The Devil's Excrement

I am glad I was away when the whole Snowden affair blew up, as I think it is mostly irrelevant to the problems of Venezuela. My take on the reaction of the Venezuelan Government is simple: Maduro finally found something that could become his only Hugo moment since being elected, by giving Snowden asylum and doing his own in your face insult to the US. But the moment may not come to pass and Maduro’s offer will likely be forgotten as the possibility of Snowden coming to Venezuela seems to be fading fast. I think Nico did not think well of the consequences. No, not geopolitical consequences, but how damaging for him Snowden could become if he came to Venezuela.

But in the end, it points to Maduro’s rambling policies, where he acts tough one day, light the next, clearly under pressure from all sides. He visits only accepted countries, ignoring Hugo’s circle of terror friends since he became President. He names pragmatists to Finance, but leaves the dinosaur in Planning. He removes Chavez’ brother from Corpoelec, but brings him back shortly elsewhere. He brings back ultra radical Saman,the creator of the socialist areperas, but more importantly an absolute ignoramus on economic matters. He sends Jaua to have his Disneyland photo moment with John Kerry, only to destroy the picture by offering asylum to Snowden. The asylum may never happen, but any improvement in US-Venezuela relations got thrown overboard.  Maduro has been anything but consistent in his brief 90 days as President, but he did need his “smell like sulfur” Hugo moment and Snowden could have been it.

Except that if Snowden ever came to Venezuela, it would end up biting Maduro back for sure. To begin with, the international press would descend in Venezuela and dozens of articles about how the Venezuelan Government spies on its citizens would appear in the international press. Even a deaf and blind reporter from The Militant would learn about these cases and spread the word, making people wonder why the hell Snowden chose Venezuela for.

But in the end, it would be Snowden who would become the problem for the Government. The same international press would descend on him and ask him about his opinions about Venezuela. Snowden would hold press conferences and be on live international TV from Caracas and eventually the Venezuelan Government will simply say Nyet to all his political activities in favor of human rights, the lowest of rights on the Chavista totem pole of values. I am sure the shallow Mr. Snowden, shallow because the countries he chose are anything but icons of good behavior in spying and repressing their citizens, would not like to be silenced and the problems would begin. For Snowden, and for the current Venezuelan Government.

But other problems would surface even earlier, such as the fact that Mr. Snowden’s life in Venezuela is likely to be anything but the golden asylum he may be imagining. From not speaking the language, to crime, to shortages, Snowden is unlikely to find a place or a society where he would fit in, even if the Venezuelan Government were to offer to pay him to hack his way around the world. He would likely tire of living in Venezuela, which would force him to look for an alternative. But once here, no other country is likely to want to touch Snowden with a ten foot pole, so he would have to either stay put or go back to the States. And once in the States, he could talk freely about the wonderful world of Venezuelan human rights violations.

Thus, Maduro’s Hugo moment was not well thought out and now looks unlikely to happen. Meanwhile important matters continue unresolved, as his enemies from within carefully wait for the right moment to act.

And Snowden is still in Russia and seems further and further away from ever eating an arepa..

While President Maduro has done nothing on the most pressing problems of the economy, in the last two weeks, the country received an upgrade in its status with the US, a downgrade from Standard and Poor’s and the Catholic Church seemed to give its blessing to Maduro and the country when Pope Francis met with the Venezuelan President., essentially seeing an improved outlook in relations with the country.

While Maduro is probably happy about the total, unfortunately for the average Venezuelan the only one of these that will affect his or her pocket is the downgrade from B+ to B by Standard and Poor’s. Yesterday morning, before the downgrade, Venezuela’s bonds were trading about at a 1% lower yield than today, which means that any new debt that is sure to come will cost around US$ 10 million more per year for each billion dollars issued.

In fact, so far Maduro being elected has been quite costly for the country, as shown by the graph below:

In the graph I show the value of the 5 year CDS, or the cost to insure against the country’s debt default, which is a measure of the so called “country risk” or “country premium”. As you can see, Maduro has been costly to the country since he came to power. Just by being elected the CDS jumped from about 673 basis points (6.73%) to about 830 bps (8.3%). Then, after the electoral noise went away, it was calm for a while, but then markets got impatient (and so did S&P) and started punishing Venezuelan bonds. A few days ago it got as high as 1065 (10.65%) basis points (which was also influenced by world jitters). Then it seemed to calm down dropping to 960 basis point, only to jump yesterday on the downgrade by S&P.

