The Devil's Excrement

Jose Rafael Lopez Padrino is a Venezuelan scientist who considers himself a true socialist and thus is against the fake Chavez revolution. Recently he has written a few letters to local daily Tal Cual explaining why Chavez so called revolution has little to do with true socialism. I thought it would be interesting to translate the latest one comparing what a socialist state would do with what is going on in Venezuela.

Socialist revolution
or State Capitalism? by Jose Rafael Lopez Padrino

The Lt. Colonel has
continued his verbosity about the anti imperialist and socialist character of
his political project. An immense shadow of doubt is spread over the Venezuelan
geography, because what little is known about his political proposal points not
precisely towards establishing a socialist experiment, but more towards a
project of a state capitalism.

Certainly what the
Lt. Colonel is proposing as “socialism” is in reality state capitalism, in
which the dominant and production relationships of the past are preserved. The
economic measures recently adopted by the Government (nationalization of CANTV
and Electricidad de Caracas, the creation of mixed companies in the Orinoco Oil
belt) have been put in motion in order to widen the bases for sustaining the
state capitalism that the regime promotes under the mask of a fake socialism
(socialchavismo). These nationalizations (not expropriations) have allowed the Venezuelan State to take control of them, but not
the workers, as it would correspond in a socialist state. The regime has
demonstrated that it does not have the smallest intention of modifying the
social relations of production and the forms of ownership with a true socialist
sense. In effect, the forces and social relations of production, which act in
Venezuelan society, have remained identical since about the midpoint of the
XIXth. Century. Let us recall that it is the relations of production, which
constitute the economic structure of a society, over which the political and
legal superstructures lies upon.

Of which socialism
can we speak about if this regime has allowed the rise of an ostentatious and
spendthrift boli bourgeois class, as perverse and exploiting as those linked to
the Adeco/Copeyano Governments? On top of that, it has allowed a
flexibilization of labor rules (cooperatives and other forms of management
sharing at companies) which area aimed at lowering costs of production and thus
at increasing the rate of return of the profits of the owners.

How can anyone speak
of a revolution that denies the stellar role of the working class (the social
subject of a true socialist revolution) in its political project (“five motors
of socialism”) and which continues its predatory practices on the already damaged
labor conquests and in making illegal the existence of unions? How can one
affirm the anti-imperialist and anti capitalist nature of the process, if you
have handed over our energy resources to the imperial multinationals (Exxon
Mobil, Statoil y Conoco-Philips, Petrobrás, Repsol) and it favors financial
capital devoting multimillion sums of dollars to subsidize bankers with bonds
with high interest rates, while the real economy of the country is in a grave
crisis.

These are all samples
of the true features of the “national socialism of the XXIst. Century “ whose
ideological substrate has nothing in common with the scientific socialism
postulated by old man Marx. These evidences clearly show that this revolution
is not socialist, nor is it going towards socialism. Exactly the opposite! That
is the problem of the gullible and the naïve that still believe in the kindness
of the messianic process of the Lt. Colonel.

As if accusing 29 people of conspiring to aid former
Governor Lapi escape from jail was not ridiculous enough, Minister of the
Interior and Justice Pedro Carreño, said today that he
would apply “all of the weight of the law” to the judge who freed the 29 people
jailed because of lack of evidence.

Minister Carreño appears to think he is the law, but he is
not. He is the man that pays the salaries of the Courts and coordinates the
judicial system but it is the Courts who impart the law, who in the end are
really the law and the Prosecutor’s office is supposed to enforce the existing
laws. But Carreño, of “the CIA is spying on us via the Direct TV set top boxes”
fame, has no clue how the Government functions and thinks he is the law. Of
course, the poor judge that ruled there was no evidence will now feel the full
effects of the autocracy, her career will be destroyed and they will suggest
she is opposition, despite the fact that Chavismo has loaded the Courts with
the faithful.

