundering via the excuse of building houses, which in the end is not even that relevant.

And therein lies the need to send a check via Germany, drawn in Bolivars via a local bank…