Archive for February, 2014

Follow Daniel For Today’s Tragic Events

February 13, 2014

I can not follow events closely from afar, but Daniel can and has been doing a great job, click here to see his reports on this very sad day.

Sicad 2: The Sequel, by Nicolas Maduro

February 11, 2014

caballitomaduro

Tonight, continuing their streak of ever more amazing announcements, Venezuelan President Nicolas Maduro announced with pride that Sicad 2 will be launched soon at a theater or financial institution near you. Now, in Hollywood, people know that you don’t make a sequel of a bad first movie. Your need the first movie to be quite good in fact.

But what can you really say about Sicad, the original movie? Not much really. It has been intermittent, ineffective, irrelevant, unfair, ever-changing and frustrating. There have been many promises around it. Remember, was it in October? President Maduro said Minister Merentes would hold weekly auctions of Sicad (Sicad is not an auction, but that is a different story), they just like to call it that) of US$ 900 million. Then three weeks ago, on January 21st, Minister Ramirez (Merentes is no longer Minister) announced weekly auctions of US$ 220 million for the remainder of the year.

The result?

So far, not much. The first auction which was to take place two weeks later, giving new meaning to the word weekly, was cancelled and now this week we are supposed to have an auction for US$ 440 million to compensate for the cancelled one.

So, what does Nicolas do? Announce a new Sicad 2 mechanism, so that (his words) “There will be dollar offers beyond those of the State”

It would appear as if Sicad 2 would be the permutas (swaps) announced by Minister Ramirez, which are also not swaps, but that, again, is another story.

And I have to apologize. The previous post was somewhat rushed in saying the Government was a self-parody. This really is beyond parody. It is simply incomprehensible.

Maduro acts, as if everything is peachy in Venezuela. I don’t want to abuse the word clueless, but I need to use it again: Maduro is simply clueless.

By now, it appears as if the radicals-radicals have taken over from the radicals. By now, Ramirez is the only member of the radicals (also called pragmatists) left and you can see his increasing frustration. The leader of the radicals Nelson Merentes was removed and to add insult to injury, he was moved to the Central Bank and within a month, the responsibility of the Sicad auctions was taken away from the monetary authority. Again the radical-radicals win.

But he can still preside over the Central Bank, which today released January’s inflation data under the headline: “The trend of inflation has been broken”.

Which is certainly good news. Except this is the graph:

Inflacion

Does anyone see inflation´s trend broken in this graph? I certainly don’t. There is a brief dip in December, but the next data point, this month’s, goes right back into the  trend. And Merentes may not know anything about economics and finance (he doesn’t), but he is a Mathematician and knows no trend has been broken in the graph above. But I guess he needs the job, so he goes along with it.

But much like Maduro and Sicad 2, the promise is in the report, in the future. Chavismo is very good about the future, not so good about the present. It says clearly that by the end of the first quarter of 2014 the “measures taken will positively impact the stability of prices and shortages.

Oh yeah! I forgot about those pesky shortages. According to the same Central Bank report, shortages, as measured by the scarcity index, were actually up, not down, just like inflation in January 2014. No trend broken there either. In December, the scarcity index was ta 22.2% and despite the “war on the economic war”, Central Bank dixit, it jumped to 28% in January. Yeap! As Daniel clearly explains it: “Think about that, 3 common household items out of 10 in your shopping list are going to be missing on any day. And maybe having to fight for the other 7”

But don’t be so concerned about this, because as the monetary authority explains, this was the result of scarcity in non-essential items, like motorcycles and autos, while “the population continues to receive, with the same or superior intensity, the benefits the State brings them, in the whole country, through the public commercialization system in which they can acquire (sic) the basic foodstuffs at supportive prices”

They certainly drink the right Kool Aid at the Central Bank.

The whole thing is so bizarre, so “Cantinflerico” which makes me think of Cantinflas’ history lesson. Maybe some of the readers do not even know who Cantinflas was, but this clip is a good example of how Cantinflas (for those that understand Spanish) would explain something, in this case history. Just imagine Cantinflas telling us why the trend in inflation has been broken. It would sound exactly like this:

That seems to be their inspiration, just picture Merentes saying it.

