Archive for September, 2013

It Was The Worst Of Times For Nicolas Maduro This Week

September 28, 2013


Nicolas Maduro had a bad week. A terrible week. He had gone to China for a week to sign agreements, do some tourism and be toasted as the leader of all Venezuelans. But instead of receiving the full Chávez treatment, he got the quickie tour.

Yes, he got US$ 5 billion as an extension to the Heavy Chinese Fund in which Venezuela sends oil, the Chinese send us trinkets. Yes, he signed a bunch of agreements, most of them giving the Chinese rights to exploit, explore or sell Venezuela something. But when it came time to ask for US$ 5 billion in cash, there was nothing doing. Los chinos se hicieron el chino. *

Even worse, the Chinese leaders did not even consider Maduro’s proposal. Not even looked at the papers, meeting was over. Trip was over, as far as the Chinese leaders were concerned. Maduro and his hundred-plus entourage could continue touring, buying high quality fakes and eating dim sum, but the visit was finita. There would be no long talks with Nicolas and the Chinese leaders like there were with Hugo, no more banquets, no more grand strategy sessions. It was 再见 (zai jian, goodbye) time.

It was unclear who goofed, who or what made Maduro believe that there could be a cash loan, given the reluctance of the Chinese to even extend the loan for trinkets Heavy Fund US$ 5 billion loan. It’s a new leadership in China and a new leadership in Venezuela.

And after one more day of sightseeing, Maduro said, let’s go home.

It has been downhill since then.

First there was a stop in Canada, Vancouver to be more precise, where there was a refusal to sell jet fuel to Maduro’s plane because it was Cuban. Maduro had to wait for six hours for PDVSA planes to come and refuel his Cubana plane. It was during that time that they realized that there could be legal problems in New York with the Cuban plane. Maduro decided to cancel the UN visit, despite the fact that, once again, the ugly Americans had speedily approved the change of plans.

In his first public statement arriving in Venezuela, Maduro said he had canceled the UN visit because it would be dangerous for him, suggesting some Republicans were plotting against him.  The story later was changed to suggesting the Cuban plane could be impounded.

Maduro  thus arrived in Caracas barely five days after leaving for a twelve day trip and even worse, the refusal of the Chinese to lend more money was leaked and Maduro tried to make it look as if the trip was a success. Except the money for the Junin 1 heavy crude field was not new either, nor would it come anytime soon. So, Maduro began hailing all of the agreements with CITIC, the Chinese investment firm, which Maduro kept saying was the technology branch of the Chinese Government. So, after signing thirteen agreements with CITIC, Maduro did no get it that CITIC is out to make a profit and is no high tech powerhouse.

Then Maduro and his VP made everyone laugh, saying that the Chinese financing was not debt, but part of a strategic alliance between China and Venezuela.

Maduro then tried to get his Unasur buddies condemn the US for boycotting his visit to the United Nations, which was not done, as the US showed some countries proof that the Venezuelan Government had fumbled all flight requests, despite which all had been approved in record time. I guess when you are giving less money away, you lose some formerly unconditional friends.

And as news of the gigantic drug catch in Paris on the Air France plane were disseminated, which showed high level and extensive involvement by the Venezuelan military, Maduro tried to make a big deal of suing french-British consortium Airbus for faulty repair of his Presidential plane, suggesting there was something ominous behind it. But Airbus noted it does not perform the repair or maintenance on the planes.

The week was finally closed with Foreign Minister Jaua intervening in the UN Assembly in Maduro’s place. Jaua made his speech all about Maduro´s trip difficulties, not before recreating Chavez’ statement seven years ago by saying “It still smells like sulfur here”. Never mind that Chávez was referring to George W. Bush at the time, who had spoken the day before and that on the same day. But additionaly, hours earlier Obama was talking to Iranian President Rouhani in the first direct talks between the two Presidents since 1979.  Talk about Jaua being out of touch, he is no Chávez, has no historical understanding and by the time he was done, most leaders had left. His was the last speech of the 68th. Assembly.