That is the travesty that justice has become in this country
under Chavez, that even the absurd massive indictment of everyone who was
working at the jail where former Governor Lapi escaped from are indicted “just
in case”, but even a pro-Chavez judge knows how stupid the whole thing is and
rules against them, which unleashes the ire of the autocracy.

When you think you´ve heard it all from the revolution…

Even during Easter week, called Holy week in Spanish, the revolution never stops in surprising us with its use of logic:

—The head of Civil Protection, the same one that said yesterday that accidents this year were running 38% above last year’s levels, said today that the alcohol prohibition had reduced traffic accidents. I guess the logic must be that if they had not prohibited alcohol, they would be running at 50% more than last year. Well, I propose the following improvised experiment next year to see if Venezuelans drive better under the influence: Let alcohol be sold 24 hours a day, if accidents drop, we know the answer, if they don’t, we can try a different improvised experiment two years from now.

—And a Court let the 29 jailed suspects of helping former Governor Lapi escape free, because the Prosecutor could not provide any evidence that they were involved. I think the Court was wrong, I am sure at least one of them had something to do with it, they should give the Prosecutor time to come up with the evidence like in the Anderson assasination case, where after two and a half years there is still no evidence, but there are a few people charged for the crime and even in exile. By the way, did you hear that the star witness in that case was caught with an illegal weapon and with a fake credential of being a member of military intelligence? This is the guy that never lies…

—Finally, Gral. Francisco Uson, who was jailed for five years for expressing a technical opinion, which somehow is not a violation of free speech for this autocratic Government, had his rights violated again yesterday when the Head of the jail where he is interned denied him visitation rights for writing a letter to TV station RCTV supporting them in their case against the Government that wants to revoke its concession. I guess Gral Uson has not learned his lesson and know that only Chavistas are allowed to have opinions. Recall it was only a week ago that the Prosecutor General said there was no crime by the Deputies who called for ignoring a Supreme Court decision, as this was simply an “opinion”. Uson’s lawyers went to the People Ombudsman, where he got no support. I guess the meaning of the word “people” is as restricted as that of “opinion” in the revolution.

In December President Hugo Chávez announced that the Government would
not be renewing the concession for TV channel RCTV, after more than 50 years in
the air. It was the end of years of threats against the media, including very
direct threats such as the day Chávez pointed a rifle at the RCTV camera and
suggested he could shoot the camera down at a large distance.

While I have outlined the legal arguments before, I thought it would be interesting
to go over them in detail in simple fashion, given the recent events against
the TV channel and the approaching date for the cancellation of the concession.

The Government argues that the concession of RCTV was renewed in 1987
for twenty years under a decree ( No. 1577) published in May of that year and
thus it can simply let the concession expire. This is the only legal argument
provided by the Government. However, article 4 of that same decree says
explicitly that after the first twenty years, the concession will be extended
for another twenty years “as long as the regulations on telecommunications
matters have been fulfilled”

Thus, not renewing the concession would require that CONATEL, the
telecom regulator, prove that RCTV did not fulfill all of the requirements of
the regulations and give RCTV the chance to defend itself. This has not occurred, nor has
the company been sanctioned for violating either the Organic Law of Telecommunications
or the Social Responsibility law.

In fact, application of the 1987 decree to RCTV can not be justified, if
it is not applied to all TV stations, since it should be equal to all of them
that the 20 years expire for RCTV, the Government’s TV station VTV or any other
station. It would also apply to all radio stations in the country. Why the
differentiation?

But on top of that there is the fact that a new Telecom law came into
effect in 2000, which required all TV stations to convert their concessions
before September 2002, by requesting the conversion in front of the regulator
and the Ministry. RCTV as well as all other TV stations submitted all of the
paperwork, but only one of them (Venevision) has been informed of the
conversion. However, they have all operated for four years, paid the required
taxes under the telecom law and has participated in all of the activities
required by CONATEL as a holder of a valid concession.

