Archive for March, 2015

Government Keeps Kicking The Can Down The Road…

March 31, 2015

kicking-the-can1Since 2013 we have all been waiting for the Venezuelan Government to make some form of adjustment to the Venezuelan economy, as it was clear that the trajectory was simply unsustainable. Then, in 2014 oil prices dropped making the adjustments even more urgent. But remarkably, little has been done, as the Government simply keeps kicking the can down the road, either waiting for some miraculous event or executing a well conceived plan that if oil prices don’t recover then…something may be done.

And thus we keep waiting. Venezuela’s economy is in intensive therapy. Inflation is pushing 100, shortages are the rule of the day, the economy is shrinking, the foreign exchange system is unsustainable and the Government faces a US$ 25 billion deficit. And despite this, the Government is doing very little.

Let’s look at what it has done:

-It obtained US$ 1.9 billion from swapping its Petrocaribe debt with the Dominican Republic

-It obtained US$ 2.8 billion from Citgo

-It started a new fx system, including a new rate Simadi, which took a month to be drawn up and a week to fail.

The most remarkable aspect of Simadi, is that the Government did not seem to have much of a plan for providing it with foreign currency, essentially guaranteeing its failure from day one. Some people claim that the Government really believed that people will sell into Simadi rather than the black market.

Really? If they are that naive, we are in bigger trouble than we thought.

But in any case, the Government made Simadi extremely complex, with the only good decision to have it trade at a value close to the parallel rate. However, it imposed a cap on its maximum price and while the system began trading close to that rate, once it became clear that there was a cap and there would be little flows via Simadi, the parallel rate, which had been held back by Simadi expectations, simply soared. (Read: More inflation ahead)

Remarkably, rather than relax or change the rules for Simadi, the Government has done absolutely nothing since then. An even bigger puzzle has been that after a month of the new foreign exchange system, there has been no Sicad auction, despite the Government announcing that one third of all foreign currency for imports would flow through that. Go Figure…

With the new system, the Government truly kicked the can down the road, as it failed to take advantage of the changes to modify either the Cencoex rate (Bs. 6.3 per US$) and the non-existent Sicad rate, last seen at around Bs. 12 per US$.

What the Government has not done:

-Despite announcements, advertising, claims and talk, the Government has yet to increase the price of gasoline which, while likely will be timid, could help a little in closing the financing gap (and save foreign currency). Why spend so much money in daily (and constant!) TV and radio ads and then do nothing? What is holding up the increase? Minister of Transportation El Troudi ( Likely the best Minister by far in the Cabinet) keeps going on TV, making statements about the small impact of the gasoline price increase, but then nothing happens. Whose decision is it?

-The Government has done little to control the growth in the money supply M2. Yes, the slope appears to be slowing down, but this always happens before March, when the Government delays budgets and then releases two or three months at once. Even more puzzling was the fact that there were no Treasury Bill auctions in January and February. These auctions are held regularly during the year. Why did they stop them at a time that you actually want to use them to reduce M2?

-Selling/Swapping the Gold: Whether people like it or not, the Government has some US$ 15 billion in gold that could be used at this time. That is what reserves are for and it is dumb to hold them in gold. There has been talk of a swap with the gold that is still in London, but nothing happens. If I were the Government I would ship even more abroad for future use. Again, why kick the can on this?

-There was supposed to be another Petrocaribe debt transaction with Jamaica, but nothing happens. Oh well, par for the course.

-The Government issued a PDVSA 2022 bond with a 6% coupon in stealth mode last October, which it sold to the Central Bank. This issue has yet to be sold in the market. What are they waiting for, a recovery in prices?

-PDVSA, which is rumored to have bought back close to a billion (cash) in its short term bonds, could be preparing some sort of liability management operation, that would seem to be the only justification for buying back bonds. Some people claim, they sre just buying back to pay less in October. Can they be that naive? Or is the same “intelligence” behind the Petrocaribe, Citgo and Gold transactions is preparing some form of exchange for the PDVSA 2015, 2016 and 2017 bonds?

What is clear is that the Government considers default only a last minute option, something that will be tested if the Judge in the Gold Reserve case rules against Venezuela and declares it in default. We suspect, Venezuela will simply pay at that time. The same way it is likely to pay next October, even if half of the market thinks they will not. But 2016 is a whole different ball game.

But in the mean time, to close the fiscal and balance of payments gap, it can’t continue to kick the can down the road. Oil may rise, but it may not, bonds may recover, or they may not, China may lend more or not, but Venezuelan has to act. The sooner the better.

