Archive for August, 2013

We Interrupt Maduro’s Enabling Bill In Order To Defend Syria

August 30, 2013


All of a sudden Maduro’s PSUV party has lost one vote in the Venezuelan National Assembly, leaving it two short of the required 99 votes because, of all reasons, Deputy Adel el Zabayar, a Deputy from Bolivar State, has requested a leave of absence to go and fight for the Syrian Government.

El Zabayar was an alternate in the National Assembly, but became a Deputy when Rafael Gil was named President of the Corporación Venezolana de Guayana. Thus, El Zabayar has no alternate and PSUV has thus lost a vote. .

El Zabayar is of Syrian origin and is President of the Venezuelan Arab League and a former member of the Venezuelan Comunist party.

I guess that is what Maduro meant when he said that he would help Syria if the US attacked. El Zabayar said that he would return to Venezuela if Maduro asked him to. But I guess the Syrian fight is more important than anything happening in Venezuela. I hope other PSUV Deputies join him in this fight for authoritarianism. Maybe they will be further away from their quorum.

Metals Trader Calls Venezuelan Plan On Prices Crazy

August 27, 2013


Reuters today had this piece about Venezuela’s new plan to get a “fair price” for its metals under Maduro’s new “Sovereign marketing Plan”. The plan is simple, nobody is going to come and set the prices for Venezuela. Nobody is going to come from abroad and set the price of what belongs to all Venezuelans. We want fair prices.

WE will set the price, you hear!

This is really revolutionary, Venezuela from now on will sell all of its metals well above international prices, using their own proprietary formula for what fair prices is.

Comments so far by traders:

“The government has no idea what it’s doing … They put up so many obstacles that clients are losing faith in Venezuela”

“This is crazy, it’s never going to work,” said a metals merchant based in the United States. “People are leaving Venezuelan minerals in the ports”

What’s next? Venezuela will only sell oil at US$ 200 per barrel?

Now, that would be truly revolutionary, no?

New Venezuela’s Central Bank President Tries to Pull A 1984 Fast One

August 22, 2013

Was reading the news coming out of the Central Bank’s press conference on GDP with some skepticism when I saw a line go by:

The (new) President of the Venezuelan Central Bank (Eudomar Tovar) said ” The (Venezuelan) economy has now shown 58 consecutive quarters of growth”

I thought to myself,: Say what? Whatever happened to 2009, or 2003 or 2000 and began looking for charts in my blog, found a couple but then decided, what the hell, let me look in the indicadores page of the Banco Central de Venezuela, after all, someone may think I altered the data.

But no, here it is the data from the BCV itself:


GDP2Funny, I see some 20 quarters of negative growth (First column inn bold) since Chavez became President. Thus, Eudomar, who was supposed to know what he was talking about, instead pulls a 1984-like fast one and tries to lie straight form the start. So much for our hopes that an economist at the helm of the Central Bank could be a positive.

So, file this with:

-Maduro wants to fight corruption.

-GDP grew in the second quarter because banks and insurance grew so much.

-Elections are clean in Venezuela.

Yeah, sure!

Writers Block About The Absurdity Venezuela Has Become.

August 19, 2013


So, Maduro wants to fight corruption. Where should I begin?: Antonini, Illaramendi, Giordani/Fonden, Bolivar 2000, Fernandez Barrueco, Arné Chacón, Argentinean Bonds, Structured Notes, PDVAL, Chávez family, and dozens of posts on similar and equivalent subjects, over and over and over.

I can’t write about that, already did. Too many times.

Maybe I should write about a Constituent Assembly. Yeah! We need another Constitution, because the 26 we have had since the first one in 1811 have not worked. So, is it the Constitution or is it us?

Really, thirty years ago Venezuela had the most advanced (and complex) anti-corruption law, but Maduro needs magical powers, Harry Potter-like powers, all of a sudden and the opposition may need (or not) a new Constitution. Give me a Voldemort break!

Look, the 2000 Constitution may not be perfect, but why not try to follow it to the letter for four years and see what happens?

Look, democracy is hard, you really have to work at it, every single day. It is not a matter of just getting elected. You have to talk, negotiate, find the middle ground. Include everyone. Not Carreño, everyone that is representative. I draw the line with him.

Want to fight corruption? Name a Comptroller that everyone respects, both sides. If that person does not exist, then we really have problems, don’t we?

