Archive for February, 2016

Not A Great Week In Venezuela…

February 27, 2016


It was not a great week in Venezuela. While it is true that if you were a bondholder of Venezuela 2016 you were very happy to get paid on Friday, the average Venezuelan felt pretty lousy all week.

Monday was a day of darkness and protests. Darkness because during the day, the East of Caracas had a very serious black out which had lingering effects for days and that same evening, the West of Caracas suffered the same fate, including the Miraflores Presidential Palace. Someone sent me a picture (mostly black) claiming that was the darkened palace, which left me wondering whatever happened to the emergency power plant and if Maduro was actually there during the blackout. But I have not seen it anywhere else, except the news that the area was dark.

That evening, people took to the streets in Catia (West), Petare (East) and there was pot banging in Chacao (Middle). In the West and the East riots were over food lines and insecurity, but the Government made sure the “Pueblo” could not express itself by sending out the National Guard in Robocop suits to repress the protests.

The next day, the full Cabinet and the Vice-President went to the National Assembly to present the President’s Annual Report, called “Memoria y Cuenta” (Memory and Accounts) which is the subject of numerous jokes about No memory and tales (Cuentos)).

And that was indeed the way it was.

Vice-President Aristobulo Isturiz showed up in his best suit (Whatever happened to his red shirts?) to tell a tale of progress, democracy and prosperity in Venezuela. There were the usual mentions of “Economic War” causing the few problems the country has like inflation, but the Vice-President even stated that the country was “solvent” in 2015 despite the 20% of GDP deficit.

And he said nothing about food lines, health care and crime…

As Aristobulo told his tales, electricity workers were still trying to turn on the lights in the East of Caracas and as the session drew into a close, night was falling and Caracas was shutting down for the day. With Shopping Centers forced to close early (and open late), the people have no excuse to be out in the streets early. The only excuses they used to have, a little shopping, some last minute supermarket visit, are no longer valid. The recessionary effect of this measure will make the economy tank even more if rains do not begin early this spring.

Meanwhile, President Maduro continued turning on his Fourteen Engines of Production, holding daily Court on nationwide TV to turn on the “Fishing Engine”, the “Medicine Engine” or whatever. But wishing it will not make it so, as all of those invited to be part of each engine always complained about the lack of raw materials, dollars and parts to get the engine going.

But Maduro’s promise is that in 100 days the engines will be producing, forgetting that all “100-day” promises during seventeen years of Chavismo have failed miserably.

Meanwhile at the National Assembly, Chavista supporters got unruly, Ramos Allup got mad and tried to move them out, which they refused, which caused the session to be suspended. Such is the state of democracy in Venezuela. As if this was not enough, Maduro congratulated them for their victory, which stopped the discussion on a Bill called “Law for National Production” a strange legal instrument which some opposition Deputies think will somehow promote national production of goods and widgets.

Never have so many been so lost and confused…

The Bill is truly obnoxious, admitting, recognizing and accepting that there are exchange controls, price controls and even stating that there will be no privatizations in some areas of the economy.

Such is the mind set of opposition leaders after seventeen years of populism.

Then on Thursday the Government published a Memorandum of Understanding in which it settled with a tiny Canadian company called Gold Reserves which had been awarded US$ 740 million over the nationalization of the Las Cristinas gold concession. According to this fantastic (imaginative?) piece of paper, the tiny company (US$ 15 million in assets, US$ 45 million in debt and US$ 11 million in losses in the first nine months of 2015) will invest US$ 5 billion in Venezuela and lend US$ 2 billion to the country. Implied in the MOU is that this new gold company is payment in lieu of an actual cash payment to the company. At least there was no 100 day promise involved.

On Thursday, a protest on the healthcare crisis tried to reach the Ombudsman’s office, but in the distorted and bizarro world of Chavismo Democracy, this is not allowed. Thus, the Constitution allows protests, but the National Police and the National Guard don’t allow it. The Constitution has an instance for people to address their complaints, but this instance is not available if you try.

Only Chavismo…

Then on Friday, the anti-climatic payment of the 2016 Venezuela bond took place. Good for the bondholders, bad for people needing everything, as the debate starts anew on what will happen in October when PDVSA will have to make payments of over US$ 3.05 billion. So far, the Government has understood the political and financial implications of default, the question is at which point the political consequences of continuing to pay become more significant as unrest balloons out of control.