It was indeed the worst of times for Maduro this week, as by now he appears to believe his own speech that his policies are fine and is all part of a conspiracy to “Snatch the Fatherland”.

Except the snatchers are those around him and not those he is accusing. And the lack of action, to say nothing of the lack of a birth certificate, is hurting his cause.

Y ahora a ver si en la India no se hacen los chinos.

*Hacerse el chino (make yourself Chinese) is a saying in Venezuela and other Latin American countries in which a person makes it appear as if it does not understand or ignores you. The phrase is also used with Swedish, instead of Chinese.

If The Revolutionary System Is Too Complicated, Add Another Layer!

September 27, 2013


For a group of people that is incapable of managing even the simplest systems, Chavismo has proven quite adept at establishing controls systems for everything. It is truly amazing how they can be so creative and inventive to establish very complicated systems to monitor and control, but are incapable of managing a simple supply chain for example, for an arepera.

Yesterday, I was praising Chavismo in private, because for the first time, they were actually going to remove some layers of controls for imports, removing certain steps to request certificates necessary for any import request, as well as extending the validity of current certificates until December 31st.

But my joy lasted a very short time, when I learned today about the new invention of the CADIVI “creativity” department to stop the “raspaito” of credit cards without traveling. As you know, people are buying airline tickets, requesting the CADIVI dollars for travel and not using them (This requires folders, going to the bank, wasting half a day, going online many times, etc..). They take their credit card, send it with someone or have someone use it for them and voila, they exchange those dollars bought at Bs. 6.3 per US$ and sell it at a huge profit at six times that rate in the unmentionable market. With the difference, the price of the ticket is almost irrelevant.

Well, given the truculent mind of Chavista officials, here is what they are planning to do to stop “raspaitos”: They will set up fingerprint units at all international exit points of the country in airports, ports, roads. Then, as you exit immigration, you will activate your credit card with your fingerprint. The system will be connected to the national credit card system. In this fashion, the theory goes, only people that actually leave the country will have their credit card activated.


-What if the system is down when you leave?

-What if there is no electricity that day?

-What if the connection is down?

-There is no law stopping you from leaving the country and immediately going thru immigration, missing your flight and activating the card in the process.

and so many others…

And, of course, there will be a cost to implementing this whole thing, but who cares, we will have Patria and fingerprint systems and they will feel good about it!

Another Ton Of Coke, Right Under The Bolivarian Revolution’s Eyes

September 22, 2013


A few weeks ago, a good friend was traveling to Europe, when he was stopped right after Maiquetia immigration and interrogated by some officials. When it was determined that he was only going for a few days, the questions got more direct and unnerving, as they were directly suggesting that he may be carrying drugs on him. Unfortunately, in the world of digital communications, he was carrying no papers about his meeting and did not have on him his ID from work.

He was asked if he minded having an X-Ray done, which he clearly didn’t. At that point, he was moved to a room with other “suspects” and taken away from the airport to some form of dispensary run by Cubans near Catia La Mar. By now, the whole process was quite unnerving, as it was already past the departure time of the airplane and he was far from the airport and did not know if he would miss his flight or not. An X-ray was done, obviously showing nothing and he and the others were returned to the airport to catch their flight, which was delayed two hours because of them.

This story comes to mind, because French authorities revealed this week, that 1,3 Tons of cocaine were found in an Air France airplane arriving from Maiquetia. The stash was found in 30 suitcases, which cnn describes a “colorful” and which did not belong to any of the passengers on the plane.

Imagine this, in an airport where individuals are x-rayed to see if they have drugs in their stomachs, 30 suitcases full of cocaine, worth close to a quarter billion dollars are “sneaked in” on to the airplane. This requires the cooperation of the authorities, of Air France employees, of the National Guard and of the same people that basically harassed my friend.

But that is not the problem. The problem is that this find, proves how rotten Venezuela is when, in a facility controlled by the military, anyone can move one Ton of drugs and succeed. To give you scale, this is the largest drug catch in Frances’ history. This factoid alone should raise concerns about how screwed up Venezuela is.