You think that even if you get elected, the other side will control the Government? Oh well, nobody said this is easy, but how about working hard for the country for a while? Earn each piece, one step at a time. That would be nice, no?

Because you may object to the 2000 Constitution, but hey, it is no better, nor worse than the other 26. You mean to tell me that none of the 26 were any good? Then we are screwed, don’t you think? Maybe it is something up there at the neuron level that makes us believe that ideology can fix everything. Try it next time your car breaks down. Well, I take that back, I am sure a true hard core socialist could prove a Lada is easier to fix, even if it breaks down more often.

But talking about all these things is easier than talking about the Vice-President of Fascism with a  capital “F” Jorge Arreaza, saying that everyone that is against Maduro’s Enabling Bill is suspect of being corrupt. To begin with, look at yourself, anyone that is suspect of being Vice-President just because of who he married, is then suspect too. No? Agree?

More so, nothing, absolutely nothing, qualifies you for any of the positions you have held. Only two words: Rosa Virginia. Because you have a degree in European Studies which would qualify you, at best, to a mid level position in some bureaucracy in Europe, where I am sure you would serve Venezuela better than in the Ministry of Science or in your current position. BTW, you spent a few hundred million dollars on that Chinese satellite but forgot the local antennas. So, we don’t get to use them, because you were clueless. Under current Venezuelan law, that happens to be corruption. Read it, you may be enlightened, but it says you should be in jail. Four hundred million dollars is a lot of money, even for rich Chavistas.

So, I don’t know what to write about, It’s writers block. I wanted to alliterate the title: Corruption, Constituent, Cambio, Compliance, Conciencias, Comptroller, Corpoelec, Censorship, Central, Cilia, Chavismo, Cruz Weffer, Chacón, Cadivi, Carreño, Cabello, Chávez…

No, it just would not work. Simply Writer’s Block about this absurdity Venezuela has become.

A Tragic Statement About Venezuela

August 15, 2013

black-ribbonWhenever something like the deplorable homophobic spectacle of the National Assembly two nights ago occurs (The details here, here and here), I prefer to stand back and allow it to sink in before I write something. In this case, I have found (and find it) it hard to verbalize my reaction to the whole thing. Because in the end, it is not only about the homophobia,  but there has always been in Chavismo a very mean streak, that bars many of its leaders from exhibiting any compassion or respect for others. Call it lack of sensitivity or simply lack of scruples, Carreño, Cabello, Maduro and their combo, seem to have no moral foundation to their ideals. The end not only justifies the means, but there seems to be some joy in the means, however perverse, whether we are talking about the murders when the opposition used to march, allowing Franklin Brito to die, jailing Judge Afiuni, the Tascón list or using material obtained by the police in the National Assembly to express your most homophobic and hateful feelings against your opponents.

But if the spectacle was deplorable, the reaction to it, whether Carreño trying to say he was sorry, or Diosdado saying they could jail Capriles, or Maduro accusing Primero Justicia of promoting orgies and prostitution in Miranda, is as despicable as the original hateful speech by the ever absurd Pedro Carreño. Carreño’s attempt to be contrite, simply showed he meant every word he said that night, as he only apologized for the words he used, but made sure to explain that he thought long and careful about what he said. There was simply no remorse.

It is simply just another version of Chavez’ “The show must go on”, when faced with the Amuay tragedy twelve months ago. No sense of compassion, no sense of responsibility, no civility, no humanity, no feelings for others and their rights.

But the real tragedy is not that we have become accustomed to this without realizing it, but that there will be no moral punishment for Chavismo for their behavior. That this lack of humanity and compassion has become a pervasive and accepted attitude. That some actually cheer what happened.

A terrible and tragic statement about what Venezuela has become.

Did The “Pragmatists” Win A Battle In Venezuela Today?

August 13, 2013

triadThe pragmatists “triad” Merentes, Porras and Tovar.

When you come down to it, about the only positive silver lining in the 100-plus days that Nicolas Maduro has been President of Venezuela has been the apparent (so far) more flexibility of PDVSA, in that Rafael Ramirez seems to be operating independently and trying to be more pragmatic about increasing the country’s oil production.

When Maduro first shuffled the Cabinet he inherited form Hugo, people were disappointed in that, while he named the more pragmatic Nelson Merentes to the Ministry of Finance, he split the Planning and finance Ministry into two, leaving the ever present and influential Jorge Giordani as Minister of Planning. Even worse, a Giordani ally, Edmee Betancourt, was named as President of the Venezuelan Central Bank, making everyone wonder whether the pragmatic side had any leverage to do what it wanted.