Fulfilling the requirements for conversion under the 2000
Telecommunications bill implies that RCTV’s concession was automatically
renewed for twenty more years or until 2002. Under Venezuelan legislation, since the change was manadtory, a reason had to be given for not coverting the title of the concession, thus not replying in itself could be legally interpreted as the change being approved, not only for RCTV but for all TV stations that did not receive a reply (All but Venevision).

Thus, the conclusion is very simple from a legal point of view, if
decree 1577 from 1987 is applied, there has been no formal proceeding against
RCTV that would justify not extending the concession and it is an outright lie
that the Government is simply letting the concession die. If, on the other
hand, the 2000 Organic Telecommunications Bill is applied, the Government has
allowed RCTV to switch its concession title not only by the fact that it never
responded to the company’s submission of the required paperwork, but also by
the fact that for four years after the deadline for the conversion, the
Government ahs recognized RCTV as having a legal concession.

Thus, the Government the decision by the Government represents a
violation of RCTV’s rights to due process, it is being discriminated against
and it represents a violation of freedom of speech as it represents an abuse of
official controls as typified in the Inter American Human Rights convention.

Thus, the Government of Hugo Chávez hides behind a smokescreen,
encouraging its hoodlums to attack that station as
detailed in Publiuspundit and even
“invites” them using the official TV channel to go and participate in these
acts of fascism.

No rule of law, human rights violations, no due process and state
sponsored fascist attacks on the media.

Not precisely the definition or hallmarks of a democratic Government, no?.

Many things happened while I was off the air, some, like the PDVSA bonds, I
will write about later, but I can’t help but put my two cents into the following
stories:

—Former Governor Lapi escapes from jail: Daniel has covered this in detail here,
here
or here,
but the case it’s truly a reflection of the lowlifes of this robolution. He is
first called a coward for escaping from a jail in a jail system that is famous
for deaths among inmates and riots; with close to a death per day in the country’s
jail system. A couple of days before Lapi’s escape, eight people were killed in
a jail riot where he was being held and a grenade exploded within the jail. Of
course, he has been in jail for misuse of funds for a year, but the Prosecutor
has yet to bring him to trial, in violation of the laws. Moreover, all of his
injunctions at the Supreme Court have not been heard by that Court, which is also
illegal since there is a limit to how long they have to decide on them. Despite
this travesty of Justice, the Head of the Supreme Court publicly speaks on a
case she might have to rule later, saying that here is another crime committed
by the former Governor. Even more unethical is the fact that she happens to be from
the same state of Yaracuy where they have been political enemies for
years. How is that for political hate! But the laugher has to be that the Government jails 49 people who
work at the jail for helping the former Governor escape. This seems to suggest
that they have no clue who helped Lapi. In a country where three people can’t
keep a secret, a conspiracy of 49 is unheard of. Gimme a break!

—Improvised prohibition or dry laws: Here is the Government which for eight
years has shown its total disregard for human life, allowing homicides to
triple in that period and all of a sudden they become fundamentalists and
prohibit public drinking everyday after 5 PM for the whole of the Easter
vacation. (Kathy has
covered this in detail) This was so improvised, that it was announced the day
before the vacation was to begin, catching bars, restaurants and discos off
guard, they already had stocked up for the holidays, particularly in resort areas where
Venezuelans congregate for the holidays. (Imagine a disco with fruit punch!) Even funnier, it is all blamed on
capitalism which puts “profit ahead of human life”, as if the badly maintained
roads and highways of Venezuela,
which are responsible for a good fraction of all accidents, were maintained by
extraterrestrials and not by the Chavez Government itself. And then there is of
course the problem of wishing it won’t make it so: enforcement. Last night I
looked out my window to the barrio next to my building and the corner store was
selling beer en force and the people drinking it, under the watchful eyes of
the police, who would not dare interfere with the fun of their own neighbors.