The puzzle is what are they waiting for?

Advertisements

By Now, Nothing Shocks Venezuelans

March 21, 2015

violencia

After sixteen years of Chavismo, it would seem as Venezuelans have been anesthetized against the daily scandals and horrors that are reported or occur. Report of tens of millions of dollars paid in commissions to Venezuelan Government officials, barely raise an eyebrow. People hear the dance of millions and can no longer tell between 100 million dollars or 2 billion dollars. They hear US$ 2 billion was “siphoned off” PDVSA and it seems as if the question is: What else is new?, not what an extraordinary amount this is or that an additional 2.2 billion was laundered via the same bank in Andorra. The Venezuelan Government, Prosecutor, National Assembly don’t even bother to comment on all of these accusations. The opposition? We have heard almost nothing from them either. I mean, Giordani a former Minister of Chavismo said there were 22 billion in fake imports in 2013 in Venezuela and nothing happened, a pittance of 50 million or 4 billion appears to be largely irrelevant. The problem is that the billions add up and that is why there are shortages and lines and Venezuelan billionaires all over the planet.

But forget about money. Most Venezuelans can barely understand what a billion dollars is or what a Government could do with it. But we should all understand the value of a human life. But from protests to prisons to daily events, the value of human life has been devalued as much of the value of one hundred million dollars in the minds of most Venezuelans.

There are daily reports of deaths. In Caracas alone, nineteen  cops have been killed so far in Caracas in 2015. And it is only March. Six students get killed shot thru the head and the Government reacts as if this was the most natural thing in the world. A high ranking Diplomat even dares to make a joke about it, later saying that people did not understand his black humor.Very black and very aberrant too.

The President orders the Government’s weapons and bullet monopoly Cavim to code all bullets and two years later, nothing has been done. The business of selling bullets in the black market is too hard to pass up, much like increasing the price of gas or the Bs. 6.3 per US$ Cencoex rate.

Meanwhile it is the same bullets that kill the much beloved “people” every day. Just yesterday, a man was shot to death in front of his wife,a murderer was shot to death by police as they were trying to arrest him and a man walking with his wife in one of Caracas’ most centric squares, was shot and killed by someone in a passing car.

Most of these murders not even get attention by the press. The people are immune to the news.

A kidnapper tells a Canadian reporter that it is not a matter of right or wrong killing his victims, it is a matter of surviving in the “easiest way to earn a living” in Venezuela. The price of  a human life in Venezuela? All of three hundred bucks, when it has a price, most of the time, there is just no price, it is simply free, like the daily murders in Venezuela jails.

And the Government says nothing and the people have gotten so used to it they don’t even react.

And just as I thought I had heard it all, the most horrific story takes place: A couple was traveling to Caracas with a relative driving. A bunch of motorcycles were leading a funeral funeral procession and they attempted to block the way so that the procession could proceed preferentially. The driver does not obey the orders of the motorcycle riders. The motorcycle riders shoot at the car, spraying it with bullets. The couple was killed and so was the woman’s kid in her womb. The woman was pregnant. She is the 40th. woman to be shot in Caracas so far in 2015.

The story is not even front page news. Is not on TV. The Government makes no comment, neither does the police. There will be no special investigation. This is a daily occurrence. They are all anesthetized against the horror, the murders, the scandals. Nothing shocks them.

It has become a way of life.

Chavismo: No Scruples, No Compassion

March 10, 2015

So many things happening, where does one begin? Today, there is only one place, this remarkable statement by Venezuela’s Ambassador to the OAS

When I am trying to understand what happened to compassion among other Venezuelan Government officials, here comes this well educated, Christian(?), who used to lead missions looking for peace in Central America, and makes such a crude statement, full of hate, describing how a bullet would go faster through the empty head of someone from the opposition.

How did Mr. Chaderton convert to fanatical revolutionary? At which point, his ambition, his thirst for power, turned him against over half of the population of the country? When did Mr. Chaderton lose part of his humanity? If it can happen to him, who had all of the tools, education, idealism, religion, to respect and have compassion for his fellow Venezuelans, what can we expect from the less educated, militaristic, ideological members of Chavismo.

Even worse, can we turn his around? Can we make Venezuela a country where everyone respects everyone. Where opinions are voiced without eliciting violent responses?

I really don’t know.

I wanted to write about the interpretations of the Maduro-Obama clash. But does it matter? In the big scale of things, the current conflict between Maduro and Obama and all of its nuances, seems simply irrelevant.

