Archive for June, 2013

Government Imports Soar In Venezuela

June 24, 2013


Seeing the data above really opened my eyes at the problems with the allocation of foreign currency in Venezuela. The Government has gone from importing US$ 7.5 billion in 2006, to importing US$ 34 billion last year. Not only that, but Government imports, which used to be 25% of all imports have not only surpassed private imports, but have now become 57% of all imports.

Think about it, if you are a manufacturer or merchant you have to go through a few dozen steps before CADIVI authorizes your imports. But if you are a Government official who wants to import some widgets, you not only get the dollars right away, but you don’t go through CADIVI, you buy from whomever you want and you probably only need one or two signatures to buy the stuff. Imagine the chain of suppliers between that Government official and the stuff that is being imported. Imagine the commissions, overcharges, fake imports (Giordani dixit!), empty boxes (idem!) and the like. Imagine how little planning goes into deciding how much to import or what to import. Obviously, it is hard to buy something locally, as local suppliers in the private sector have to go through the CADIVI nightmare.

But the most important thing is the inefficiency of the Government importing all this stuff. That is why in a country with little supply of new cars, because CADIVI does not allow the import of all the parts needed, the Government goes and imports 2,000 Toyotas at once for its own use. That is why food is found rotten in warehouses, some guy with no clue as to how much wheat or corn the country needs or consumes, decides to buy twice as much as needed and it needs to be stored somewhere or is just abandoned at the port for months.

Meanwhile the blue line of private imports is almost flat, the private sector is importing almost the same today as it was in 2008, but the average yearly price of the Venezuelan oil basket has increased significantly (From an average in the sixties to around 100 today). Thus, a voracious Government imposes controls, but nobody controls the Government and what it imports, why or at what price.

The result is more distortions. But instead of imposing controls on Government imports, the Government disappears SITME, which tripled and quadrupled prices of anything not in CADIVI’s list. And these guys think inflation will go down. Sure.

Meanwhile there is no mystery, there are plenty of dollars around, but the sinkhole of Government imports takes too much of the country’s foreign currency. And Maduro blames the oligarchs. And he is right, by definition, Chavismo/Madurismo is the new oligarchy and they are bleeding the country dry and destroying it.

As People Look For Pragmatism In Currency, Venezuelan Government Ready For More Controls

June 19, 2013


Things are going well, Maduro is in Paris eating and drinking better than in Caracas. The National Assembly will investigate how Chavez’ cancer was inoculated, but refuses to discuss how the terms of the Comptroller, some CNE Directors and some Supreme Court Justices have ended and they should be replaced (Most of the elected when the opposition had no representation in the National Assembly), while that exchange rate hits all time highs, even if its increase has been stopped by rumors the Government will do something to “open” the foreign exchange system.

But it is harder to find a dollar in Caracas that a roll of toilet paper.

People really understand little about how ideology is the main driving factor behind the now Maduro revolution. The papers are full of speculation about how the swap market will come back, the necessary laws changed and we will live happily ever after.

No such luck, as we have been predicting for weeks…

Yes, the Illicit Foreign Exchange Bill will be changed, but that’s about it. It will be changed so that the absolute ban on foreign currency trading without the Central Bank in the middle is removed and participants can buy/sell foreign currency in a market tightly controlled and regulated by the Venezuelan Government.

Yes, according to Central Bank Director Armando León, the “father” of the Bolívar fuerte, what the Government has in store for us, is simply a “new and improved” SICAD foreign exchange system, the same one that so horrendously failed in March.

According to Leon:

“The final alternative system to the official Cadivi system will be expanded and will be made to be as efficient as possible”

In fact, I can´t find a link to all that León said, but here is a summary:

-Venezuela is working to resume Sicad dollar auctions at the beginning of second half of year.
– The Government is working to allow private and public companies and banks to sell dollars on the Sicad system
addition to cash.
-The Government is focused in May and June on delivering more dollars to small and medium companies that are key to resolve shortages
-The Sicad in its debut was very complicated. A review of the system has been completed so that it includes small and
medium companies and individuals
-The Government will also make the official Cadivi exchange system more effective.
Thus, while people are looking for some sort of more pragmatic policy, what the Government is thinking about is about making more “efficient” a system that the same people planned and designed in March but failed miserably, but this time around, “trust us” it will be dynamic, pragmatic, efficient and will solve of the problems with shortages, drive the swap dollar down and make people happy.