—Giving away assets of FOGADE: And then there was the biggest improviser of
them all, Hugo Chavez, asking that FOGADE, the institution that guarantees the
deposits of the banking system, give away all of its properties to the
“people”. Way to go Hugo! Take the “people’s” guarantees to
give to some other “people”. As long as you sound like you are a good guy, who
cares if the “people” are the same or not? This is part of the
Government by witticism that Fabre talked about. The properties of FOGADE were
acquired in the 1994-95 financial crises in exchange for the depositor’s money
and have been sold slowly to strengthen the weak equity of FOGADE. Why not just
give the all the money away too? Who needs a guarantee for deposits? Nothing can go
wrong in the revolution, Hugo won’t allow it. Yeah, sure!

—RCTV: And how about funny guy Jesse Chacon the Minister of Communications
appearing on TV and saying how RCTV had submitted its renewal under the new Broadcasting
Bill in 2002 on time and providing legal ammunition for that station to argue
its case? Of course, in his world with no logic, the conclusion of his speech
was that the license had to be revoked because they felt like it.

More on PDVSA and RCTV later as I catch up.

I started this blog in August 2002. When I did, blogs were a new
phenomenon and I had no clue where this was going to take me, so I took an old
Windows desktop and launched this adventure into uncertain lands. Given that
the desktop was at the time already over three years old, it has really lasted longer than anyone
had a right to expect, over seven years, especially since I knew the disk drive was not in great
shape a few months ago. Then, last Friday the machine died and I found myself
in trouble. Trouble, because the backup was three weeks old and the way my
software works, the posts reside in my machine and are upstreamed to the server
and synchronized.

This weekend I tried a few things with the help of my brother, but no
luck. This morning I took it to the IT department of the company where I work
and voilá, data was recovered and here I am back in the air!

Which only goes to show that this stuff is too simply hard, since I
consider myself somewhat of a geeky type in terms of software and hardware,
even if I am willing to take any piece of equipment apart too fast. But I find
that I spend increasing amounts of time on fixing PC problems, both software
and hardware. In fact, I recently switched to a MacBook to make my life easier,
but installed Windows in it, which I need for work-related reasons. Well,
guess what? The Windows part stopped working a couple of weeks ago and I had to spend more time
bringing up the system back up than it took me to get it all started with the Mac.
(In fact, I am not there yet, despite spending considerable time on it)

All I can say is that the Mac has been absolutely much easier than
Windows, but somehow people have a basic resistance to changing, because they
think it will be hard like their windows machine. It isn’t, it is much easier,
even if there are still some quirks that take time to get over. If you are
thinking of switching but are afraid, just do it!

And the blog is back!

A couple of weeks ago, Ultimas Noticias, not precisely considered as an opposition newspaper, in part because of the openly pro-Chavez stance of its Director Eleazar Diaz Rangel, published a series of investigative reporting articles on the corruption and irregularities in the Venezuelan/Iranian partnership to process milk and corn in Venezuela. According to the reports, under the byline of reporter Luz Mely Reyes, the losses due to irregularities, mismanagement and corruption could reach as much as US$ 100 million.

Rather than call for an investigation or ask those responsible what was happening, the wrath of the autocrat was immediately let loose on his Alo President program on the same day as part two of the article, with Chavez accusing Diaz Rangel of treason, serving “obscure” interests as well as being a puppet of the owners of the paper. According to Chávez, this was simply part of a conspiracy in which obviously “imperialism” was part of it and blamed it all on the fact that since the partner in the project was Iran, it was that country and its Government that were the target of the investigate reporting and that newspaper.

Attacks like this from the autocrat are quite common; he has threatened the media over and over in the last few years, both print and broadcast media. What was initially “new” about this case, was that it was aimed at a newspaper which is not only considered to be very friendly to the Government, but one which has been shown in studies to be the beneficiary of official advertising, in what is clearly a discriminatory policy by the Chavez administration and a subtle form of interfering with freedom of the press. Such attacks show not only the intolerance of the Government, but its inability to accept criticism. Rather than investigate the case, the reaction is to attack and blame it all on a conspiracy, as blatant corruption has become the rule, rather than the exception.