And the pragmatic side certainly has had a rough time so far, as there has been little change in economic policy, beyond a decree that should concentrate foreign currency in the Venezuelan Central Bank (but hasn’t) and a kluge of an foreign exchange auction system, named SICAD which has been as effective as aspirin for treating cancer.

But something funny happened today, when in a surprise move, the Venezuelan National Assembly approved Nicolas Maduro’s nomination of Eudomar Tovar to the Presidency of the Venezuelan Central Bank.  (Which had something to do with the fact that Bandes’ President, Temir Porras, last Friday went to the Prosecutors office to ask to investigate the bond trading rip off at Bandes, which the SEC had jailed people for. (Edmee Betancourt happened to be President of Bandes when all of that happened).

But, t start with, Tovar happens to be an economist, that rare avis, seldom seeing in the fourteen years of Chavismo in any position where economic matters are discussed or decided. Indeed, Eudomar happens to be a bona fide economist, who even has done graduate work on financial matters, earning a Masters degree and studying for an additional one. Given that I have a soft heart for qualified people, no matter what their ideology is, I can only applaud this.

But more importantly, Tovar is a Merentes ally and buddy, who accompanied him in the Venezuelan Central Bank and Merentes forced in as President of CADIVI, after Maduro assumed office for Chávez in January.

And to top it all off, another economist (did you really think Chavismo had only three?) Jose Khan, was named as the new President of the foreign exchange office CADIVI.

Thus, in one apparent swoop, the “pragmatists” seemed to have wrestled control from the “ideologues”, including Jorge Giordani and, in my mind , that can only be positive for Venezuela.

Then, the Merentes, Porras and Tovar triad now represents a new powerful force on economic matters and it certainly seems as if Giordani’s influence is diminishing. That can only be good for Venezuela.

Maybe I am completely wrong, but I certainly hope that this means that Merentes will now have more autonomy to establish more rational and economically sound policies, within the bizarro world of Chavismo/Madurismo. Because so far, deciion making has not only been slow, but has been dismal in its execution.

Hope I am right. Watch international reserves in the next few days, if parallel funds move their money there in the next couple of weeks, that would be a great sign and a confirmation that I have some basis for being somewhat positive.

The Gigantic Failure Of The Bolivarian Revolution In Two Graphs

August 11, 2013

People still want to defend the Bolivarian revolution. The poor they say, the Justice they dare mention. Democracy, they claim, simply making me laugh.

But the following two graphs sum up why the Bolivarian revolution is simply the biggest scam in our history. Simply indefensible, I just wish I could quantify corruption in a similar graph, to make it three.

1) The inflation rate in Venezuela, either reported by the Government or the implied inflation rate, defined as that measured by the change in the black market rate, is worse than in war ravaged Syria, and only beaten by that of North Korea, as show in this graph ripped off from the Wall Street Journal.

InflationwsjHat tip: JSB, thanks!

2) The fourteen years of the Bolivarian revolution have made Venezuela a very unsafe place to live, with homicides jumping by a factor of 4, making Venezuela one of the most dangerous countries in the world, whether you believe the 73 murders per 100,000 inhabitants of the official statistics (black line) or the 84 of the Venezuelan Observatory of Violence. Note the poor have a higher incidence of homicides and crime than the middle class. (This graph appeared in last Sunday´s (August 4th.) Expediente in El Universal, but was not included in the digital version. Thanks VS for getting it for me.)


Two simple graphs, a Gigantic Failure…

Supreme Court Rejects Election Challenge, Fines And Orders Capriles Investigated

August 7, 2013


The surprise today was not that the Constitutional Hall of the Venezuelan Supreme Court rejected as inadmissible Henrique Capriles’ challenge to the election results in a one page decision. The surprise was that besides the legal travesty, the Court fined Capriles the maximum amount for insulting authority with the challenge and accusing the Court of being partial to the Government. The Court also asked the Prosecutor to have Capriles investigated for these insults.

Jeez, the ruling was worse and more biased than I could have ever expected and simply proves Capriles’ point. In fact, every ruling along the way, from allowing Maduro to take office for Chávez, to permit him to campaign as President, doing “cadenas” all the time, simply emphasizes the point.

But I guess in this so called Chavista/Madurista democracy, free speech is not allowed and you have to agree with everything the Government says  or does, or you are being disrespectful and can thus be jailed.