Soon, Sicad XIII at a theater near you…

The Maduro Government Is A Self-Parody

February 9, 2014

unnamed

Sometimes one is simply incredulous of the things these Bolivarian revolutionaries can come up with. The country is not functioning properly and rather than devote their time to solving the problems, they seem to have some sort of anti-think-tank, where creative/naive/ignorant/revolutionaries seem to have a contest of funny proposals and ideas. It seems as if a bunch of guys and gals sit around a table shooting the bull, until they find something that they think is good, but which has no precedent anywhere in the world, nor does it seem to make much sense, nor any basis other than it seems like a good idea, independent of costs and difficulties.. Decrees are issued, laws are passed and soon the absurd, what appears a parody of reality, becomes a fact in rojo-rojito Venezuela. Add to that Maduro’s statements and you have a Government which seems to be trying to parody what a Government is supposed to be doing it. And they are extremely successful at that. So much so, that Chigüire Bipolar reads like Globovision in its titles. They have become a self-Parody

Here are the latest examples of these parodies:

Traveling Insurance: Minister of Tourism Izarra, as improvised a Minister as there can be, has issue a decree which makes it obligatory to have travel insurance, whether you leave Venezuela or come to Venezuela. Anyone traveling from Venezuela abroad, or vice-versa will have to be “informed” by the transport provider that he or she requires insurance for health and luggage.

Now, just to make life more difficult, it is the airlines that will have to provide you with this. And the decree explicitly forbids travel agents from selling it to you.

There are a number of strange things about this insurance. One, luggage is already insured by the airlines. If the airline loses your luggage, they have to compensate you, so I imagine that it also include theft of the luggage when you are no longer being transported.

But the weirdest thing about this idea, is that at the time that the airlines are owed over three billion dollars by the Venezuelan Government, they create this obligatory insurance abroad and in Venezuela that will be provided by some company or companies, but who the hell will pay them for dollars expenses abroad? Given the experience of the airlines, who will be interested in providing this insurance, when the Government is saying it has no foreign currency for the airlines or to pay private debt?

Who will pay for foreign currency expenses of these insurance companies? If the Government does not have enough dollars, why create a new need for new dollars? Is this in the budget for foreign currency now? Or is this Izarrita acting on his own and having no clue as to how this will be (ever?) be paid? I mean, according to official records, 1.2 million Venezuelans traveled abroad in 2102, at Bs. 800 to Bs. 1,000 per pop, we are talking about a cool US$ 100 per traveler at the Sicad exchange rate, or US$ 100 million a year.

Or is this another “guiso” and the Government already knows which insurance companies will be the “provider” of this service? Will those that travel and have incidents ever get paid?

Just asking…

Full Compliance Contract: As part of the new regulations for importing using Cadivi or Sicad rules, importers will have to sign a contract that they complied with the use of the foreign currency. The contract obliges them to obtain a bond from a bank or insurance company that guarantees the amount given to the importer plus the possible fine. Since the possible fine is up to 100% of the amount approved by the Government, then we are talking about banks and insurance companies issuing bonds or guarantees of up to 200% of the amount. (In US DOLLARS!)

Let’s run some numbers. Since the Government is taking three to six months to pay Cadivi imports, let’s use six months as the average time to “free” the bond to the bank or insurance company.

Let’s say imports this year (Cadivi+Sicad+pseudo-Permuta) reach US$ 48 billion, half of that is US$ 24 billion, an thus the amount amount outstanding in these contracts for six months of imports would be “only” US$ 48 billions.

There is simply no capacity in all of the Venezuelan banking system and insurance system to issue this amount in bonds, guarantees or whatever you may want to call them. This guarantees would have to be in dollars, not in equivalent Boívars.

Moreover, how many of these “importers” are worthy of a bank or an insurance company issuing them a bond or guarantee in US$ dollars for any amount?

Have these brilliant Bolivarian bureaucrats ever heard of the words “credit risk”. They clearly haven’t.

