The Devil's Excrement

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I have
tried over the years to ignore US
politics in this blog essentially because this is a blog about Venezuela and I learned early on that even
mentioning the US and its
politics would simply drive discussion away from Venezuela.

But I can’t help to
comment, as we await to learn that Barack Obama has been elected President of
the US, how much opinion of
most Venezuelans on the US
race is molded by the political division and tension in Venezuela.

Venezuelans who are to the
left of Obama in their local politics have suddenly and miraculously become US
Republicans!!

That’s what Chavez does to
people!!

You would think that Obama
has been wearing a red shirt and boasted the sponsorship of Chavez’ PSUV, the
way that people have been justifying their opposition to the Democratic
Presidential candidate.

It is as if Juan Barreto
was running, rather than a well educated Harvard lawyer who has been a Senator
for a few years, rather that some mediocre military officer who staged a coup
and gave some rambling view of what he will do.

But over the last few
days, I have been frowned upon as I tried to argue a simple point: That Obama
is no Chavez, that thinking Obama maybe a Chavez is simply being narrow minded
and trying to project Chavez onto Obama is truly silly and shows in some way
how superficial political decisions may be, which in the end may explain how
popular Chavez is.

Quite ironical when you
think about it!!

Whether you like Obama or
McCain, you can’t ignore the record of each of them as part of US politics.
They have both been mavericks, out of the mainstream and maybe that is the
reason why they are there today. But both are part of the US system, with
a high respect of the rule of law and democracy, neither of which are of
importance to our almighty leader. Just think about how the US has reacted to
the recent financial crisis and you realize why the US is where it is,
decisions were made to solve the problem which go against the ideology of those
making it, but seemed to be the best at the time. While others lingered and
were wishy-washy, the US
acted. Whether it will work or not seems to be besides the point, on the way
changes have already been made.

The world is likely to
react more positively to an Obama victory, which I feel is going to be a
positive. My bet Chavez will be the one of the first , if not the first, world
leaders to blast Obama. In fact, we can make it a contest: How long do you
think will elapse between an Obama presidency begins and Chavez blasts him
irresponsibly? (Prize: Any book from the NYT fiction or non-fiction book)

Because in the end what
the recent credit/financial/panic crisis has shown is that the world is indeed
globalized, whether we like it or not. It is Asian stocks that have dropped the
most because of the subprime crisis. It is European banks that have failed
first because of the subprime crisis. It is Venezeula’s sovereign debt that
has dropped sharply because of that same crisis.

Which only point us to the
obvious: The main difference between Barack Obama and Hugo Chavez right off the
bat, will be that while Chavez has spent ten years trying to be President of
only a fraction of Venezuelans, Barack Obama will try to embrace and convince
those that are against him or not on his side, much like he has tried to do all
his life.

The point is that this is
not about “WE” or “THEM”, this is simply about
“US”. But Venezuelan politics seems to have been reduced to the
former empty argument for generations to come.

In the end, the best
candidate, win or lose, would have been the one to do best for the citizens of
the US and in this case, because of its influence, the world. Hopefully, the
choice of Obama, which seems inevitable at this point, will be best.

But you can be sure that
in the worst possible scenarios, neither McCain nor Obama will be as divisive,
abusive and destructive as that very shameful and uniquely Venezuelan creation
called Hugo Chavez.

Barack Obama is no
uneducated, two-bit, unethical, messianic soldier, nor does the US have fragile
institutions. And that my friends makes a big difference!

Most people in Venezuela are not taking it very seriously
when the Chavez administration threatens to either disqualify or jail Zulia
Governor and opposition leader Manuel Rosales, who is running for Mayor of
Zulia State.  The arguments are the
same we hear with the other political disqualifications or the cancellation of
RCTV’s license: That Chavez would not dare due it because of the repercussions.

Today Venezuela launched the Simon Bolivar satellite. Or
did it?

—The
General Prosecutor called the Maletagate trial in Miami a “media show” with
no relevance to Venezuela. According to her, this trial has been going on for “very
long”.

After three large scale blackouts in the country so far in 2008, today Venezuela had a huge bytesout when apparently an optical fiber was cut by an excavator. The country was left with no connection to the Internet outside of Venezuela due to this and about four hours after it occurred the Minister of Telecommunications proudly reported that 80% of the service had been reestablished.

This all goes well with the revolution’s slogan “A paso de vencedores” (At the pace of winners), except they seem to do it all backwards…

In order to see how well Venezuela
may deal with the crisis, we have to quantify the “assets” the Government has
right now. There are two aspects to this. First, one needs to quantify dollar-based
assets in order to be able to satisfy import needs and debt service. Second,
one needs to quantify local currency assets in order to quantify the fiscal
picture.

On Sunday, Venezuela
had its third large
scale blackout of the year. Blackouts occur daily all over the country, but
these large scale ones are a new phenomenon which coincidentally has occurred just
a year after the Government took over all of the private electricity companies
in the country.