Another Ton Of Coke, Right Under The Bolivarian Revolution’s Eyes

So far, there has been no statement from the Minister of the Interior and Justice. The Prosecutor’s office opened an investigation and faster that you can say “Maduro is in China”, they detained three National Guardsmen: Two Sargents and one Lieutenant. Sure, quite believable that these three lowly Guardsmen put together an operation worth a quarter billion dollars. This in a country that has a few Generals in the DEA’s watch or is it black list?

Meanwhile the French took ten days to reveal the that they caught the drug, before making their own detentions. Interesting, no?

And Maduro says he wants an Enabling Bill to fight corruption, when his own military and his own security is immersed with drug traffickers to the hilt, as shown by this case. The delay in making any announcements in itself suggests that they were scrambling to see how to react publicly. In any other country, the Airport would be intervened and its Head removed, until the investigation was completed. But General Graterol, Director of the airport is high ranking, as well as close to Diosdado, very powerful. In one of those crazy things that only happen in the revolution, he is not only Director of the Airport, but President of airline Conviasa.  They can barely do one job well, and they are given two.

But think about it: A Ton of cocaine not only was loaded in Maiquetia, but how did it get there frm wherever it came from? Too much complicity, at very high levels.

Like Maletagate, Illaramendi, Bandes, Corpoelec, etc, etc, etc, the case will blow over with time, nothing will happen, the case will be shelved, forgotten in the myriad cases of corruption of the revolution, many of them which hit too close to power and too close for comfort.

Funny how most of these cases are always discovered, investigated and announced abroad, no?

The Devil’s Excrement At Work: The Chinese Fund, Suvinca And Cheap Imported Cars

September 19, 2013


A few months ago, I heard a strange tale of cheap Chinese cars being imported to Venezuela and sold for incredibly low prices. When I asked on limitations, I was told there were none, the organization they were telling me about could buy as many cars as it wanted. Just put a small down payment down per car and voilá, a few months later and upon delivery, you would pay the balance. To give you an idea of the prices, the down payment was less than Bs. 10,000 (US$ 1,587 at the official rate or US$ 244 at the parallel rate of exchange) and upon delivery you paid the balance, with the total cost being around Bs. 100,000, or US$ 15,870 at the official rate of exchange or US$ 2,440 at the parallel rate. Yes, less than US$ 3,000.

The whole thing sounded very fishy. I immediately thought it was some sort of scam via CADIVI, whereby someone was getting dollars at the official rate of exchange to bring these cars to Venezuela. But it sounded strange, why would the Government give official dollars to some scammer, rather than giving it to the car companies that generate work in the country?

After making a few inquiries, I tracked down the story behind the cars. In some sense, it is not a scam, it is somewhat legit. But in another it is an amazing example of how Chavismo has lost sight of what developing a country is all about. Moreover it is simply The Devil’s Excrement at work: Oil generates such wealth, that those in charge can’t think on how to use that wealth productively and instead waste it “doing good” to a  few, without generating any wealth or well being for the “people”.

Most of you have probably never heard of Suvinca. Suvinca is a company owned by the Ministry of Commerce, which is an acronym to the name “Venezuelan Industrial Supplies”. Suvinca is supposed to procure “the access to raw materials, inputs, capital goods, intermediate and finished, with the purpose of deepening the endogenous development of the country”

A noble goal indeed. But somehow, something was lost in translation. Or by the limited brains of the Revolutionary management. Because it turns out that Suvinca has access to the loans from the Chinese Funds. One of those loans, was partly in in the Chinese currency Yuan (70 billion Yuan if I recall correctly, almost US$ 10 billion at the time). Well, the money from these Chinese Funds is supposed to go roughly (my words) to:

“Projects within the National Development Program, that have high social impact, improve the standard of living, generate employment and consolidate some sectors which are considered a priority.”

Well, it turns out that Suvinca uses intermediary companies in the US, of all places, to import cars made in China, some made by US companies in China exclusively for that market, and which are paid with the Yuans from the loan from the Chinese Fund. Suvinca then turns around and sells these cars to chosen groups of individuals, at ridiculously low prices, since those Yuan are calculated at the official rate of exchange.