From the graph, it is hard to precisely separate world jitters from Maduro, but if we say the first jump was all Maduro and the recent downgrade was all Maduro, you have at least 250 basis point or about 2.5%due to him since assuming office, or roughly US$ 25 million more in interest payments per year for each billion dollar of bonds issued. In a US$ 3 billion issue, the likely amount of what this Government want to start its issuing would then cost (us Venezuelans) for ten years US$ 250 million.

But Maduro is probably relishing on the fact that the Pope met him, Kerry met Jaua and the FAO gave him the most stupid award possible given the current shortages and the level of inflation.

And when Maduro is gone, Venezuelans will be paying for his ignorance. Meanwhile Maduro is “celebrating” his tenth week as President without a single important economic measure being announced.

Which is precisely why S&P downgraded the country’s debt. Oh yeah! S&P did say that if economic policy became more “pragmatic” the outlook, which is negative, could improve.

Don’t hold your breath…

In his efforts to imitate Hugo, Nicolas Maduro can’t seem to resist putting on a hat. For someone whose head was always bare, it looks silly and most of the time he looks too contrived and unnatural. But he continues doing it.

Nicolas, you are no Hugo!

When Hugo Chavez started using the oil windfall to generate friends abroad, he thought Venezuela had infinite money. From coops to joint ventures with questionable partners, like Iran to Petrocaribe, money was thrown at many bottomless pits.

But the worst part is that there was no accountability, either before, during or after these ventures were carried out. Even more incredible, is how immune some of these organizations that have been in the middle of these deals seem to be to any investigation or accusation. But none more incredible that the two “development” related organizations, Fonden and Bandes. Fonden has been mentioned before, a billion dollar sink hole protected by Chávez and Giordani, but Bandes, which was actually in charge of many of the loans by the Chinese Government, including the oil for money credit lines, seems to be absolutely shielded and protected. In fact, its most recent President, has now been promoted to President of the Venezuelan Central Bank.

Way to go Maduro!

A few weeks ago, I reported on the US$ 66 million ripped off by Bandes officials via the trading of bonds, with as much as US$ 10 million lost in a single trade (world record?). Weeks have gone by and despite a sixth person jailed in the US yesterday and the opposition requesting an investigation, absolutely nothing has happened. Not a single investigation or question raised or asked. And the same people keep on running Bandes…

Who protects Bandes and its officials, past and present? It can’t be Chavez, he is no longer around. But the immunity continues.

I know US$ 66 million is pocket change for the bottomless pit of the revolution, but it just keeps adding up and Bandes seems to be always in the middle of things.

Take Bandes-Uruguay. In 2006, Bandes Venezuela purchased Bandes-Uruguay, which was bankrupt, for a scant US$ 10 million as reported in these same pages then. I was not too positive on the transaction:

“I like the business plan: Take over a bankrupt financial institution in a country you have no experience with and have it run by people with no financial experience. A recipe for financial disaster for spreading the goodwill of the revolution! More losses in the name of solidarity! Less money for Venezuelans!”

Wasn’t too far off the mark, no?

Even worse, the genius behind this investment is none other that then (and current!) Bank Superintendent Hernandez Behrens, the same guy who presided over the mini banking crisis of 2009 unscathed.

Bandes Uruguay lost money in 2007, 2008, 2009 and every year after that. So much, that it lost all of its capital. In 2010, I wrote a post again on the subject, this time because Venezuela was considering recapitalizing  Bandes Uruguay. Or Uruguay wanted Venezuela to throw some good money after bad. Which apparently was done once or twice, but now Chavez is dead. In the meantime, Bandes-Uruguay went from 35 branches to 24 and then to nine, as Bandes-Uruguay paid off hundreds of Uruguayans to take their severances and leave.

And Venezuela and Venezuelans (The people!) paid for this whole boondoggle…And Uruguay laughed all the way to the bank.

Well, it seems as this chapter has been at last closed, as oil went down and Venezuela did not want to capitalize Bandes-Uruguay any more.. So much for goodwill created in the name of the revolution.

The Uruguayan Senate approved now the absorption of 146 employees of Bandes-Uruguay to State owned banks, as well as absorbing nine branches of Bandes-Uruguay.

Meanwhile in Venezuela, Bandes gets away with not submitting financial statements, while handling billions in Chinese loans with no accountability. And any accusation against Bandes or its leaders is just ducked by the Prosecutor, the National Assembly or Maduro for that matter.

Which makes you wonder who used to protect those in Bandes? Who protects them now?

As a good friend (JG) said to me last week: Giordani is like a Catholic Archbishop, saying, yes I know that Bishop is a pedophile, but I am not.

Arrogant till the end…

Meanwhile at Bandes, wasting money is just their way of doing business, with OUR money.