But if this were not enough, Minister for the Popular Economy, Pedro Morejon, wrote a letter to the Editor of Ultimas Noticias, threatening to take the reporters, the Editor and the paper to Court, accusing them both in civil Court and penal Court. The Minister threatens the reporter for defamation, of which he suggests the Editor participated for not stopping the articles, but then he also threatens to sue the reporters, the Editor and the paper itself, for participating in an international conspiracy against the Venezuelan Government.

 More remarkably, neither in Chavez’s speech or Morejon’s letter, there is even the slightest suggestion that the case or “guiso” (stew in Spanish, commonly used to refer to corruption cases) would be investigated.

Diaz Rangel, ever the apologist for the autocracy and its supreme leader, considers the case to be “grave” as it represents the first time a high Government official sends a written threat like that of the Minister for the Popular Economy, considering it the biggest threat ever to a medium, as if Tal Cual and Laureano Marquez had not been fined for the case of Chávez’ daughter or there wasn’t a very explicit threat, repeated today, to shut down TV station RCTV on May 27th. without the law being followed or giving the latter a chance to defend itself.

What is most worrisome of this case is that it shows how thinly skinned the Government has become, that it has begun frontally attacking even his staunchest supporters in the media, while refusing to go and even try to find out whether the accusations are true or not. A newspaper like Ultimas Noticias has a high dependence on Government advertising that could disappear overnight if it does not behave, which we have seen in the case of TV stations Televen and Venevision, both of which have abandoned their criticism of the Government, refuse to show anything controversial such as protests and have shutdown most opinion programs. Both of these stations have now been rewarded for their good behavior with lots of Government advertising.

Besides the basic rights of freedom of speech that are being violated, there is of course the problem that the public’s right to know is simply being undermined. On days when dozens of protests occur across the nation, very little is actually reported in the print or broadcast media. Blatant corruption cases are not even mentioned or discussed, as was the case of the structured notes and Argentinean bonds sold by the Ministry of Finance to a select group of “friendly” institutions and crime figures seemed to have disappeared from the press.

But there are still some out there who still claim this is a democracy, there is absolute freedom of the press and corruption is not a bigger problem than it ever was in the past.

Yeah, sure…

——————————————————————————————————————————————————-

Here is today’s translation of Teodoro Petkoff’s article in today’s Ta Cual, which complements rather well my post above and which I was going to publish tonight anyway, showing that the concerns are quite similar and in synch with the Editor of Tal Cual.

It was now Ultimas Noticias’ turn by Teodoro Petkoff in Tal Cual

Ultimas Noticias, its Director Eleazar Dias Rangel and reporter Luz Mely Reyes have been threatened with a suit by the Minister for the Popular Economy, Pedro Morejo. The reason? The publication of a documented series of investigative reports about a supposed IranianVenezuelan swindle, a really stinky case, much like many others, whereby millions were made to disappear into the pockets of some of the members of the bolibourgeois and its accomplices in the Government.

The threat of a suit is the logical consequence of the scolding that a week before, I the Supreme, gave Diaz Rangel, who he accused of being a puppet of the popular daily, serving as usual “obscure” interests, and as always, linked to “imperialism”. Morejon simply copied the line. The response by the Editor of Ultimas Noticias, in both cases, was appropriate, but in the second one, he allowed a phrase to leak into it, that not even him can believe: “The conduct of Minister Morejon can not be considered to be Government policy”, having stated before it that “for the first time, a reporter receives on the part of this Government a letter like that one from a high level bureaucrat. Nobody else has ever been threatened like now”