Just saying…

Maduro asks Toyota for the impossible: The last example comes from the top: Maduro and his VP for the Economy. Toyota this week announced that it would be stopping production in Venezuela indefinitely due to a lack of foreign currency. The announcement was made by Shino Yamada, who is a Toyota spokeswoman at the company’s New York headquarters.

So here comes a bully, arrogant Maduro, asking his Minister to have Toyota a heavyweight, either the President for Latin America or in his own words “someone from Japan”. Hey! Maybe Shino Yamada herself will be sent from the “imperio”. According to Maduro, maybe some lowly manger made the decision, which shows that he made no homework in finding out who made the statement. Years lost as Foreign Minister if you ask me. He learned very little.

But then, he shows how clueless he is when he says “It seems as if the only plan of some little managers is dollars, dollars, dollars..Where is the capacity to create the products here, we have it all: Aluminum, Petrochemicals, Iron, Steel…”

Well, how clueless can he be? To begin with, very few parts of a Toyota are made in Venezuela, which Maduro appears not to know. But more importantly, of the four industries that “we have it all”, only one can be said to be functioning more or less, petrochemicals, basically because the Government decided to take all them over. Or should I say Hugo Chávez?. The other three: Aluminum, Iron and Steel are producing very little under revolutionary management and can’t even supply other industries that do use these products in their manufacturing.

But this is the same Government who has brought fly by night operations from Iran and China to manufacture (assemble) cars here without any steady production or infrastructure, just a big arbitrage of the rate of exchange. Some, or many of these companies are actually not producing anything, they just don’t say anything. Toyota, in contrast, is a publicly trading company which is by law forced to disclose events that impact its bottom line. Venezuela shutting down is important. And Maduro is likely to react with his characteristic bully style, threatening to “nationalize” the Toyota plant, which will simply become another empty white elephant under Bolivarian management. But hey! We have homeland!

But what can you expect from President’s right? That is why you have “experts” right below him, like Vice-President for the Economy Ramirez. His accusation against Toyota?: Toyota Venezuela has debt with its Home Office.

Really Rafael? What do you expect these companies do, when Cadivi does not provide the US dollars for parts? The “Home Office” sends the parts on “credit” to the local company to keep the plant running until the line of credit with that subsidiary reaches its maximum. It’s called “risk management”, because as you know Rafael, a certain Minister said two weeks ago that Venezuela can not afford to pay its Cadivi debt, that includes Toyota’s.

And yes, Toyota Venezuela now has a debt with Toyota Japan. That is as evident as saying Venezuela owes bondholders (And right now, they are scared s…less)

In some sense, the Maduro Government has become a self-parody. They speak as if they were trying to outdo each other. Who can be crazier? Who can sound nuttier? Who can make the most outrageous comment? Who can be so creative, that he will promise the impossible?

And its becoming a daily competition. pero tenemos Patria…

The Paradox Of Chavista “Planning”: Even Simple Things Are Hard For Them

February 4, 2014

ven-rafael-ramirez

There is a paradox in Chavismo. On the one hand they plan on extremely complex and absurd laws, like the “Bill for Just Prices”, but on the other, they can not even hold the first of the “weekly” Sicad auctions for US$ 220 million.

And indeed, fourteen days ago Minister of Energy and Oil and Vice-President for Economic Affars Rafael Ramirez held a press conference (above) and with a straight face told us about a “planned” foreign exchange budget and “new and improved” and weekly Sicad auctions in the amount of US$ 220 million.

And a paralyzed country was eagerly awaiting for this auction for many reasons. For one, everyone was wondering whether the Sicad rate would slide down or not and by how much. But more importantly, after fourteen days (really all of 2014), people just wanted the “weekly” Sicad auctions to become regular, because only certain economic groups were included in the first auction. The sooner we could get over the first one, the sooner we could find out who would be included in the second or third auction.

But it was not to be. Today, the Venezuelan Central Bank suspended Sicad auction number 16, due to “anomalies” and “lack of compliance with norms”.

Thus, a simple “auction” (it is not an auction, it is an even much simpler sale of dollars) is cancelled by the same Government that just created a Superintendency to calculate and establish the “just” price for every goddamn  single good and service in the whole country.