Yeah, sure! And the Bolívar fuerte was going to stop inflation. Didn’t you suggest that Armando?

So, what we will see is a an expanded SICAD, with all sorts of rules and regulations. Remember SITME? The same people that created and designed SITME are in charge of this SICAD with Fluoride. These are the same people who blame the failure of SITME on the banks, the oligarchs and the capitalists.

Which is why the new system will also fail. First, they will make up a lot of rules. The ones for the first SICAD auction were doomed from the beginning. The ones for SITME were the ones that created the system that amde a lot of people a lor of money. They will improve on that and create many more. They love that, that is what they are experts on, control, rules, distortions and the like.

But, they have not said the most important thing: Who will sell dollars into the newfangled and improved system?

That, my friends, is the only important question. And as long as the system is rigged and controlled and the priced fixed, only the Government will. And that solves absolutely nothing.

As simple as that.

Venezuela: One Upgrade, One Downgrade And One Improved Outlook

June 18, 2013

While President Maduro has done nothing on the most pressing problems of the economy, in the last two weeks, the country received an upgrade in its status with the US, a downgrade from Standard and Poor’s and the Catholic Church seemed to give its blessing to Maduro and the country when Pope Francis met with the Venezuelan President., essentially seeing an improved outlook in relations with the country.

While Maduro is probably happy about the total, unfortunately for the average Venezuelan the only one of these that will affect his or her pocket is the downgrade from B+ to B by Standard and Poor’s. Yesterday morning, before the downgrade, Venezuela’s bonds were trading about at a 1% lower yield than today, which means that any new debt that is sure to come will cost around US$ 10 million more per year for each billion dollars issued.

In fact, so far Maduro being elected has been quite costly for the country, as shown by the graph below:


In the graph I show the value of the 5 year CDS, or the cost to insure against the country’s debt default, which is a measure of the so called “country risk” or “country premium”. As you can see, Maduro has been costly to the country since he came to power. Just by being elected the CDS jumped from about 673 basis points (6.73%) to about 830 bps (8.3%). Then, after the electoral noise went away, it was calm for a while, but then markets got impatient (and so did S&P) and started punishing Venezuelan bonds. A few days ago it got as high as 1065 (10.65%) basis points (which was also influenced by world jitters). Then it seemed to calm down dropping to 960 basis point, only to jump yesterday on the downgrade by S&P.

From the graph, it is hard to precisely separate world jitters from Maduro, but if we say the first jump was all Maduro and the recent downgrade was all Maduro, you have at least 250 basis point or about 2.5%due to him since assuming office, or roughly US$ 25 million more in interest payments per year for each billion dollar of bonds issued. In a US$ 3 billion issue, the likely amount of what this Government want to start its issuing would then cost (us Venezuelans) for ten years US$ 250 million.

But Maduro is probably relishing on the fact that the Pope met him, Kerry met Jaua and the FAO gave him the most stupid award possible given the current shortages and the level of inflation.

And when Maduro is gone, Venezuelans will be paying for his ignorance. Meanwhile Maduro is “celebrating” his tenth week as President without a single important economic measure being announced.

Which is precisely why S&P downgraded the country’s debt. Oh yeah! S&P did say that if economic policy became more “pragmatic” the outlook, which is negative, could improve.

Don’t hold your breath…

Nicolas, Really, What’s Up With The Hats?

June 16, 2013







In his efforts to imitate Hugo, Nicolas Maduro can’t seem to resist putting on a hat. For someone whose head was always bare, it looks silly and most of the time he looks too contrived and unnatural. But he continues doing it.

Nicolas, you are no Hugo!

At Bandes, Wasting Money Is Just Their Way Of Doing Business

June 13, 2013


When Hugo Chavez started using the oil windfall to generate friends abroad, he thought Venezuela had infinite money. From coops to joint ventures with questionable partners, like Iran to Petrocaribe, money was thrown at many bottomless pits.