Diaz Rangel is not right. The conduct of Minister Morejon is not an isolated one and it is indeed part of the policies of this Government. It is true that it is the “first time” that a reporter has been threatened in this way, but it was also the “first time” that a daily and an opinion writer, in the case of Tal Cual and Laureano Marquez, were fined with the not so small amount of Bs. 105 million, it was also the “first time” that the announcement was made of the cancellation of the concession for a broadcast TV station, it was the “first time” that a reporter was tried like Gustavo Azocar in San Cristobal, it was the “first time” that reporter Jose Clemente Ocanto was tried in Barquisimeto, one “first time” that the microwave equipment of TV station Globovision were confiscated (and not returned yet!); for the “first time” that trials have begun, which are still pending, against a number of communicators.

Thus, it is certainly the policy of this Government to progressively reduce the space for the exercise of freedom pf speech, using a perverse and very sophisticated set of procedures the objective of which is to create, using fear, a climate of self-censorship in the media, its owners, its workers and its opinion writers.

In each of
these cases the message is the same: see yourself in the mirror of your neighbor. If a daily like Ultimas Noticias, whose Director is a well known Chavista, can be threatened with a suit, accusing it of “being part of a national and international conspiracy”, as stated in the insolent and not very imaginative rhetoric of authoritarian regimes, what can one expect for the other media, reporters or opinion writers from a Government that each day makes more ostensible its disposition to silence criticism and dissident positions?

I can’t help to show below a video of the autocrat/dictator Hugo Chavez, which I shamelessly stole from Daniel’s blog, to lead this article about the connection between the recent conflict between the National Assembly and the Venezuelan Supreme Court.

As you see, the almighty leader speaks about the way people conspire against the process and himself, curiously referring to himself in the third person, a trait that I will leave to medical doctors to tell us what it implies. But the totalitarian tone is there and very clear, there is no tolerance for dissent and even the Supreme Court is being pressured and manipulated to go against the revolution.

Chavez says:

“And many times they manage to neutralize decisions of the revolution, through a judge, or a court, or even in the very Supreme Court, behind the back of the leader of the revolution, acting from the inside against the revolution. That is, I repeat, treason against the people…”�

What is he referring to in this clear statement of the little regard he has for the separation of powers and the rule of law, given that there has been no recent fight between himself and the Courts?

What most people may not know is the fight that has been brewing between that Court and the Government as discussions in academic and legal circles on all sides of the political fence all point out to the fact that Hugo Chavez’ proposed change in the Constitution to allow him to perpetuate himself in the Presidency can not be done as a simple partial reform of the Constitution, but requires a Constituent Assembly and can not simply be part of a Constitutional reform. Thus, it would not be a matter of a simple reform and then referendum, as the Supreme Court could rule against Chavez’ desire.

You see, Art. 342 to 344 of the 1999 Constitution clearly say that you can modify the Constitution via reform, as long as you don’t “modify the structure and fundamental principles of the Constitutional text“. While Hugo Chavez wants to modify Art. 230 which establishes both the Presidential term and one reelection, which would appear not to be fundamental or part of the structure, in Title I, which contains the fundamental principles of the Bolivarian Constitution, there is an article, Art. 6, which states:

Ari­culo 6. El gobierno de la Republica Bolivariana de Venezuela y de las entidades politicas que la componen es y seran siempre democratico, participativo, electivo, descentralizado, alternativo, responsable, pluralista y de mandatos revocables.

Which translated says:

Article 6. The Government of the Bolivarian Republiuc if Venezuela and its political entities that are part of it, is and will be democratic,..alternative…

Now, in Spanish, “alternativo” means “which happens with alternation” and alternation comes from “alternar” which actually has a definition relating to holdng political positions: ” To take turns in holding a position”.