Thus, Venezuela’s “development” money. The same money that is borrowed from the Chinese, instead of being used to buy machinery, factories, equipment, as everyone envisioned, is being used to import Chinese cars. That’s it!

That’s what someone in the Chavismo stratosphere considers “development”

How low our country has fallen…

In fact, if you look through the news section of Suvinca, this “procurement” company, seems to do anything but what it was mandated to do. It sells cars, school supplies, produce in markets. But mostly, it sells cars, cheap Chinese imported cars, paid by the loan, as you can see if you go down the list of “news”.

It is all about cars, importing them and selling them to buddies. Many quite well off, actually, like my friend.

Thus, we get a loan to import stuff, undercutting local producers who went more than a year without Cadivi giving them much and likely importing many cars that are not even supposed to come to Venezuela and for which there are no spare parts or support.

It’s The Devil’s Excrement at work, as implemented by brainless bureaucrats, whose only qualification to preside those institutions, is loyalty and ideology to the brainless revolution.

And President Maduro? In China, getting another one of these “development” loans.

The Right Diagnosis For Venezuela, The Wrong Hands to Fix Things.

September 17, 2013


Suppose I wrote in this blog the following about the Venezuelan economy:

“The problems to be solved (in Venezuela) are related to endemic inflation and a productive system that has not responded to the stimulus of government spending, while rentism has deepened the country’s dependence on oil. It can be characterized by inflation above thousand percentage points in the 14-year rule of Chavismo, with food prices rising 1760% in the same period, the highest figure in all of Latin America, with clear signs of acceleration, as May inflation reached 6%, highest in a month, than in a full  year anywhere in Latin America. Production has only grown by 10% in 14 years, the lowest in the region, except for Haiti. The rate of industrialization in this government continued to decline, reaching 13.9% last year, when it had reached 20% in 1986, and non-oil exports went from being 40% of the total, to only 4% in 14 years. The fiscal situation is severe, reaching 15% of GDP, with problems to finance social spending, with oil production in a very problematic situation, despite high oil prices, and the Government has resorted to the Central Bank printing money in order to finance itself.

The causes of the situation have to do with increasing the size of the centralized state inherited from the Fourth Republic, which was unable be transformed from the top and has absorbed in its corruption a large fraction of the Government’s execution. In addition, social spending and production incentives have become inflation, not production, in the presence of a regime and import policies that have harmed the development of production, especially by the issuance of paper money by the Venezuelan Central Bank.”

And suppose then that among the solutions I proposed here that the Government talk to the productive sector to establish clear rules, remove the Board of the Central Bank, reform the tax system, create a monetary stabilization fund, implement a transition plan so that everything that is imported is made in Venezuela and within seven months allow the currency to float freely.

I am sure that more than one Chavista would read that and accuse me of being a capitalist, an ignorant and who knows what else. Because anyone that writes the above is simply saying that Chavismo has failed miserably. No?

Right diagnosis. Wrong hands to fix it.

Except that I did not write that. With small changes, just to make a point, the above was written by a group of Bolivarian professionals, under the title ¿Que Hacer?. led by former Minister of Planning Felipe Perez and contained in the fourth version of a very long document, which is exquisite in its diagnoses of the economic failure of Chavismo, but, in my opinion, fails miserably on the solutions, as it proposes as a solution to the execution problem of the Government  to turn control to communal power.

I had read the first revision a few months ago, but this one is much more detailed. What is shows is that someone that knows economics knows how screwed up the last fourteen years have been. What I find amazing is that in the face of that critique, anyone thinks that Chavismo deserves another chance to screw up. So, if you speak Spanish and have patience go read it, the details on the diagnoses of the economic problems are pretty, pretty good.

The Curious And Dysfunctional Iranian Prefab Housing Contract

September 16, 2013


Yesterday in El Universal, there was this curious tale about an Iranian company that sold the Venezuelan Government three factories to make prefab homes. The whole tale is one of the dysfunctionality that the Venezuelan Government has become. From start to end, the whole thing is a story of inefficiency, incapacity, commissions, fights and over payments. In the end, three factories to build prefab housing sit idle nine months after being handed over to the Government. Of course, all three factories were grandly inaugurated by some Government official and apparently only six houses have been produced by three factories with supposed capacity of 380 houses per week.