Stay tuned…

PCNI II: Cargo Ships In Puerto Cabello Drop Dramatically

February 19, 2016


When I initiated the Puero Cabello Non-Baltic Index (PCNI) on Jan. 28th. my intention was to contribute some sanity to the claim that no ships were arriving to La Guaira by noting that Puerto Cabello was running about as usual with about 15 cargo ships or more in port on any given day (I only count cargo ships docked i the port, not tankers or others). At the same time, given that I was concerned about the possibility that in the near future imports could go down enough to be a concern, it was a way of monitoring how things were.

Unfortunately, only days after my first post, there was significant drop in cargo ships arriving in Puerto Cabello and even a couple of days of practically no ships in port as you can see in the graph above. From levels of 15 cargo ships in port, we are no running around 4 to 5 a day, a significant drop from the customary 15.

Given that I had no history, you may wonder if my series may simply be a seasonal effect, however, one of the readers of the blog sent me the series that he had from the first semester of last year and I can tell you that the average was above the level I started with and there were certainly no days as low as those that have been seen in the last two weeks.

This is a dramatic change and I would like to be optimistic in that there seems to be a pick up recently, but I have to wait for the data. In the meantime, sorry to be the bearer of bad news, but if the port was running above 15 ships per day last year on average and there was scarcity, things are indeed going to get worse soon in Venezuela…

(Just to make sure the methodology is clear: I go in once a day, the number of cargo ships docked in port may vary during the day by one or two, but have never seen it it change more than two and only once. I don’t know what the cargo ships are carrying)


Maduro’s Miniscule Adjustment

February 17, 2016


Almost two years and ten months to the date of his election in 2013 and two months and 11 days after leading his party to an embarrassing defeat, Nicolas Maduro announced the first real economic measures of his almost three year old administration.

But the measures turned out to be miniscule…

In fact, what the Venezuelan President announced today was likely insufficient in April of 2013, when he was sworn in, when the parallel rate of exchange stood at Bs. 25 per US$, but may have had a bigger impact on the distortions in 2013 than it will have now. Chavismo continues to be trapped in its own distortion field, fearing adjusting the economy, but at the same time implementing a very meek adjustment which will likely be received badly by the population. If Maduro was going to take the blame for an adjustment, he should (and could!) have gone further than he did and the population would have not been able to measure the difference in impact on inflation and problems than this softer adjustment will have.

It took the Venezuelan President four hours of rambling to get to the real measures he proposed. He talked about the Economic War, created Productive (!!) Councils for each State in Venezuela and talked about a “new” Venezuela, as if Chavismo had recently been elected.

Some of the announcements had leaked, as Venezuela’s and PDVSA’s bonds, which had been strong in the morning, soared right before the speech, gaining as much as 12% in price for the day before the market closed, but before the detailed announcements had been made. Maybe it will be a matter of “buy on the leak, sell on the news”, now that the details have been revealed.

The first important announcement by Maduro was the first increase in the price of gasoline since Chávez was first elected in 1998. In fact, then candidate Chávez asked President Caldera to hold off on scheduled increases until after the election. Thus, the price of gasoline in Venezuela has stayed constant for over 17 years. While the rate of exchange has gone from Bs. 0.57 per US$ to Bs. 1,045 per US$, the price of gasoline had been kept constant at Bs. 0.097 per liter (US$ 0.000097 per liter or US$ 0.0004268 per gallon). So you get it, in this post in 2014, I filled my car in Caracas in 2014 with about 10 gallons of gas and paid the equivalent today of barely 4.2 cents in US$ for the ten gallons to fill up.

So, today Maduro increased the price of 95 octane gasoline from Bs. 0.097 per liter to Bs. 6 per liter, a 6,000-plus percent increase, but in the end:

Venezuela went today from having the cheapest gasoline in the world, to having the cheapest gasoline in the world.

How cheap? Well, if you consider a standard 14 gallon gas tank, at Bs. 6 per liter, you will be paying to fill up the tank a total of US$ 0.37 or all of 37 cents in US$. That is how cheap it will continue to be.