Do I smell a jailed Capriles in our future?

Venezuelan Government Fails To Pay Sidetur Bonds

August 6, 2013

For fourteen years, President Hugo Chavez said and boasted that despite everything, his Government had always paid its bonds on time and honored all international debts. And he was right, even after the 2002-2003 strike, when oil production went down and when oil prices dropped, Venezuela continued paying its bond obligations.

This is no longer the case, as of July 20th. Sidetur, a company whose assets were expropriated by the Venezuelan Government last year, failed to make payment for both interest and capital on its 2016 bond, which has a 10% coupon. Remarkably, the amount owed is peanuts in the context of the country’s debt, as the amount owed today is only US$ 73.75 million plus one quarter of interest payments.

The Venezuelan Government expropriated all of Sidetur’s assets, including its offices and bank accounts, as well as absorbing  all of the liabilities of the company, except for the bond. This was all transferred into the Complejo Siderurgico Nacional, in fact, the website under use is nothing more than the old Sidetur website “refurbished” for the Complejo Nacional Siderurgico, but even the documents in pictures, tags on products and the Sidetur “S” in the search function, are derived from the Sidetur website that the Government took over when it forcefully expropriated the Sidetur’s offices, as can be seen below:



While the formal default of the Sidetur bonds took place on July 20th., the reality is that the problem started last January, when the Venezuelan Government failed to make payment into a trust in Deutsche Bank, which is supposed to have two quarterly payments accumulated at all times. Investors sort of assumed that payment would be made before July 20th., as it makes no sense for Venezuela to default on such a small amount of debt, given what is outstanding and that apparently Venezuela and PDVSA plan to issue debt in the future.

What the Government argues is that there is a legal opinion that says that the bonds are the responsibility of the shareholders of Sidetur, or at least that is what was said by the Minister of Industry when the Government first suggested that it had no plans to pay Sidetur’s debt. This is a surprising argument, even if I have not seen the opinion. First of all, shareholders do not issue debt, nor are they responsible for debt issued by the company they own. Second, when company’s fail to pay their debts, bondholders go after the assets, the cash or the cash flow of the company, all of which, in Sidetur’s case, are in the hands of the Venezuelan Government, so that it would be impossible for the shareholders to use them to pay. Third, the Government has not compensated Sidetur’s shareholders for the expropriation. If it had, it would have to take the debt into account and either pay it directly to the bond holders or pay to the the Sidetur shareholders who would the be able to honor the company’s debt. (Technically, the Government expropriated all of Sidetur, but not the company)

But the most surprising thing is that this case is no different than those of Cerro Negro, Petrozuata or Fertinitro, where it was the Government or PDVSA who paid the bondholders, even though it had not compensated the shareholders. Thus, it seems difficult to justify legally in the case of Sidetur that there is any difference.

What is most surprising is the somewhat nonchalant attitude that the Government has assumed on this problem. In the other three cases mentioned above, the Government met with bondholders and a solution was worked out in all cases. In fact, Cerro Negro and Petrozuata never even reached the point of default. However, in the case of Sidetur, there has been no response by the Government to any of the letters of the Steering Committee of the bondholders, nor any answer to their calls.

The only reaction so far by Minister Merentes is that he said that there is a technical opinion that the Government is not responsible for this debt and that he had created a trust to guarantee payment, which in itself seems to be a contradiction.  But to the mostly institutional investors in Sidetur bonds, the creation of this trust is mostly irrelevant, as they have clients who will only benefit if the Government actually made payment, not if it makes some vague promise of guaranteeing what it says can not pay.

Investors believed that Minister Merentes would find a more practical solution, given the fact that he is ideologically less rigid and has always looked for not only practical solutions, but also to protect that same image that Venezuela will honor its debts. The simplest such practical solution would be to either pay the bond in full, as the indenture of the bond says should be done if any part of Sidetur changes hands or is sold, or simply pay the quarterly interest and capital payments until the problem can be resolved in full from a practical and legal point of view. Any amount paid to the bondholders could be later subtracted from the compensation given to Sidetur’s shareholders.