Venezuela has been the land of magic realism over the last fourteen years. Under the spell of Hugo Chávez, the country lost a decade of development under the guise of a revolutionary process, that brought little revolution anywhere, when you consider that the country enjoyed the biggest oil windfall in its history. Chávez could sell the people anything, an attempt on his life, borrowing at 12%, while lending at 2%, demonizing the opposition, recovering from cancer and even blaming nature for many of the problems he caused.

But over the last six months, Chávez’z successor has turned Chávez magic realism into a bizarre concoction that makes no sense. He managed an electoral audit that was not one. Maduro has been in power for over ten weeks, but has made no important decisions about the most pressing economic matters. He blames problems on things like consumption, as if his party was new in Government. He says the universities have received sufficient resources, but a Professor’s salary is near the minimum salary and since 2008 autonomous universities have not had any budget increase.

But things get really bizarre when important discussions are distracted by events such as:

-Jose Vicente Rangel, a former Minister of Defense and “reporter” saying the opposition has purchased 18 airplanes to attack Venezuela and that they are in Colombia. Of course, no mention of who, when, how, just like that, 18 planes, not 2 or 3, all of eighteen planes, bought with money that came from nobody knows who, to buy whatever. Maybe Rangel saw an Amazon purchase for 18 planes to fight Maduro’s drones.

-A Judge, Judge Afiuni, ordered incarcerated by Chávez, who has yet to be tried, but was raped in jail, has the Prosecutor ask the Court to change her prison for home and five days go by without the inhumane Court saying a beep and ordering that she be released. Whatever happened to compassion in Venezuela?

-A thousand cases of the H1N1 virus are not enough to have Venezuela’s Minister of Health worry, declare an emergency or anything like that. Never mind how contagious it is. Never mind the ignorance of the average Venezuelan on the subject. This is simply another plot to destabilize by the opposition. The country is even out of the vaccines, but don’t worry, toilet paper should be arriving soon.

-An obscure Director of the price control office is jailed for corruption in Venezuela, but the SEC charging that there was a massive kickback scheme at Bandes, which made that bank lose US$ 66 million, gets no reaction from any official in Venezuela. (The fourth person was jailed today in the US)No investigation, no questions asked. But Maduro still says he is going full blast against corruption. Sure Nico, I believe you. (Cross my fingers)

-In a country with excess lawyers. In a country where nobody in important positions seems to have experience in the area of the position, an engineer is named to supervise the Judicial system. Never mind he failed as Head of the electric company, his supposed specialty. Never mind there are thousands of Chavista/Madurista Judges, lawyers and the like. Choose failure, choose ignorance, choose a guy that failed. Oh! I forgot, he is Chavez’ brother Argenis.

-The Head of the Electoral Board comes out and says that the “audit” was perfect, not a single error. But after a reporter finds 90 dead voters in polling stations with 100% participation for October, the next day (June 3d) the CNE changes the records from October 7th., all of them, reducing, but not eliminating dead voters. But, says Ms. Tibisay, Venezuela’s electoral system is “shielded”.  Not from the dead, Tibi. BTW Tibi, we are still waiting for the fingerprint records from the SAI, which has turned out to be a useless system: It did not stop anybody from voting! Which is why they don’t want to give the opposition a copy.

Oh yeah! A guy named Kerry, who apparently holds an important position in the US Government, meets with Venezuela’s Foreign Minister Jaua, who grins at the meeting at Kerry, very much like Venezuelan kids do when they meet Mickey Mouse in Orlando.

Really, bizarro country, with a Capital B (not “V”), is getting harder and harder to understand it. All of this happens and not much of a reaction. Bizarro is, bizarro happens. Nothing happens.

Maduro badly imitating Chávez, what is he smiling about?

The week brought really bad news on the economic front, as the Venezuela Central Bank reported that the economy stalled in the first quarter, growing by a meager 0.7%, while inflation really heated up, increasing by 6.1% for the month of May (up from 4.3% in April). Both numbers were worse than expected by analysts and economists.

The internals of the inflation numbers were even worse. Twelve month inflation is now running at 35.2% (Inflation  for 2012 was 20.1%), while Food and Beverages went up by 10% in May, that group is now up 27.8% for the year and 49.9% in the last twelve months. Inflation is already up 19.4% for the year, compared to a devaluation of 31% in February. The scarcity index stood at 20.5% in May, barely budging from the same number in April. Even worse, many of the basic products currently under price controls, have yet to receive approval for price increases since the devaluation in February. Meanwhile, the black market rate has reached a new all time high.