Obviously, this is a positive, but whatever positive there was in the announcement, was erased rather quickly with the announcement that the difference between the old and the new price will be placed in a “new” fund to support social programs. Thus, PDVSA will not benefit from the increase, the money will go into a non-transparent fund run by Maduro and the increase will likely be used in new expenditures, doing little to close the fiscal deficit.

And to top it all off, the 91 octane gasoline, was only increased to Bs. 1 per liter (one tenth of a cent). This gas has lead in it and currently 70% of the gasoline consumed in Venezuela is the higher  no-lead grade, since it is basically free. Thus, I see two problems: One, people may start using the cheaper grade to save pennies, but damaging their car and creating more pollution. Two, the difference in cost of manufacturing the two gasoline types is small, so it makes little sense to have such a difference, if what you want is to get back some of the cost of producing it.

In the end, Maduro could have gone higher in both prices and made the two prices closer and the “people” would not have minded or would have blamed him for inflation as much as they will anyway. He would have also reduced the incentives for smuggling gas to Colombia, which remain quite high. (A liter of gas in Colombia runs around 1 US$, versus 0.6 US$ cents in Venezuela)

Next, Maduro announced that he will “simplify” the current foreign exchange system. He said there will be only two rates (There will be three, he ignored the parallel rate), eliminating one of the three “official” rates currently in effect. Thus, Maduro announced the devaluation of the Bs. 6.3 per US$ rate to Bs. 10 per US$ rate for essentials (food and medicine), while moving everything else to a floating (floating not free) which he said would start at the current Simadi rate (Bs. 202.9 per US$ today). In the end, all this does, is move the absurd travel allowance rate from Bs. 12 to Bs. 202.9 per US$, where it will continue to be a perverse subsidy for the rich that can travel.

This is probably the worst of the announcements made. With the parallel rate of exchange at Bs. 1,045 per US$ today, it simply reduces the profit of the arbitrageurs from Bs. 1,038 per US$ to Bs. 1,035 per US$, maintaining and sustaining the reasons for the huge  corruption surrounding the foreign exchange office CENCOEX and the contraband of goods to Colombia and to a lesser extent Brazil and the Caribbean. This racket is dominated by the Venezuelan military.

Finally, Maduro announced a minimum salary increase of 20% from Bs. 11,557 to Bs. 13,720. (Divide by 1000 and you will gulp!) What can I say, people really need it, but in an environment of extremely high inflation and with no measures to really stop the process, in two months, another increase will be needed. And another one…

And the people will still be even further behind that they are today.

I could talk about the other non-announcements Maduro made, but by now, you have been as patient with me, as I was with Maduro today.

And that would be the antonym of miniscule. Which is that you have been enormously patient to get here! Thanks!

(Maduro also made a very vague announcement of a debit card for poor families, which sounded like Manuel Rosales’ Mi Negra card in the 2006 Presidential election, but he gave very few specifics of how much it will involve in Bolivars and who would be eligible and why)





As TSJ Overrules National Assembly One Wonders What The Plan Is

February 15, 2016

As yours truly was swimming with dolphins, turtles and penguins, the Venezuelan Supreme Court (TSJ) ruled that Maduro’s Economic Emergency Decree was valid, despite the fact that the National Assembly used its Constitutional power to not give it its approval.

I am not going to talk about the illegality of the decision, they were going to do it no matter what. But perhaps it is funny to comment on the fact that the Hall of the Supreme Court even ruled that the Assembly can not revoke it, becoming a sort of a new Constitutional instance, changing what the Constitution says about what the National Assembly can and can not do.

I am not surprised by the ruling, as I predicted in December, that the battle was going to become one of who has power over whom and a clash with no  arbiter was looming. However, so far we have since little of a clash, as the TSJ has ruled and the National Assembly has done very little about these rulings or little to challenge the authority of the TSJ or the Government which is what I believe they have to do and should do.

I already disagreed with the Assembly accepting the ruling on the three Amazons Deputies, the Assembly should have never sworn then in if it was not ready to fight for them and their decision.