And therein lies the main problem, as the proposal of indefinite reelection is one of the few which has been explicitly proposed by the Government for the upcoming Constitutional reform, and thus has been the subject of much discussion among lawyers and very few of them believe that article 230 can be interpreted in any other possible way: Allowing for Chavez reelection would be a fundamental change as the Constitution clearly says here has to be alternation and a time limit to the President’s reelection was clearly established by the Constituent assembly and only another one can change it. In fact, it has been suggested in the press that Justice Cabrera of the Supreme Court, coincidentally the only one mentioned by name by the National Assembly “mafia” investigation, has told the Government this would not fly by the Constitutional Hall.

So the dots can be easily connected between the autocrat’s favorite proposal for reform, that of his own and everlasting reelection, the interpretation that it can’t be done by a simple reform and the sudden attack on the Court and the threat to remove all members of the Constitutional Hall by the National Assembly. By the way, the last one is moving right along in the committee investigating the Court.

Skeptics and the naive have suggested that what is going on between the
National Assembly and the Supreme Court is simply a normal fight
between two powers. They fail to explain why the Assembly gets so mad
about a simple interpretation by the Court of the word “income” while
delegating on Chavez their Constitutional mandate to legislate for a year and a half.

And the video just proves how all of this is clearly in Hugo Chave’ autocratic and totalitarian mind, blaming it all on his enemies manipulating the Courts and the judicial system to stop “the leader” as he refers to himself, in this apparently out of context and bizarre statement. But the context is quite clear…

Sort of in synch with recent posts on tax issues, bonds and the National Assembly, last night I did not mention the mystery that the upcoming PDVSA bonds will be tax free to both Venezuelans and foreigners. Mystery, because while tax legislation gives sovereign bonds their tax free status, no such treatment applies to corporate issues even if they are owned by the Venezuelan Government.

But the mystery was increased when Minister Rafael Ramirez told El Universal that the PDVSA bonds are tax free because the Minister of Finance Rodrigo Cabezas “gave them a dispensation on that issue”.

Well, I really don’t know where to begin. We seem to have a new legal figure in Venezuelan legislation whereby the Minister of Finance has apparently been given some sort of special powers to give “special dispensation” on tax mattes whenever he feels like it. In fact, I talked to a couple of lawyers and neither of them had ever heard of such a legal figure. In fact, one of them told me that it sounded more like an item from the church, than a tax matter.

In any case, as we have learned recently, tax legislation is a matter for the National Assembly and the Supreme Curt can review the Constitutionality of it, but the Minister of Finance certainly has no discretionary power on such matters least of all to decide whether a corporate bond is tax free or not. So, either Minister Ramirez had no idea about what he was talking about or there is something we are missing on this.

Funny that the National Assembly does not find this true invasion of their legislative domain offensive or has said nothing about or initiated an investigation like it did on the Supreme Court’s interpretation of the word “income”.

But I guess, Minister Cabezas must be a friend of the National Assembly of which he was a member until recently, but as we can see only in the revolution can one have such an issue still up on the air and unclear on the eve of the placement of the second largest corporate emerging markets bond issue in the history of those markets.

A couple of weeks ago, the tx superintendent said that the Government was planning to tax Venezuelan Government bonds because banks were making too much money because of their tax free status. I meant to write about it, but things have been hectic. This is an eminently reasonable proposal in terms of tax fairness and equality. However, nothing is ever simple in economics. As a trained scientist I have learned that the problems in economics is that mankind makes up the rules and once you alter one, it may affect a whole chain of them. In science the rules are there and you study them. Even better, you can rn the experiment again, which in economics its hard to do particularly if you wait too long.

There is an example of a similar tax exemption that would make sense to remove in another country, that of the capital gains tax exemption for foreigners in the US. It would be fair to remove it for US citizens who have to pay taxes, the problem is legislators in the US are afraid that if removed, there might be a mini crash in US stock markets as foreigners decide to take tehir money elsewhere.

The case of Venezuelan bonds is very similar. It may sound fair, but it has too many edges that in the end hurt the Government and its financing needs.