To make all of this even more worrisome, is the fact that Maduro was sworn in nine weeks ago and he has yet to announce any significant change to economic policy. Soon after being sworn in, Maduro said that the Government would make the parallel rate fall and it is now 32.4% higher than when he won (sic) the election. And while investors and the private sector wait for announcements, Maduro makes non-announcements (Sicad was going to start again three weeks ago, there will be no devaluation)

But Maduro keeps saying things that may sound good to the “people”, but are either false or will make him look bad in the future. He said that what was coming was “the strengthening of our currency and our economy”, which at this point is an impossible target for the currency in 2013 and an iffy proposition for a growing GDP in 2013. Maduro also asked for applause for Minister of Finance Merentes “who is fixing our economy”, while in reality Merentes has shown that he does not have the power to guide economic policy, as he has yet to make a single change since being named Minister in April. (Even his road show to New York and London to talk to investors was cancelled soon after it was sort of announced). And Merentes may improve the foreign exchange system, but he is no economist and thus does not know the tools to attack the many distortions in place.

And Maduro may simply be clueless or have really bad advice. Yesterday he said that the reason inflation went up like this in May is because of “overheated consumption”, while the Government’s own numbers show that the growth in consumption slowed down between the fourth quarter of 2012 and the first quarter of 2013 from 7.1% to 3.1%. Maybe Maduro should be briefed on the effects of money printing and deficit monetization.

By now, in addition to the higher inflation and the stalling of the economy, the result of the Government’s inaction is that the bond issuance (likely directly in US$) that will certainly take place in the upcoming weeks, will be more costly than eight weeks ago. Between the fear of new issuance, the drop in US Treasuries and the lack of new policies, the prices of Venezuela and PDVSA bonds have been punished harshly in the last nine weeks. This means that before Maduro was elected, the benchmark Venezuela 2027 bond was yielding 9.18%, which last Thursday stood 11.48%, before dropping sharply on Friday to 10.88%. This means that any new issuance will be between 1.5% and 2% more costly than six or eight weeks ago. (US$ 45 to 60 million a year for the length of the issue of a US$ 3 billion bond)

About the only positive note is that Minister of Energy and Oil Rafael Ramirez has managed to sign some deals worth about US$ 9 billion with Rosfnet, China and Chevron, showing that he has more power than many. Except that none of what he did  implies cash flow any time soon, as the major chunks of all the deals are for expenses in PDVSA’s projects with these partners. The only one that implies money for PDVSA is a loan from Rosfnet to PDVSA of US$ 1.5 billion, capped at US$ 300 million per year for five years and so far, it is only a Memorandum of Understanding.  The other “loans”, are all going back to the “Giusti” model, where the purse strings are controlled and held by the partner and not PDVSA. Fourteen years of a revolution to end up in the same place.

At least, that new money will go in the long run for increased oil production, something the country needs, but the revolution has ignored for too long.

Yesterday Venezuelan President Maduro presented this “new” system of drones built under a cooperation agreement with Iran which was hailed as capable of “counter acting any threat…so that the Fatherland is never violated…evidence that Venezuela is advancing in technology for military purposes”

The presentation also included “the launching of a test of an unmanned flight”, which according to the article was hailed by Maduro as “the bases for our the aeronautical industry of the future that we must have”

Well, I am not sure who was fooling who here. It was either Iran fooling Venezuela or the military fooling (or laughing?) at Maduro. This project, under the cooperation agreement signed in 2006 with Iran, took seven years to do what any model airplane club or kid in Caracas could have done ten or twenty years ago.

Because what you see above, is nothing but a large model airplane, comparable to the largest ones that Venezuelan model airplanes fans and their associations build. And in Venezuela there are quite a few of them.

And the Iranian “technology” and what is the basis of our country’s future aeronautical industry can be purchased at Amazon or any RC hobby store for a couple of hundred bucks, as can be seen in the picture below, where we can see the so called “drone” and its radio control.

and in the red circle, you can see the sophisticated technology, basis for our technological future, shown here blown up (even if fuzzy):

which anyone that has ever seen fly or flown an RC model airplane can recognize is an off the shelf RC radio system available at any RC store, hobby store and even Amazon for about US$ 100. Something like this model, taken from this page:

There are so many models, it is difficult to determine exactly which model it is simply from the picture.But all we can say is that Venezuelan military and aeronautical “technology” is all simply kid’s stuff. The only question is who is ripping off who. Somehow, I think it was Maduro whose good faith and ignorance was take advantage of.

It is truly sad that a country that 40 or 50 years ago had frontier science and technology, has now such ignorant leaders, that they think that model airplanes, Chinese satellites and Portuguese computers have any thing to do with the technological and scientific future of the country.

The worst part is that the Bolivarian scientific “leadership” will simply remain quiet about all this.

What a pitiful revolution!