As has been the case in each one, the word “sabotage”
was mentioned immediately by a number of Government officials, but as usual,
there is no evidence of that. Yesterday the Head of the Government’s
power company admitted
it was a bad adjustment in the protection system that led to the blackout, while
the usual fanatics, such as the President of the Electric Power workers union,
who doubles as a pro-Chavez Deputy of the National Assembly, continued talking
about sabotage. Meanwhile the Prosecutor detained the three workers responsible
for the bad adjustment.

In fact, the President himself praised the speed
with which electricity was restored as evidence of the effectiveness of the
state’s electric power system. Unfortunately Chavez said that it only
took 15 minutes for power to be restored. This must have been for the Presidential
palace because I certainly had no lights for over two hours and some parts of
the country had to wait as much as six hours to see the light. A Government
official actually said about four hours after the blackout that it had been
restored in 80% of the country contradicting the President or those that suck
up to him by hiding the truth.

So the pantomime continues, while Hugo Chavez
promises a refinery one day, a pipeline the next and to solve the electricity
problem before the end of the year, nothing happens. A government that does not
believe in know how and expertise. Who thinks that anyone can do any job
(including being president) is setting back the country a few decades. The
money that should have been used to improve the electric power infrastructure
of the country was instead used to satisfy another whim by the autocrat. He spent
a couple of billion US dollars buying out perfectly functioning electric private
companies, while the rest of the power system own by the Government deteriorated.
Just
look at the power generation plant Planta Centro, a 2 GW plant owned and
run by CADAFE, the state’s electric company.  

So, the Government spent money on buying working
companies when oil was high, rather than invest in repairing or building new
electrical infrastructure.

Substitute electric power for oil, telecom, water
services, whatever you like and you know what may happen. Of course, in Chavez’
folly oil will stabilize around US$ 100 per barrel, but guess what, it ain’t
happening, as the Venezuelan oil basket hit US$ 68 last week, down to the
levels that gave the Government so much problems in 2007, except that the cost
of producing Venezuelan oil is up from around US$ 21 per barrel to US$ 28 per
barrel during that period:

Everyone wants to understand what the recent 50% drop in
oil prices means for Venezuela. The problem is that there are n simple answers
mainly due to the lack of transparency in the country’s numbers. There are two
approaches to this problem: In the first one, you can take what you believe in
and describe it, which is what I tend to do. The second approach is to present the “official” story and compare it to what analysts and your own logic may say.

I haven’t blogged for too many reasons, from travel, to baseball, to simply no compelling reasons to blog on whether Chavez is right or wrong about people trying to kill him, or whether the opposition can, may or not win in November. Hearing the oppo you may think they have won already, but they still have work to do.

But I have read, heard and swallowed a lot of stuff about the economy, most of which is remarkably naive, ignorant and even besides the point.

I did read some remarkable statements from the Minister of Planning El Troudi, who seems to be in charge of the economy in the absence of Minister of Finance. According to this wizard, Venezuelans should bring their money back from the US to preserve its value. I am not sure what logic this man is following, but he certainly is not using math. Because a scant two months ago, the parallel swap rate, the only measure of a “free” market rate stood at Bs. 3.3 per US$ and it is now hoveri9ng around Bs. 5 per US dollar, which certainly does not sound very good. Even the euro has done better than that recently.

Moreover, in the US the deposit guarantee has been extended to US$ 250,000, something like 30 times the local guarantee. But the Minister does not seem to understand many facts:

First of all, if accounting of banks in Venezuela followed US rules, most banks in Venezuela will have gone under (not that they are not, somehow their accounting gets incredibly creative). Because you may have read that in the US you have to “mark to market”, i.e. register your investments at market prices. Well, not in Venezuela. Here, banks can classify investments at will as “held until maturity”. If you do that, you register it at 100%. Thus, if you bought Government bonds yielding 7% two years ago, today with the same bonds yielding 17%, you move them in “held until maturity” and voila, you don’t have to register a 20% loss in their value, which saves the day for all but the six or seven healthy banks in the country, who have no problem.

Then, there are the articles that claim Venezuela will weather the storm easily because it has saved so much in the last few years. I am not sure what type of spring roll, egg roll or lumpia these writers have been smoking, but somehow they add a lot of stuff but subtract very little.

On the addition part, somehow they always include international reserves as “savings: which as Quico has explained in his comments its sort of strange. After all, it is not the same to have US$ 35 billion in reserves, with US$ 35 billion in monetary liquidity, than to have the same amount with US$ 75 billion idity, like it is today.

Reserves guarantee the money in circulation. If you hold reserves constant and add to the money in circulation, you are in trouble. Thus, if you “add” everything, you should also subtract. Things like debt, for example, at some US$ 30 billion, nobody seems to take it into account. Or the money owed Cemex, Sidor, Banco de Venezuela, Petrozuata, Cerro Negro and whatever, a sum that adds up to US$ 15 billion very quickly, killing off almost all the money in Fonden and leaving just some US$ 4 billion in Bandes and FIEM. Of course, the US$ 18 billion in Fonden includes US$ 1.5 billion in Argentina’s Boden 15’s, purchased at 65 but which are worth 45 today. Or US$ 400 million in  Lehman Brothers which are worth about US$ 80 million and/or Venezuela’s bonds which can not be sold, because Fonden holds them at full value, rather than at market value.