But first, let’s look at the history of this tax free status. Venezuelans, both citizens and corporations have always been weary of Government. This is a Government that decades ago forced banks to give up all their gold, so that in general Government bonds are frowned upon. In fact, this reluctance to invest in Government bonds makes many Venezuelan citizens act irrationally preferring to have their money in banks that in the end depend anyway in Government bonds to pay them interest.

Up to the debt crisis in the early 90’s Venezuela had no dollar denominated bonds, but depended on bank loans, that almost made many foreign banks go belly up. Then came the Brady bonds, which provided a solution to the crisis. But in order to work, Governments had to grant these bonds tax free status to make it attractive for foreigners. Venezuela, for example, taxes foreigners at a rate of 30% if they are not in the country. Thus, when Venezuela’s Brady bonds were created, they were granted tax free status by the Organic Bill that created them. Since then, all new issues have been tax free, because otherwise, the Government would have to pay more interest to make their return comparable to those with tax free status.

The same became true of Bolivar denominated binds, which were not that large, as banks used most of their deposits to grant credits. Then, when Chavez came to power, when the initial stock of Bolivar denominated binds was no more than US$ 1 billion, the Government began issuing more and more local bonds to finance the deficit. To do this, it had to pay high interest to make it interesting, as the stock in these bonds ballooned to some US$ 10 billion by 2002. And they were tax free.

Then came the exchange controls and the Government began forcing interest rates down to the point that today they are extremely negative, with inflation near 20% and Government bonds paying 6%. Banks invest in it, because there is so much liquidity that they have little else to invest in.

Thus, while the proposal is good and seems quote fair, the problem is how to implement it, without creating a crisis. (By the way, interest earned in Venezuela in a savings account or a CD is also tax free).

All bonds, or only those in Bolivars? The first question is whether the exemption would be removed for both local bonds or those denominated in foreign currency. You see, if all of a sudden you removed the tax exemption from all foreign bonds, then foreign investors will ask for a premium to invest in Venezuelan bonds in order to compensate for the new tax. Sfter all, funds that invest in Venezuelan Sovereign bonds look at them in comparison with those of other countries, if all of a sudden you implemented a 30% tax on them, the prevalent 7% yield on Venezuela’s bonds would be cut to 4.9%, making it quite unattractive. Thus, whatever the Government is paying would have to be increased by exactly the tax and nothing would be gained. In fact, its is easy to see this in the new PDVSA bonds. Because they are from a Government owned hydrocarbons company, these bonds are tax exempt. If they weren’t the coupons would have to be much higher tah they were set this week.

Only those in Bolivars? While banks have nowhere to turn because of the exchange control and the legal limitations in foreign currency for local banks, the current yield in local bonds also makes it hard for the Government to remove the tax free status. Since it is the Government that needs the financing, it can not afford to have banks stop buying the bonds. Since yields are near 6%, a 30% tax would drop it to 4%, banks may prefer to lend money cheaper to good risks, at rates near 9%, or more expensive to bad risks, say 20%, rather than get so little from the Government. In the end, it would force the Government to pay a higher interest, because it is the Government that is running a deficit and needs the financing.

All bonds, or only from now on? Finally, the question is whether they say all bonds will have a tax from day one, or they will work them in gradually. Clearly, forcing all of the to have axes from day one creates more of a dislocation, than working them in slowly. This would seem to be the only way for having it work. At the beginning the Government would have to pay more for new bonds to compensate, but as the old ones expire, they could lower yields and there would be a net positive effect for the Government.

In the end, the proposal is good, but the whole thing boils down to the Government needing the bonds more than local banks or investors or foreign investors needing them. It would seem that unless the Government curtails it appetite for spending, removing the tax free status is sort of like running in the same place, the bonds would not be tax free, but the Government would turn around an pay an almost equivalent amount in interest to compensate for the taxes on the bonds.

In the end, it is always excess Government spending which is at the root of all current economic distortions in Venezuela. In the end it is the only problem that is not being attacked.