But the worst part is that there was no accountability, either before, during or after these ventures were carried out. Even more incredible, is how immune some of these organizations that have been in the middle of these deals seem to be to any investigation or accusation. But none more incredible that the two “development” related organizations, Fonden and Bandes. Fonden has been mentioned before, a billion dollar sink hole protected by Chávez and Giordani, but Bandes, which was actually in charge of many of the loans by the Chinese Government, including the oil for money credit lines, seems to be absolutely shielded and protected. In fact, its most recent President, has now been promoted to President of the Venezuelan Central Bank.

Way to go Maduro!

A few weeks ago, I reported on the US$ 66 million ripped off by Bandes officials via the trading of bonds, with as much as US$ 10 million lost in a single trade (world record?). Weeks have gone by and despite a sixth person jailed in the US yesterday and the opposition requesting an investigation, absolutely nothing has happened. Not a single investigation or question raised or asked. And the same people keep on running Bandes…

Who protects Bandes and its officials, past and present? It can’t be Chavez, he is no longer around. But the immunity continues.

I know US$ 66 million is pocket change for the bottomless pit of the revolution, but it just keeps adding up and Bandes seems to be always in the middle of things.

Take Bandes-Uruguay. In 2006, Bandes Venezuela purchased Bandes-Uruguay, which was bankrupt, for a scant US$ 10 million as reported in these same pages then. I was not too positive on the transaction:

“I like the business plan: Take over a bankrupt financial institution in a country you have no experience with and have it run by people with no financial experience. A recipe for financial disaster for spreading the goodwill of the revolution! More losses in the name of solidarity! Less money for Venezuelans!”

Wasn’t too far off the mark, no?

Even worse, the genius behind this investment is none other that then (and current!) Bank Superintendent Hernandez Behrens, the same guy who presided over the mini banking crisis of 2009 unscathed.

Bandes Uruguay lost money in 2007, 2008, 2009 and every year after that. So much, that it lost all of its capital. In 2010, I wrote a post again on the subject, this time because Venezuela was considering recapitalizing  Bandes Uruguay. Or Uruguay wanted Venezuela to throw some good money after bad. Which apparently was done once or twice, but now Chavez is dead. In the meantime, Bandes-Uruguay went from 35 branches to 24 and then to nine, as Bandes-Uruguay paid off hundreds of Uruguayans to take their severances and leave.

And Venezuela and Venezuelans (The people!) paid for this whole boondoggle…And Uruguay laughed all the way to the bank.

Well, it seems as this chapter has been at last closed, as oil went down and Venezuela did not want to capitalize Bandes-Uruguay any more.. So much for goodwill created in the name of the revolution.

The Uruguayan Senate approved now the absorption of 146 employees of Bandes-Uruguay to State owned banks, as well as absorbing nine branches of Bandes-Uruguay.

Meanwhile in Venezuela, Bandes gets away with not submitting financial statements, while handling billions in Chinese loans with no accountability. And any accusation against Bandes or its leaders is just ducked by the Prosecutor, the National Assembly or Maduro for that matter.

Which makes you wonder who used to protect those in Bandes? Who protects them now?

As a good friend (JG) said to me last week: Giordani is like a Catholic Archbishop, saying, yes I know that Bishop is a pedophile, but I am not.

Arrogant till the end…

Meanwhile at Bandes, wasting money is just their way of doing business, with OUR money.

Venezuela: From Magic Realism To Bizarro Country

June 12, 2013


Venezuela has been the land of magic realism over the last fourteen years. Under the spell of Hugo Chávez, the country lost a decade of development under the guise of a revolutionary process, that brought little revolution anywhere, when you consider that the country enjoyed the biggest oil windfall in its history. Chávez could sell the people anything, an attempt on his life, borrowing at 12%, while lending at 2%, demonizing the opposition, recovering from cancer and even blaming nature for many of the problems he caused.

But over the last six months, Chávez’z successor has turned Chávez magic realism into a bizarre concoction that makes no sense. He managed an electoral audit that was not one. Maduro has been in power for over ten weeks, but has made no important decisions about the most pressing economic matters. He blames problems on things like consumption, as if his party was new in Government. He says the universities have received sufficient resources, but a Professor’s salary is near the minimum salary and since 2008 autonomous universities have not had any budget increase.