Meanwhile, the lawyer for the Iranian company that built the factories says he was ripped off. You see, Iranian companies can not work directly via the US because of the boycott, so that there are companies that charge 10-15% commission, according to the article, to “triangulate” the payments via Canada. Well, the US$ 2.8 million payment is apparently in some sort of limbo, as it was sent to one of these intermediary companies and never reached Iran. The Iranian guy even boasts that some of the equipment for the project traveled via the US, “without anybody” noticing.

Nobody knows why the plants are not working. One guy says they have not been completed. Another says that the Government has not received all the equipment. Meanwhile, apparently Bandes is asking that the US$ 2.8 million in profits be returned. And another guy charges that Venezuela paid twice for the same equipment, with one of them being just steel scrap.

The story is complicated and not easy to understand, but the end result is the same: Like so many other projects, Venezuela spent millions of dollars importing technology that likely was available in Venezuela, from a country that is probably more costly to do business with. In the end, it does not appear as if anything is happening or will happen with the project and the money was simply wasted.

A contract that simply shows how dysfunctional the Bolivarian Government is from beginning to end in most of the projects it manages.

(I also found this comment intriguing in this interview in the same issue of El Universal: An accusation that in some housing projects, the cost of the housing units ended up being US$ 294 thousand. Way to go! Theye were either huge, so much for popular housing, or a huge rip-off, you take your pick)

What’s Up With Merentes’ Proposed “New” And “Improved” Currency Swap System?

September 12, 2013

swapFor the last two weeks the Government has begun talking about the possibility of reviving the swap (permuta) market, given that Sicad has been a gigantic failure, in that it has done nothing to lower the parallel black exchange rate and the Government has discovered all sorts of scams in it, aided from within.

So, are we to believe this talk about a new foreign exchange swap market, where people will be able to go and buy foreign currency at prices determined by free market forces and without any limitation?

Well, call me skeptical, dubious and  incredulous. I just don’t think so.

Not under the current conditions of limited foreign currency, excess monetary liquidity (and growing!) and artificially low official exchange rate.

Just as a reminder about swaps, when the Government imposed exchange controls in 2003, it banned the use of Brady bonds as a foreign exchange mechanism, which was the parallel mechanism in the Caldera exchange controls in the 90’s.

But then a clever guy, realized that the permuta (swap), whereby you can exchange an object for another, was an instrument which is part of Venezuela’s Codigo de Comercio (Commercial Code) and had nothing to do with securities. Thus, you were forbidden to buy or sell dollars, but you were not forbidden from swapping your house in Caracas for one in Madrid, or a chocolate ice cream for a vanilla ice cream, like the picture above, or more importantly a dollar denominated bond for a Bolivar denominated bond, at a rate determined by you.

And thus the permuta or swap market was born.

Almost three years later, the Government gave its Seal of Approval to the permuta market, when it approved the Foreign Exchange Illicits Bill,in which the Government, recognizing the need for a escape valve, exempted securities explicitly in the Bill. Before this, there was no punishment for the swaps, after this, the Government was acknowledging that it was legal.

The market boomed, until May 2010, when Chávez, upset over how much the swap or parallel rate had gone up, decided to intervene that market, which was mostly supplied by Government dollars, and in the process, jailed a dozen brokers and intervened and shut down some 48 brokerage houses.

So now, the Government wants to revive this relief valve, but it is clear that it does not want the rate to be public or to go up. Furthermore, it wants official rates, those of Cadivi and Sicad to be lower than they should be. When they launched Sicad, there were all sorts of expectations that the Government would make that exchange rate higher and instead, the Government sold the dollars lower.

But suppose the Government overcomes this, decides it does not care at what price dollars go. Well, the problem is that I don’t think they have the foreign currency to supply this new market so that it does not go up.