But somehow, the same Government can not even organize the SIXTEENTH Sicad auction, where the only “novelty” is that the amount to be sold is twice as much as the previous fifteen ones.

It is the Paradox of Chavismo, they have not been able to run anything properly in fifteen years (twenty for that matter, their coup failed) but they keep coming up with ever complex bills and structures to regulate the economy.

But they can not even run the simplest things. Go figure!

Random Thoughts About Blogs, Venezuela and a Government Caught in Political Asymptotic Slavery

February 2, 2014

It has been one of those weeks in Venezuela where nothing happens and that is what worries you: How long can the Government continue without making decisions or making half-assed ones, expecting that nothing will happen? But at the same time, Government officials and supporters say the darndest things and you wonder what type of thought process goes through their minds.

And in a country with little significant news to talk about, Quico of Caracas Chronicles, all of a sudden decides to call it quits, sailing into the sunset and deciding that he no longer has the intensity to continue writing about Venezuela. And in some sense, I envy him, because the idea of not writing the blog any longer, comes back frequently into my mind like a boomerang, but while I am writing less, I somehow can not cut that cord off. I am not ready yet. Kudos to him that could write for eleven years and give up. But somehow I can’t.

I wish good luck to him and those that will carry the torch for him now.

When I originally started writing these pages in the summer of 2002, my goal was to tell the world how absurd Venezuela was becoming and how the Chavez Government was using gray areas to subvert democracy and law and order. A few months later, if my memory is correct, Quico began his chronicles, a welcomed relief in my mind, as the intensity at the time was hard to keep up with. More sources, more coverage. Soon afterwards, Daniel showed up with his views and a bit later Alek Boyd started vcrisis. I did not know any of them, but over time, I met all personally and we became a sort of loose conglomerate of telling the world what was happening in Venezuela in English. Alek later looked for other horizons within the Venezuela theme, but Quico, with more coauthors, Daniel and I, kept going and I believe we did achieve a level of originality and credibility not found in the regular media, each in its own style and focus

Quico will be missed, with his sarcastic and provocative style which promotes thought and discussion. He leaves Juan and Gustavo, who will reveal a new look and collaborators, but as good as they are and can be, it will be a different era. We are all getting old, I guess. Time to move on…

For some…

But not for me. When I began this blog, I always envisioned the day when Chávez would disappear from the scene and I would write The End and that would be it for the Devil and the night job I never searched for when I started. Well, Chávez went away and THE END can not be written yet, because the absurd revolution is thriving in its inconsistencies and irresponsibilities, which are still around and amplified. And somehow, it is hard to see the end to all the insanity and absurdities, but I hope one day I can write something like a final chapter.

Physicists like to give name to theories. When I was a Physics student, asymptotic freedom was in vogue, later the name asymptotic slavery was also coined for the property of some superconductors.  Somehow, I have felt for a while that Chavismo is trapped in something we could call political asymptotic slavery.

Because Chavismo made a number of decisions years ago, that it thought it could one day change, but the longer it waits, it becomes asymptotically impossible to change things. As time goes by, Chavismo has become a slave to this decisions long ago. It can no longer backtrack. It is trapped, a slave to its own inconsistencies.

Let me give you an example: Gas prices. Even before Hugo Chávez became President, he asked then President Caldera not to continue increasing the price of gas as planned. So, let’s look at the price of a large tank of gasoline in US $ in Venezuela from 1998 to today at the non-official rate of exchange at the close of the year. I use a tank of gas, assuming it is 80 liters or 21 gallons, because if I used a gallon, it would be hard to show the price in US$:

GAS

In 1998, right before Chávez came to power a tank of 80 liters of gasoline, or about 21 gallons, cost about 13.5 US$ in Bolivars. Chávez decided to freeze the price of gas to preserve his popularity. By now, that same tank of gas costs 11 cents of a US$. (NOT A TYPO) Asymptotically, this is simply zero, gas is free in Venezuela, and is one of the many ways in which Chavismo is trapped. Raising it to two dollars, that is bringing it back to the equivalent of seven years ago, represents a factor of twenty increase. It would be political suicide to do so. But raising it to what it was when Chavez got to power would be a factor of 122, 12,000% give or take a percent here or there. Madness. Hard to get out of this trap. Slaves of their own ignorance.