But the truth is that foreign investors have little to worry about even if the recent panic suggests that Venezuela is about to default with the country’s 2010 bond yielding 20% in US dollars. Remarkable for a bond with only 22 months left before maturity. Such is the nature of panics.

But Venezuela will not default, because Venezuela only has US$ 1.5 billion coming due in 2010, another US$ 1.5 billi8on in 2011 and a similar amount in 2013. Peanuts for an oil producing country with oil even at US$ 60 per barrel.

The real problem is that Venezuela has been importing US$ 50-plus billions per year as the Government destroys local production. Thus, revenues in US$ are below imports already and it looks like oil has further to go. The problem is that the country can not issue debt to cover the deficit, like it did on 2007 when the average price of the country’s basket was US$ 67, the country ran a huge deficit, which  it covered issuing debt, both by PDVSA and the country.

And the other real problem is that this is hitting you as inflation is at 50% per food, 70% of which is imported by now and 35% in inflation for the overall CPI.

Thus, foreign investors will get paid, because the country needs them and the amounts due are miniscule in the scale of problems. But local survivors, including the mass of “people” that Chavez claims to love, will be obliterated by the upcoming devaluation, which will allow the Government to live another day, but throwing some steroids into the structural inflation to insure food goes up 75% in 2009 (optimsistically) and the general, improved CPI hits 50%.

Of course, the Government will not have the US$ 9 billion it used in lowering the parallel swap rate in the first half of 2008, much of it wasted in keeping it artificially low (Bs. 6 was too high, Bs. 3.3 was too low). So by now, we are at Bs. 5 per dollar, add ten dollars down on oil and a devaluation and can Bs. 7-9 be out of whack?

I don’t think so. In fact, I am sure we will see a devaluation to Bs. 3 in early 2009 which will fuel the swap market even beyond my pessimistic predictions.

And I don’t even think that US$ 60 per barrel is sustainable. I just think that an incompetent Government like the one we have will screw up again and will need another huge boost in oil prices to have them and the “people” survive. And I do mean survive. When money runs out, there will be shortages and all that money spent in buying out existing concerns for ideological purposes will be needed elsewhere. Excpet it will not be available.

And Chavez will blame the Empire, the IMF or whatever. But it is he and his team that should resign after ten years of incredible destructive power.

And as in previous crises, it is the poor that will suffer, as the well to do with savings in US$ will be able to change at the higher rate, proving once againt the perverse effect of inflation on the poor.

But we knew that ten years ago and after US$ 800 billion in revenues, nothing has really changed under revolutionary management.

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In 2003
Hugo Chavez was grandstanding around the world claiming he did not believe in
“representative” democracy, because he only believed in
“participatory” democracy. Supposedly he only believed in the
“people” and not in those elected by them to make decisions.

Of course, at the time he had a plural National Assembly that wanted to discuss
things and the like, which went against his vary autocratic and dictatorial
nature, so the word participatory would come out of his mouth every ten words.

Not any
more!

Because the “people” decided in December in a referendum that they
did not want many changes to the Constitution, but instead of accepting the
decision of the “participatory” democracy associated with a
referendum Chavez simply went back to the only form of participatory democracy
he likes: He participates the people what it is he wants, independent of the
illegality.

Because yesterday after midnight the Venezuelan National Assembly approved
the Organic Bill for the Organization and Management of the Territory,
which contains the same concepts rejected by the “people” in last
December’s referendum.

The Bill gives Hugo the autocrat (dictator) the right to be the “supreme authority
on the organization and management of the territory” conducting public
policy in the building of a socialist geographical space”, all concepts
rejected in the referendum and thus in violation of what people voted.

The Bill also gives Chavez the authority to name the same “Regional
Authorities” that voters said last December they did not want, a new
position which represents Chavez in the regions and have a hierarchy above the
elected Governors of the country.

There are other morsels, like the whole territory of the country is defined as
“public utility” and all subject to expropriation, also a concept
rejected in the December referendum.

So, when people come and tell me Venezuela is a democracy because Chavez was
elected, they better be prepared t tell me how it is that Chavez can ignore the
vote of a referendum and legislate at will what the people rejected explicitly.

Of course, they will just go on a tangent that simply demonstrates that they
are Dictator lovers with no democratic principles or beliefs in human rights.

But we knew that even before this or the 26 Bills approved by Chavez the
autocrat (dictator) under his enabling Bill were passed without consultation.

Because in the end, Venezuela
ceased being a democracy long ago, when Chavez began walking the gray areas he
is not afraid to step of these days. And as rights and laws are violated the
fascists of the left continue to raise their ugly heads to defend the
indefensible.