But things get really bizarre when important discussions are distracted by events such as:

-Jose Vicente Rangel, a former Minister of Defense and “reporter” saying the opposition has purchased 18 airplanes to attack Venezuela and that they are in Colombia. Of course, no mention of who, when, how, just like that, 18 planes, not 2 or 3, all of eighteen planes, bought with money that came from nobody knows who, to buy whatever. Maybe Rangel saw an Amazon purchase for 18 planes to fight Maduro’s drones.

-A Judge, Judge Afiuni, ordered incarcerated by Chávez, who has yet to be tried, but was raped in jail, has the Prosecutor ask the Court to change her prison for home and five days go by without the inhumane Court saying a beep and ordering that she be released. Whatever happened to compassion in Venezuela?

-A thousand cases of the H1N1 virus are not enough to have Venezuela’s Minister of Health worry, declare an emergency or anything like that. Never mind how contagious it is. Never mind the ignorance of the average Venezuelan on the subject. This is simply another plot to destabilize by the opposition. The country is even out of the vaccines, but don’t worry, toilet paper should be arriving soon.

-An obscure Director of the price control office is jailed for corruption in Venezuela, but the SEC charging that there was a massive kickback scheme at Bandes, which made that bank lose US$ 66 million, gets no reaction from any official in Venezuela. (The fourth person was jailed today in the US)No investigation, no questions asked. But Maduro still says he is going full blast against corruption. Sure Nico, I believe you. (Cross my fingers)

-In a country with excess lawyers. In a country where nobody in important positions seems to have experience in the area of the position, an engineer is named to supervise the Judicial system. Never mind he failed as Head of the electric company, his supposed specialty. Never mind there are thousands of Chavista/Madurista Judges, lawyers and the like. Choose failure, choose ignorance, choose a guy that failed. Oh! I forgot, he is Chavez’ brother Argenis.

-The Head of the Electoral Board comes out and says that the “audit” was perfect, not a single error. But after a reporter finds 90 dead voters in polling stations with 100% participation for October, the next day (June 3d) the CNE changes the records from October 7th., all of them, reducing, but not eliminating dead voters. But, says Ms. Tibisay, Venezuela’s electoral system is “shielded”.  Not from the dead, Tibi. BTW Tibi, we are still waiting for the fingerprint records from the SAI, which has turned out to be a useless system: It did not stop anybody from voting! Which is why they don’t want to give the opposition a copy.

Oh yeah! A guy named Kerry, who apparently holds an important position in the US Government, meets with Venezuela’s Foreign Minister Jaua, who grins at the meeting at Kerry, very much like Venezuelan kids do when they meet Mickey Mouse in Orlando.

Really, bizarro country, with a Capital B (not “V”), is getting harder and harder to understand it. All of this happens and not much of a reaction. Bizarro is, bizarro happens. Nothing happens.

As Economy Stalls, Inflation Heats Up and Maduro Seems Clueless

June 8, 2013


Maduro badly imitating Chávez, what is he smiling about?

The week brought really bad news on the economic front, as the Venezuela Central Bank reported that the economy stalled in the first quarter, growing by a meager 0.7%, while inflation really heated up, increasing by 6.1% for the month of May (up from 4.3% in April). Both numbers were worse than expected by analysts and economists.

The internals of the inflation numbers were even worse. Twelve month inflation is now running at 35.2% (Inflation  for 2012 was 20.1%), while Food and Beverages went up by 10% in May, that group is now up 27.8% for the year and 49.9% in the last twelve months. Inflation is already up 19.4% for the year, compared to a devaluation of 31% in February. The scarcity index stood at 20.5% in May, barely budging from the same number in April. Even worse, many of the basic products currently under price controls, have yet to receive approval for price increases since the devaluation in February. Meanwhile, the black market rate has reached a new all time high.

To make all of this even more worrisome, is the fact that Maduro was sworn in nine weeks ago and he has yet to announce any significant change to economic policy. Soon after being sworn in, Maduro said that the Government would make the parallel rate fall and it is now 32.4% higher than when he won (sic) the election. And while investors and the private sector wait for announcements, Maduro makes non-announcements (Sicad was going to start again three weeks ago, there will be no devaluation)

But Maduro keeps saying things that may sound good to the “people”, but are either false or will make him look bad in the future. He said that what was coming was “the strengthening of our currency and our economy”, which at this point is an impossible target for the currency in 2013 and an iffy proposition for a growing GDP in 2013. Maduro also asked for applause for Minister of Finance Merentes “who is fixing our economy”, while in reality Merentes has shown that he does not have the power to guide economic policy, as he has yet to make a single change since being named Minister in April. (Even his road show to New York and London to talk to investors was cancelled soon after it was sort of announced). And Merentes may improve the foreign exchange system, but he is no economist and thus does not know the tools to attack the many distortions in place.