How far are these guys willing to go preserve their power? When the response to the ban from the US of the Head of the intelligence police for human rights violations is to name him Minister of Interior and Justice. Who cares about strategies and whether Obama should or should not have issued the ban in response to Maduro’s demand that he reduce the members of the US Embassy in Venezuela?

Once again, it boils down to no compassion and no scruples. Chavismo lacks both. Maduro is at this moment addressing the National Assembly so that it gives him Enabling Powers to fight US imperialism. In reality, he is asking for an Enabling Bill, so that when the opposition wins the upcoming Parliamentary elections, whenever they are held, he can go and change any and all Bills that take away powers from the National Assembly. This is simply a variation on what I predicted three weeks ago, except that I thought Maduro would let the Assembly legislate, but instead, he wants to control the process. He has even less scruples that I assumed.

That is Chavista Democracy. If the other side wins, take away the victory via subterfuge. And call UNASUR so that they certify that what you did is legal.

Meanwhile, the explicit mention by Fincen that at the Banca Privada d Andorra, the bank used schemes to help siphon off US$ 2 billion from PDVSA, is not even news in Venezuela (Self-Censorship?). Two billion, ten billion, twenty billion. Who cares? Maybe those responsible now occupy very high positions in PDVSA.

There are no medicines, but the Government will buy 20,000 fingerprint machines to control purchases at supermarkets. And so on..

Each one of these would be a story in itself under normal conditions. But things ceased being normal in Venezuela long ago. And when those running the show have neither scruples nor compassion, the end can only be a tragedy. An even bigger tragedy that the one Venezuela is living today.

 

 

I Will Turn You Into Powder!

March 5, 2015

Twice in one year, Venezuelan Government officials have said:

“I will turn you into powder”

referring to the parallel or black market for the exchange of Bolívars into US dollars.

Last year, it was Mr. Rafael Ramirez that said it. He is long gone. This year, it was none other than Nicolas Maduro, I am not implying anything by the similarity, other than the fact, that it has been shown how little they have understood the implications of the systems they implemented.

Last year, it was Sicad 2, a sort of glorified Sitme (The previous system)

This year, it was the creation of Simadi, a kludgy system, with little logic or connection with the reality of markets. A system so badly conceived, that I thought it would utterly fail. But I never thought it would fail so fast.

In barely two weeks, Siamdi has become Sicad 2 at a higher rate of exchange of Bs. 170 per US$ instead of Bs. 50 per US$.

Nothing more, nothing less.

And as I said, the system never was free, nor unlimited, nor market driven. All of which guaranteed its failure.

And it failed. Within a week, as shown in this plot (yes, today it was higher):

black

the parallel market dollar has soared. While the Simadi rate remains at Bs. 177 per US$, any chance that the Government had to succeed failed when: 1) They set the Simadi rate below the parallel rate. 2) They failed to supply the private system with dollars, only giving foreign currency to Government-owned banks and 3) They limited any transaction to Bs. 180 per US$.

As those who had waited for a month for Simadi got nothing, the parallel rate soared, going from 190 to 284 per $ today (That point is not in the graph, which I made up yesterday)

So by now, Simadi has become a glorified or amplified Sicad 2, exept the rate it is Bs. 177 instead of Bs. 50. And the graph above implies that Simadi is dead on arrival. You see, besides my objections before, here and here, by setting and holding the Simadi rate lower, with the parallel soaring, arbitrage becomes too much of an incentive. Go to your nearest Casa de Cambio gets US$ 300 at Bs. 177 and sell it in the “other” market at Bs. 280. The same if you go to bank or broker that gives you higher amounts. You buy it, sell it higher and you make more than a months salary for a fairly good job.

The Government simply screwed in is naive belief that anyone would like to bring their foreign currency back. That with 100% inflation (and higher soon) anyone would not buy currency and wait a few months. Instead, it created this dumb system, forcing each bank to operate with its clients, each broker with its clients and Government-owned banks to receive foreign currency to give to its clients, chosen who knows how, but creating a huge distortion in the system. But even Government-owned banks are not getting enough. And you can bet some of it filters back to the parallel market. It is too nice an opportunity to pass up.

With any normal Government, this would just require adjusting the system and trying again. But this is far from being a “normal” Government. First, they really thought they could control the market They really believed that people would bring dollars back to become rich at Bs. 177 per US$. It did not happen.

And now, it would take as long as to set up the new system, to adjust it. Consult. Check with the ideologues. Check with the President. Check with the military. But most of all, it will take understanding to convince themselves that something is wrong with their system.

After all, they were supposed to turn the black market into powder, not the other way around.

 

.