Or take the money supply in Bolívars, the so called M2, the monetary liquidity in circulation:

M2

When Chávez got to power, M2 was Bs. 10 billion in today’s “Bolivares Fuertes”. This is practically zero in the scale of the above graph. Today, it is 121 times larger, there are 121 times more Bolívars in circulation than when Chávez got to power . It is growing paraboliccaly, exponentially. Given that reserves are barely more than that fateful day, it is any wonder that the Bolívar has depreciated so much. (Curiously, it is another factor of about 120, scaling perfectly with the growth in M2. When Chávez got to power the exchange rate was Bs. 0.563, today the unmentionable rate is slightly above 120 times that. And Merentes in his aberrant ignorance says he has seen no evidence that increasing M2 affects inflation!)

We could call this inflationary slavery, another physics name. By now, they can’t slow down, they are trapped in their inflationary economy and fear getting out of it. There is no way to absorb that much money to stop inflation, there is no way for them to live without creating more and more money

The problem is that Chavismo thought they could ride their luck up. And luck they had and they seem to forget it whenever they talk about the bad old days. This is the yearly average price of the Venezuelan oil basket since Chavez came to power:

OIL

When Chávez came to power. the average price of oil the previous year was 8.08 dollars per barrel. Between that time and 2006, that average grew by a factor of ten, something somehow lost when Chavismo looks at its lack of accomplishments. Last year it was US$ 97 per barrel, but that was down like two dollars from 2012.

Chavismo thought this would go on forever, until it did not. Thus, Venezuela which had debt of US$ 35 billion (combined PDVSA and the Republic) when Chávez came to power, began borrowing by issuing bonds.

Today, the debt in bonds is about US$ 35 billion for the Republic and another US$ 43 billion for PDVSA.

But the Government realized that appetite for Venezuelan bonds was not infinite, so they borrowed about US$ 20 billion from the Chinese, to be paid in oil, so that the cash flow from that oil went to pay those loans.

Then one day, the Chinese said Wú (No) to any more loans. Thus PDVSA started not paying its suppliers. Later, it was its partners in oil projects that did not get paid. When that was not enough, Cadivi stopped paying for imports already in the country. And when that was not enough, PDVSA started borrowing from the Central Bank and the Treasury.

It all adds up and these are all of the country´s debts today:

PDVSA bonds US$43 billion

Republic bonds US$ 35 billion

China US$ 20 billion

Debt with private sector US$ 42 billion

Debt with Central Bank and Treasury US$ 105 billion (in Bolivars)

A cool US$ 245 billion, a factor of seven increase since when Chávez got to power.

And despite all of these policies, the Minister in charge of the Economy says today that there are shortages in “only” forty of the basic products. Well, in 1998, there could be shortages of one product, maybe two, but not chronic shortages of forty products. After all that debt, a factor of 12 increase in the price of oil, 120 in the number of Bolívars in circulation, you would think things would be at least as bad (or as good?) as in 1998, before this funky “revolution” came to power.

But they are not and they will survive one more year by taking money away from anybody left standing. (Banks?)

Everything Chavismo does now is talk about a future they will somehow build. They could not do it with money and they now will attempt to do with without money.

Yeah, sure…

And that is THE END that I want to be able to write about. I am not sure how this ends. I am not sure about the end of this tragedy (tragicomedy?). But after all this effort, I do want to be able to write about how asymptotic slavery was resolved, how the whole thing unraveled.

And unravel it will someday.

And I will not miss a beat of it.

Note added: I have received a number of private questions about the debt above. First of all, not all of its is dollar denominated, thus, it can be devalued. That would be the case of the debt of PDVSA with the Treasury and the Central Bank. Also, with the dividends included in the private sector debt , about US$ 14.3 billion. But additionally, there is debt in Bs. issued by the Government. The last number I have is US$ 66 billion, it is probably higher today.