And Maduro may simply be clueless or have really bad advice. Yesterday he said that the reason inflation went up like this in May is because of “overheated consumption”, while the Government’s own numbers show that the growth in consumption slowed down between the fourth quarter of 2012 and the first quarter of 2013 from 7.1% to 3.1%. Maybe Maduro should be briefed on the effects of money printing and deficit monetization.

By now, in addition to the higher inflation and the stalling of the economy, the result of the Government’s inaction is that the bond issuance (likely directly in US$) that will certainly take place in the upcoming weeks, will be more costly than eight weeks ago. Between the fear of new issuance, the drop in US Treasuries and the lack of new policies, the prices of Venezuela and PDVSA bonds have been punished harshly in the last nine weeks. This means that before Maduro was elected, the benchmark Venezuela 2027 bond was yielding 9.18%, which last Thursday stood 11.48%, before dropping sharply on Friday to 10.88%. This means that any new issuance will be between 1.5% and 2% more costly than six or eight weeks ago. (US$ 45 to 60 million a year for the length of the issue of a US$ 3 billion bond)

About the only positive note is that Minister of Energy and Oil Rafael Ramirez has managed to sign some deals worth about US$ 9 billion with Rosfnet, China and Chevron, showing that he has more power than many. Except that none of what he did  implies cash flow any time soon, as the major chunks of all the deals are for expenses in PDVSA’s projects with these partners. The only one that implies money for PDVSA is a loan from Rosfnet to PDVSA of US$ 1.5 billion, capped at US$ 300 million per year for five years and so far, it is only a Memorandum of Understanding.  The other “loans”, are all going back to the “Giusti” model, where the purse strings are controlled and held by the partner and not PDVSA. Fourteen years of a revolution to end up in the same place.

At least, that new money will go in the long run for increased oil production, something the country needs, but the revolution has ignored for too long.

Raitioning in Venezuela’s Zulia State: Pure Ideology Of The Worst Kind

June 4, 2013


Cuban Rationing Book

You have to wonder what goes through the mind of someone like Zulia Governor Francisco Arias Cardenas. The once coup plotter with Hugo Chavez, who he later ran against, has seen fourteen years of controls fail and he decides that for his State, the best solution is: More controls.

In fact, is not even more controls, it is simply rationing. The idea to give everyone smart cards so that the Government can limit the availability of the twenty food products which have a regulated price, is as stupid, as the regulated price itself.

But these guys push controls relentlessly, despite the fact that not one control has worked in the last fourteen years:

Price controls? Venezuela has had 900% inflation since Chávez came to power fourteen years ago and shortages have been a problem for the last six years. The Central Bank now withholds information on shortages and rumor has it that the CPI jumped over 5% in May.

Exchange Controls? After imposing exchange controls in early 2003, which became even more rigid in 2010, the devaluation of the official rate of exchange has been from Bs. 0.573 when Chávez took power to Bs. 6.3 , “only” a 91% devaluation, give or take a decimal. But, of course, there is a second rate at almost five times the official rate, the true floating rate would be somewhere in between which would represent a 96-97% devaluation, but who is counting anymore? But note, that between 2003 and 2010, the currency devalued from around Bs. 2 to Bs. 8, a factor of four, but the more strict controls since 2013 have increased the black market rate by almost another factor of but in only three years.

Border Controls?: Products going through the borders are checked, creating long lines, so that the National Guard can check to see whether you are exporting product to Colombia which is ten times or so cheaper there. This limits trade, creates long lines, annoys people and…if you slip a few bills into the National Guards pockets, you can certainly get your stuff through anyway. Thus, it becomes another source of corruption, number 3,483 created by the complex system of controls and subsidies in place.