It may be that Merentes and his team feel that the default has had no impact on the country’s debt. But they are wrong. Most of the institutional investors that own Sidetur, have much larger positions in Venezuela and PDVSA bonds and are unlikely to buy any more bonds until the matter is resolved. In fact, if they perceive that the Government will not find a solution with Sidetur, they are likely to become sellers of their current Venezuelan positions. This is the last thing the Government wants if it plans to sell new international debt, more so when the existing long term debt has yield to maturity between 10.5% and 12%. The fewer buyers, the higher the cost will be. In fact, some of these investors have begun granting public interviews to express their frustrations with the situation and this is likely to occur more and more in the future. As Ray Zucaro of SW Management says in that interview, there are lots of doubts about the will to pay of the Venezuelan Government.

The bondholders have so far tried to reach out to the Government to find a solution, but they have received no answers. They have done that in the belief in the promise that Venezuela will honor its debts. But as time goes by without anything happening, the bondholders may decide to resort to legal means to obtain payment. And that process can be extremely noisy and negative for the Government, as Argentina has seen with its default and restructuring, which is still creating problems for that country eleven years later. The size of the problem may be smaller, but the legal means would not be too different, which only would be an unnecessary hassle for the Venezuelan Government and PDVSA.

Whatever the future may bring, one thing is for sure, for the first time since Hugo Chavez took over the Government, there has been a default of the Venezuelan Government’s debt, that in itself is a blemish in the country’s record which can not be erased and will have a cost in the future.

Disclaimer: The author of this post has owned Sidetur’s debt since it was first issued in 2006 and thus has an interest in the resolution of the problem :-).

I guess on the eleventh anniversary of the blog, I can write a post out of sheer self interest.

Everyone In Venezuela Is Into Arbitrage

August 4, 2013


arbiWhen Adam Smith suggested or showed that economic self-interest maximizes economic welfare, I don’t think he had in mind the economic self-interest that is promoted by the arbitrages available under the so called Bolivarian revolution.

These pages have recorded billion dollar arbitrages, some with bonds, others with CADIVI; there was SITME, travel dollars, airline tickets, now Sicad and many more without going into much detail today.

What Chavismo/Madurismo has failed to learn throughout these fourteen years, is that the longer these possibilities of arbitrage become available, the more widespread their exploitation becomes. That is what made SITME eventually so inefficient that it had to be scrapped, what makes CADIVI such a nest of corruption and what is making SICAD unworkable in such a short time. People learn fast and exploit the weaknesses of systems to promote their self interest via arbitrage. Every time the Government announces something, people get ready to see how they an make some money off it.

Whenever I visit Caracas, I talk to people trying to find out more about what their reality is like. I mean, with inflation soaring and noticing how everything has gone up every time I come back, I have to wonder how people, particularly the less well to do, can make ends meet.

This week, it was a parking lot attendant I know. We started talking, he complained about the Government and I started asking questions.

For him, let’s call him Profito, things are ok. They are better, because the parallel dollar is very high. He said he makes a little more than minimum salary in his job, which must mean around Bs. 3,000. He sends his mother in Colombia a US$ 300 a month in a “remesa”, which costs him Bs. 1,890, but he sells half in the black market, which gives him Bs. 4,950, for a net of Bs. 3,060, which doubles his salary just like that.

Things are tough, so he decided to send his son to Colombia, it’s too dangerous here, plus the kid could become a malandro (hoodlum), with the neighbors he has. The advantage is that his expenses went down and he can send the kid another US$ 300, give his mother half and net another Bs. 3,090 in the process.

To round it all off, Profito, has also now entered the export business. When he discovered that “perfumeria” items are so much expensive in Colombia, he started shipping about Bs. 5,000 a month in supplies via MRW (a courier) and he makes “casi” (almost) 100% profit a month from this venture.

Oh yeah, he said, I do go once a year to Colombia and ask for the $2,000 dollars for travel, this year he will get less, there will be no money for the kid, but the black market has increased so much that he will make about the same. (Not quite, he will make more, as the parallel rate has doubled since December, but he will only pay once).

Totaling it all up, Profito makes his Bs. 3,000 from his job and from his arbitrage activities he will make this year an additional Bs. 6,180 a month from “remesas” to the family, about Bs. 5,000 (he claims) from his import/arbitrage and an additional Bs. 2,000 or so from his travel allowance, for a grand total of Bs. 16,180 a month, or at least five times the minimum salary. Not a bad monthly income in Venezuela and he has health care. Except only one of those minimun salaries comes from his job. The rest is all thanks to the promotion of self-interest arbitrage by the distortions of the revolution.

And the Government? Fixing the price of SICAD very low to promote arbitrage even more…