Let me explain…

When the Government stopped the swap market in 2010, multi-nationals had not been given any foreign currency to repatriate dividends at the official rate of exchange for three years. It has now been six. These companies have lots of Bolivars just sitting there losing value, day after day. The moment the Government creates a legal foreign exchange parallel market, these companies are going to want to go to it and buy dollars. At almost any price.

Add to that the many Venezuelans that have savings. The many companies that would see such a market as a way of reactivating their business. The arbitrage between the official rate and the parallel rate.

And what you have is a lot of pent up demand to buy dollars.

But the Government has given signals that it does not want to give dollars to the private sector. It has given signals that it does not have as much money in parallel funds as it did in 2010. To top it all off, it would be very costly for the Government to issue debt, as it did in 2009 and 2010 to sell bonds to ease off demand in the parallel market.

Thus, I believe that if the Government really created a legal parallel market, the black (now) parallel rate (then) would move up. Strongly.

And thus my skepticism…

But let’s suppose I am wrong. The Government has realized that things are getting worse. It does not mind if the rate goes up. It is willing to sell lots of dollars into the new swap market.

What will happen?

Well, let’s do the following Gedanken experiment:

Let’s assume that the conditions in 2010, prior to the shutdown of the swap market, were “equilibrium” conditions. That is, the swap market, which was roughly a free market, provided a good measure of supply and demand, in the context of the exchange controls, which kept the official rate at Bs. 4.3 per US$. All the Bolivars that did not get US$ at Bs. 4.3, went to the swap market for imports.

What would be the equivalent Gedanken “equilibirum” be today?

Well, let’s use May 1st. 2010 as the reference date for that moment. On that date, international reserves stood at US$ 28.2 billion and M2, monetary liquidity stood at Bs 238 billion, so that the “intrinsic” exchange rate stood at Bs. 8.3 per US$. That is if you compare how many Bolivars there were for each dollars in reserves, there are Bs. 8.3 per US$, fairly close to the swap exchange rate of Bs. 8 at the time the swap market was closed.

If we do the same today, international reserves sit at US$ 22.17 billion, while monetary liquidity sits at Bs. 912.9 billion, so that the same “intrinsic” value is at Bs. 41.18.

Thus, going back to our Gedanken experiment, if we think that the conditions in 2010 were those of an ideal equilibrium, with a fixed official rate of exchange at Bs. 4.3 per US$, what should be that same rate today, to make conditions in terms of M2, international reserves and the official rate of exchange identically the same to those of May 2010?

The answer is that the official rate of exchange should be today at Bs. 22 per US$! ((4.3/8)xBlack Rate)

And therein lies the problem. By holding the official rate so low, the Government has created an artificial system, in which any item that gets officials dollars is so cheap, compared the huge amount of Bolivars that have been created at a rate of 65% increase per year and the inflation rate of over 20% per year for the last three years, that everyone wants to buy it.

Thus, if the Government created this fantastic new swap market, all you can buy, and absolutely legal, it would have to devalue to Bs. 22 or near that, in order for conditions to be similar to those of 2010.

Except that things are worse:

-The Government has fewer dollars.

-Pent up demand is much higher.

-The Government could issue much less to in bonds to supply the new market

-The Government is not ready to devalue to Bs. 22, nor does it want the unmentionable parallel rate to be higher than it is.

This, my friends is why I am such a skeptic of all these announcements about the newfangled swap market.

Thus, I think the Government will set up a controlled, regulated, limited, maximum, minimum, rules, regulated “market” at a rate much lower than the current black rate, which in the end will do nothing to stop the other rate from rising. Maybe, just maybe, after this new market fails, will the Government will be ready to implement something more realistic.

And this would require both a sharp devaluation and a slow down in the growth of monetary liquidity.

Thus, I find nothing in these announcements that makes me excited.

Waiting For Venezuela To Bottom

September 8, 2013


Many people seem to think that Venezuela is or may be close to some sort of economic bottom. That the current economic situation is unsustainable. That things are about to crack up somehow due to the economy. Collapse, explode or implotion.

Well, think again..

Countries are like the shares of a bad company. they keep going down and down, and too many people think it can’t go lower and they buy more, but it continues to go down.

