The Devil's Excrement

There is a good interview with economist Gustavo Garcia in today’s El Universal, who has just returned from a year and a half at Oxford. Garcia simply blasts the Government in all fronts and tells you pretty much what Ihave been saying in these pages for months.

Garcia blasts inflation indicators and how the Government hailed the February numbers, which showed inflation rising more slowly going from the 2% in January to 1.4% in February. Garcia points out that the Central Bank did not publish the percentage of food items not available in February as is customary. I might also note that in every month’s report, the Central Bank notes which food items went up or down, but this month that statistic was curiously missing from the press release. I wonder why?

Even worse, the Central Bank says that one reason for the drop in inflation in February, was the drop in the VAT tax. Well, that is truly a miracle, given that the tax went into effect March 1st.

Garcia calls the drop in the VAT unsustainable, because the Government ended 2006 with a 4% deficit and the price of oil is below 2006 prices. Thus, only a jump in oil prices can save the Government from a deficit that can blow up in its face.

The most interesting part, to me, of the interview is that Garcia thinks that Chavez will use the removal of the three digits from the Bolivar as a way of “packaging” , in his own words, a devaluation, by taking three digits off, but making it Bs. 3 per dollar or something like that. What I find amazing about this prediction, is that I don’t think that given the current numbers, the Government can last until then. With the cut in the VAT and if spending continues, we will see huge pressures in the parallel exchange market and the difference between the official and parallel rate may become too big to ignore until the end of the year. Either the Government slows down spending or its going to get truly scary.

Garcia notes what I predicted here, that the Bono del Sur would not help at lowering the parallel rate. In fact, when it was announced that rate went down, but as you can see here, all that rate has done this week is go up and up. I am not too optimistic that it will even go down with the much promised (since June!) supposedly upcoming PDVSA issue.

Unfortunately, Garcia is one of those true experts, which is disliked by the Government, but whose advice would do wonders towards avoiding or at least reducing what is likely to be a very bad crisis for the Venezuelan economy.

This gas station in Nebraska is the first one to offer gas from only either the US or Canada and call it “Terror free”. Of course, if all gas stations in the US did this, cars would not run, so it is unlikely to spread. widely The question is whether this is a marketing gimmick or true patriotism.

The wonderful people of Mercal in Tachira state announced with great fanfare a new system for the distribution of scarce goods such as chicken, meat and milk from now on. The will give tickets to the communities that entitle people to receive a limited number or quantity of each item. These tickets will given to the communal councils so they can not only assign them, but also so they can oversee the food distribution network and the sale of products.

I guess the revolution has now discovered rationing and they think it’s good management!

Yeap! We saw it too down here, great show!

—Minister of Interior and Justice Carreño accused the US Drug Enforcement Agency of being a new drug cartel yesterday.

I guess the CIA must have lent him the Direct TV controls through which we are spied on daily according to the Minister and he discovered this new cartel. Watching Carreño is going to be an interesting sport going forward.

—Day before yesterday President Chavez was speaking about why it was good to be poor for about ten twenty minutes, he then went on to his next story and said: “When I was poor…”

Uups!!

—Pro-Chavez party “Podemos” decided not to dissolve itself and join Chavez’ “Unique” party for now.

Wait until Chavez fires them all from their Government jobs.

—Two women in Ciudad Bolivar denounced that a local Mercal market, when you buy a chicken, they stamp your belly with ink to indicate you already got one.

I don’t know what the scandal is all about, at least they did not use numbers.

—Four years ago I wrote about Judge Mikael Moreno, a convicted murdered that Chavismo named as a judge. Well, this week the honorable judge was suspended for “grave conduct” and disobeying and order from the Supreme Court.

I feel sorry when someone like that “suddenly” goes stray of the law.

—President Chavez said that the CIA was infiltarting his communal councils.

Never had the CIA been as efficient as in it is in Chavez’ Venezuela, I guess all opposition members of the councils will be labelled CIA and jailed. they deserve it!

—President Chavez assured us that taking three digits off the Bolivar will make the currency stronger. “Just think-he said-a dollar will now be worth Bs. 2.1 instead of Bs. 2,150”

Umm, I wonder why they don’t just take four digits off, make it twenty Bs. cents to the US$ and a Bolivar would be worth more than the British pound and much more than the currency of the Evil Empire!