And all of these exquisite controls and interventions have led to less production. Venezuela was an exporter of coffee in 1998, today it imports coffee. In 1999, Venezuela imported very little meat, today it imports 59% of ts consumption. The Government has dramatically expanded its banking sector, but 90-plus percent of agricultural loans come from the private banking sector and the rest from Government owned banks. And so on…

So, this fool who was elected Governor of Zulia decides to create a rationing system to impose more controls on top of the controls.

There are so many things wrong with it, that I am not sure where to start:

-First of all, this costs money. Lots of it. The Governor will now spend money on software, computers, chips, cards, personnel, to impose another control on items which have price controls, because there are shortages. It will make supermarkets spend money in all this, which means the costs for the supermarkets will go up, costs that will be passed to the consumers on the prices of non-regulated items.

-But…you have to create rules. And arbitrage will come in. As soon as the rules are in effect, every single individual entitled to buy, for example, two kilos of sugar per week, will go and buy two kilos of sugar at the supermarket every week. And once there are too many kilos of sugar at his or her home, they will go and sell the sugar at the free market or to street vendors at many times the regulated price. And the same food will show up somewhere at a higher price.And since its scarce, someone will pay for it.

-This is not a very popular measure, so that Mr. Arias better watch his back, as he is doing something that will eventually become very unpopular. If you are going to impose unpopular measures, you might as well impose rational ones.

So, imagine the path that package of sugar has on its way to the true final consumer: First, there are exchange controls, so it will be purchased only after a dozen steps for the approval of the currency to buy sugar. This requires employees for the Government who supervise all the steps, as well as employees for the guy who is importing, who hires people just to satisfy the bureaucracy of CADIVI. Many of these steps, of course, have graft associated with it. Then, the “buyer” will try to get the cheapest quality sugar they can get to maximize profit, since the importer knows that he will have to pay even more on the way to the port. Graft at customs, graft at the dock, cheap products, and finally it gets to the price controlled supermarket, where Governor Arias now will control how much you can buy.

Idiotic is too nice a word to describe all this.

There is no logic for it, no justification for it and you simply create even more economic distortions.

Which one day will have to be unwound.

And these guys don’t look at models anywhere, except one place: Cuba. And despite the gigantic failure of that State, their minds are blocked from looking at Brazil, Chile, Peru, Asian countries, where things are working much better than in Cuba and/or Venezuela.

To me the whole thing is a mystery. At one point Arias Cardenas seemed to be a more pragmatic voice within Chavismo, he now has joined Chavismo in full force, no brains, no thinking, just pure ideology of the worst kind.

The Dead Voted Massively Last October in Venezuela

June 2, 2013


While the Electoral Board (CNE) did not allow the opposition to look at the voting notebooks, nor has it released the details of the fingerprint system (SAI) data, which would reveal how many phantom votes took place last April, there are ways to infer that there were fake votes in the recent Presidential elections.

One of the biggest anomalies in the last two Presidential elections is that the number of polling stations in which 100% of the voters cast their ballots has been on the increase. In the October 2012 election (you can download the data here), a total of 48 “mesas” had all of their voters show up and vote, comprising 20,012 voters.

While the CNE has not released the data from the 2012 or 2013 fingerprint data, the data of who is still registered to vote is public and the data from the National Institute for Statistics on who is dead is also public. Well, someone in El Universal took the trouble to check how many dead voters were registered in the 48 mesas where 100% of the voters cast their ballot last October. A picture of the list is shown above, you can see the full list here, there were a total of 90 dead voters that resuscitated that day and went to vote.

Well, if 90 out of 20,012 voters that cast their ballots were dead, that extrapolates to 66,887 dead voters nationally, using the total numbers of voters cast (14,872,739) in October. Given that the number of dead people in the  voting rolls is estimated to be 210,000, one can only conclude that dead voters went massively to the polls last October with 31.85% of them voting, despite the significant limitations to go and and vote associated with being dead. (To say nothing abut the state of your fingerprint)

Recall that Maduro “won” by 224,268 votes in April.If we assume that these same 66,887 votes, also were cast in April, plus who knows how many more fake pushes of the voting button by those that controlled the process, then the difference may have been quite small indeed (or changed sign!)

No wonder the CNE does not want to release the fingerprint data or have the voting notebooks checked!