I think Venezuela is the same. Things continue to deteriorate, shortages, blackouts, inflation, crisis after crisis and conflicts, crime and constant devaluation.

Guess what? That is the story of the last fourteen years, but the bottom may be far into the future.

First of all, think Zimbabwe. If country’s economic crisis hit a bottom and political change would follow, then Mugabe would have been a goner long ago. Instead, there is Robert Gabriel Mugabe, plodding along, year after year. In the middle, the country has seen a variety of things, from hyperinflation, to sanctions, to austerity, with plenty of elections all the time. And Mugabe is still “it”, leading and ruling the country, like Chavismo owns ours. Except Chavez died.

But Mugabe does not have the pipeline of dollars that Chavismo has, nor the leeway to adjust and change in order to plod along along longer. In fact, I suspect that Mugabe has more smarts to adapt and change politically and that is about it.

Think about it, Chavismo has the barrel of oil at US$ 107, give or take some cents, almost as high as it has ever been. It also has a gazillion barrels of oil (and gas, and gold, and iron) underground that it can lease, lend, promise and/or mortgage, in order to achieve its means.

Yes, thing are not well, but an adjustment here, an adjustment there, and quicker that you can say devaluation or default, for that matter, things could improve rather quickly.

And they have. Really. Things are worse now in terms of dollar availability, for example, but at 21% scarcity levels, we are far from the 49% levels of 2007, or the electricity rationing of the 2010 crisis. Think about it.

And oil is as high as it has been in the last five years for example. That means that even if the parallel funds have less in them, they probably have at least US$ 16 billion to muddle through until things get very tight. And if PDVSA needs money, the Central Bank can increase lending to it, by 50%, rather than 28% like in the last year. Crazy? Yes. Inflationary? Yes. But when you have no scruples, the show must go on! As long as you can keep it going.

You are worried that there is a shortage of dollars? Well, let me remind you this is a revolution. And the reality is, that there is a shortage of foreign currency for the private sector which imported US$ 38.7 billion in 2007, but only received US$ 26 billion last year. That is a 32.8% drop. But guess what? The Government in the meantime, has gone from importing “only” US$ 19.7 billion in 2007 to importing US$ 34.3 billion in 2012, that is “only” a  74% increase.

So, you “feel” the lack of foreign currency, because you get essentially 33% less, but the Government has almost doubled what it imports and the Central Bank said those imports went up 25% in the first half of 2103. Yes, their imports are inefficient, overpriced, full of graft and the like, but they have the money, you don’t. Feels bad, but is reality…

This is, after all, a revolution…Remember?

And lest you think that they don’t know they are in trouble, let me tell you three stories:

-Financing for Petrocaribe has almost ground to a halt this year. Yes, according to Central Bank numbers, last year financing to oil exports to Petrocaribe grew by US$ 7 billion. This year? A small increase of about US$ 300 million, according to the Venezuelan Central Bank. That means more money from oil for the Government, more foreign currency for other things.

-Many importers have received in June and July more new foreign currency from Cadivi than what they had received in the last twelve months.  Where is the money coming from? I don’t know. It may be coming from lower Government imports, or it may be coming from funds that used to go to shell companies that never imported anything under the “old” Cadivi management.

-The Government had to import gasoline with the Amuay fire, by now, most repairs have been completed. That means more dollars for PDVSA, as imports of gasoline go down.

And there are more economic tools that could be used. Devaluation, for example. Increase the price of gas from free to free by 200% or 300% higher. Sell dollars at a much higher rate for Sicad. Or if push comes to shove, no dollars, really critical, do you really think these guys are incapable of default? Think again.

But that is far in the future, we are not even close to that.

For now, if you are waiting for Venezuela’s bottom, look again. It’s not close. Going back to my stock analogy, buy Facebook shares ($FB). That one did hit the bottom. And it is going up…

Because about the only thing that Venezuela has hit bottom yet, is on the leadership. Maduro is really near bottom, he is no Chavez, but oil and oil prices and some reasonable decisions could keep him there for a long time, let’s say, all of his six years.