But I am also not sure of what exactly is the Assembly’s path. Yes, they have mentioned a possible Constitutional Amendment to shorten Maduro’s term and a recall vote, but don’t they think that the TSJ will stop them at every corner? What will they do then?

I think that the National Assembly has to defend its position as an independent power and pick the fight. If Ministers did not go to the Assembly as required, censor them and remove it, as the Constitution gives them the power to do. The Assembly does not like the decision by the TSJ? Then vote that the decision is invalid because it takes away powers given to them by the Constitution. Cut off funding to the TSJ if necessary. Why not?

They have to meet the Court at the Government in its own terrain. If the Assembly removes a Minister, anything signed or decided by that Minister becomes illegal and can be penalized by the Courts someday. He can’t even collect his salary or spend money. It would be illegal and he or she could face jail time some day.

As to the fact that the decree is still valid, like so many other things, it was obvious it was coming and the Assembly should have had a plan to fight it.

But so far, I still see no plan.

And the same applies to all the wonderful things the Assembly wants to do, whether it is the Amnesty decree, the recall vote or whatever. In each of them, the TSJ will attempt to block it.

What will be the response?

I hope there is one planned, if not, the TSJ will have scored victory over victory over the National Assembly without the Assembly responding.

As they say in Spanish, “la pelea es peleando”, the fight is fighting, if you don’t fight, the December victory would have been an empty one. To call the TSJ decision a “coup”, the drop that overflowed the glass”, “immoral” and such other platitudes, does little to defend the terrain that the Constitution gives the Assembly and the voters gave them.

AN: What’s the plan?

Hyperinflated Arepa Index (HAI) XII: Hard To Break The Bs. 1,000 Barrier

February 2, 2016


Well, I must say I was expecting the Hyperinflated arepa index to break the Bs. 1,000 barrier in order to keep it up with the unmentionable rate, but it was not to be. In my visit to Caracas last week, I “only” paid Bs. 950 for my traditional and delicious arepa de queso de mano at my secret place, which represents a 17% increase from six weeks earlier and a 431% increase from one year ago. This means that if you earn minimum salary today, you can eat 10.15 arepas per month, or about one every three days, not exactly good nutrition…

There were a number of observations during my visit that I think are worth mentioning. Perhaps the most important one is that I noticed a huge difference since early December when I went out at night to eat out. Really huge. I went to a well regarded steak place on Saturday night with my sister and at 8:00 PM there were only three tables full. And this place is huge.

The whole week was like that, no matter where I went. I took a friend, who was visiting from abroad to look at possible ¨change¨ in Venezuela, to an Italian restaurant that I love and when we arrived at 8:15 PM we were the only ones (It was Monday, but I went back on Thursday and it was similar). later two other tables filled up, including one of my coworkers. But that was it.

It repeated every night. Tell a group of Venezuelans my observations and they will argue for a while about whether it is about security or price. Easy, it is both. The parallel rate has gone up maybe 20% since I last visited, but prices at Restaurants have increased 30-40%. And this implies ordering ever cheaper wines, as the offerings become more expensive and of worse quality. At one place, after ordering three wines, none of which were available, I simply said, tell me what you have!

Simple questions become harder to answer. How much do you tip someone who parks your car? If you get Bs. 4 of gas (half a cent in US$) to fill your tank, what do you pay with? I only had a Bs. 20 bill (2 cents in US$), so I just gave it to the guy. Was it too little? Too much? I have no clue, he seemed happy.  I was probably over tipping the Valets at my hotel, at US$ 20 cents (Bs. 200), they seemed to be jumping to help me whenever I showed up.

Sad, very sad…

But not as sad as the scenes at the airport. Whole families come to say good bye to young people leaving. From Grandma, to aunts, sisters, brothers,nannies or whatever, people hold on to them, embracing them with almost despair. They have no idea as to whether they will see them again soon, or ever. I usually get annoyed at people who come to say good bye at airports en masse, but this time was different. I had to show respect. There were many very private/public spectacles full of emotion, my watery eyes were certainly not an allergy.

But I have always been a sentimental fool…

Then the stern cop asked me at the security check point: What do you do in Venezuela and how long will you be gone? I just said I don’t live here now, I live abroad.

No more explanations were required…he even seemed envious…

Sad, very sad…