Countries do not reach economic bottoms, only political ones. And that is what the opposition has to work on. The opposition will likely get more votes in December than Chavismo. But Chavismo is likely to get more Mayors than the opposition.

And that, my friend, would not be a sign of a bottom. Chavismo would sell it, through the State controlled media, as a huge victory. And it would be.

So, if you are waiting for Venezuela’s bottom, this is likely not it.

It is after all called the Devil’s Excrement. A true curse. More than you could have ever imagined.

Accountability Is A Dirty Word For Chavismo

September 1, 2013


Accountability is simply a dirty word for Chavismo. There he was, Nelson Merentes, the current Minister of Finance talking on TV on what a mess the economy is, as if he had not been omnipresent in Chavez’ Cabinet and as if all of the things he was saying are not working, were not the creation of Chavez, aided by none other than Nelson Merentes, Jorge Giordani and others. Sadly, he also showed that he has no clue as to how to solve the problems anyway.

First, the clueless Mathematician says that the black market dollar “perturbs and gives anxiety” to Venezuelans. Thus, the wise man suggests that the Illicit Foreign Exchange Bill needs to be changed because it has not fulfilled its objectives. He also suggests that the Securities Markets Bill also needs to be modified.

Let’s see. The first Bill has been in existence for eight years and was passed when the National Assembly was 100% Chavista. It was modified once to make controls tighter, not softer, making it illegal to even mention what the exchange rate is and to make all foreign exchange transactions, except those made thru the Government, absoluetly illegal.

Even worse, up to 2010, there was a functioning parallel market in Venezuela, which the Government squashed because it did not like the ever increasing rate of exchange, killing Venezuela’s Capital markets in the process, jailing people and modifying a well-thought out (and widely consulted!) Capital Markets Law to satisfy the regime’s wishes at the time.

The result? That same parallel rate is now five times larger, barely three years later!

And Merentes apparently thinks that changing these laws will apparently solve the problems, the same way he thought SITME was the best foreign exchange market in the world (Will last 100 years! Nelson dixit) and silly SICAD would solve the scarcity problems)

Which shows that after eleven years practicing finance, which Merentes had never been interested in, he has yet to learn much about it. Moreover, things are what they are because of the absurd monetary and foreign exchange policies, which he helped implement at the Central Bank and are still in place today.

Because changing the laws, will not lower the black market rate. Creating a parallel market will not lower the black market rate. (I personally think it will increase it, not decrease it!) Because the problem is excess demand for foreign currency, generated in part by the artificial creation of money, while maintaining the official exchange rate constant.

It’s very simple: You start with pent up demand for foreign currency which has been building up over the years. Then, you increase restrictions on who can get the foreign currency. You follow it up, by having the Government increase its imports, which is not only inefficient, but full of “guisos”, overprices and empty containers and follow it up with keeping the official rate of exchange artificially low, while all this time the number of dollars you have to sell are constant, if not lower.

It is an equation that will never work, to put it in terms the Minister should understand.

Because the US$ 47 billion that Merentes magically mentions as what Venezuela imports, is not really that much. When the Government is directly importing US$ 34 billion, while “assigning” US$ 26 billion to the private sector using convoluted criteria at such a favorable rate, simply does not work. Even Jorge Giordani has admitted that as much as 40% of all that may be fake.

And then, the final and golden touch to his statements is when Merentes says: “We want to produce what Venezuelans consume”. Really? You could have fooled me Nelson, because you have spent fourteen years doing exactly the opposite, threatening, expropriating and making it very difficult for the private sector to grow. And just a hint, keeping a low official rate of exchange, with 20-30% inflation is exactly a recipe to kill local production, so start there.

Same with exports, where many of those same exports don’t exist today, because the plants and factories were expropriated and lie idle under Chavista management.

But Merentes speaks as if this is a new Government and he was never part of the previous one. As his predecessor in his current position, there is simply no accountability. It is as if these failed policies were implemented by extraterrestrials. In fact, It is as if he became Minister of Finance last week, not almost five months ago.

Accountability is a fifteen letter word, but for Chavismo it appears to be a four letter one.