There is this intriguing article in Argentinean news site total news, which also appeared in in an Argentinean investigative reporting site called “Tribuna de Periodistas” here, which contends that an Argentinean -made nuclear reactor arrived in Iran via a triangulation in which the Venezuelan Government participated.

The article says that it is not clear whether Argentina’s President Kirchner knew the true destiny of the reactor, stating that it was taken to Iran in a Venezuelan ship which was being repaired in Rio Santiago, Argentina.

Venezuela is known to have expressed interest in buying an Argentinean nuclear reactor in 2005, when meetings between the Ministry of Energy and Argentina’s INVAP took place both in Caracas and Buenos Aires.

If this news is confirmed, which should happen shortly given the fact that so many people would have participated in it, it is significant for the case of Physicist Claudio Mendoza, who is still under the threat of being fired from his tenured position at IVIC. This is because supposedly, Claudio injured the prestige of IVIC, where “all” nuclear activities of Venezuela supposedly take place. If it can be proven that the Ministry of Energy purchased a nuclear reactor from Argentina, to send to Iran, IVIC’s claim to centralized nuclear activities in Venezuela would be proven incorrect and Claudio could not be fired for the reasons given.

Of course, if this story proved out to be true, which the author has assured fa friend of mine that it is, it would have important repercussions for the three countries involved in the triangulation, which I will discuss when we have more information on the matter..

It’s the economy stupid! By Teodoro Petkoff in Tal Cual

The Government and its cronies are boasting about the “enormous success” that the placement of the so called Bono del Sur has been, for which the demand exceeded by far the offer. They see a sign of economic health in what is nothing but a symptom of disease. The great demand the “Chak” bond had simply brings out the following things: 1) The wonderful deal which signifies buying dollars at preferential prices, that can then be sold in the parallel market, at a considerably larger price, making a nice speculative gain without any risk at all. I am sure there will be some shenanigans too, for sure. 2) The desperate search for dollars on the part of sectors that really need them for their imports and that are banging themselves against an incontinent foreign exchange control office (CADIVI). 3) CADIVI’s constipation has provoked grave difficulties to those industries that depend on imported raw materials, which in turn generates shortages of the goods they produce. We are told of shortages in car parts and medicines, besides the log list of consumer products, which have disappeared from markets and mercales.

As is well known, nobody learns using someone else’s head and least of all these fake revolutionaries, because in their petulance they think that it is them that invented the wheel and ignore everything that is happening now with inflation and shortages is a subject n which they will have to take a make up test, a subject in which prior Governments prior to this one had flunked.

Nothing new under the sun

They begin by establishing price controls. It is the great panacea blessed by the conventional wisdom of a country that during decades has lived through them and that still believes that is the way to go. But inflation, that old cadaver, revived by the exchange and fiscal policy of this Government, pushes production prices up, and controls becomes a trap that commercial logic begins to break, because nobody can sell below the cost of a product. The controls start to become fictitious, until the threats, the anti-inflationary pacts and laws against hoarding attempt to make them work: then, the produce ceases to produce for the same reason: nobody ca produce at a loss.

Shortages begin; products begin to disappear from markets and mercales. That is not explained by the “Wiseman” Heinz Dietterich nor are the answers in the Soviet manuals. Neither are they in the Cuban advisors, true experts on matters of shortages and fake recipes to face them, but unable to provide the argument of the economic sanctions as the alibi, because it does not work in this case. I, the Supreme must bemoan not being able to appeal to that line, but we, in contrast with the Cubans, are over invaded by gringo products. Now the Government wants to self impose economic sanctions, reducing almost by force.

How can we not remember Clinton: It’s the economy, stupid!

Yesterday, Chavismo brought all the cynical hoopla that characterize it, to declare the 17th. anniversary of the “Caracazo”,  Human Rights Day. This was simply grandstanding, as noted so well by the article below by Katy in Caracas Chronicles, which I reproduce in its entirety below, becuase of its importance. I will just complement it a little.

But this cynical attitude goes beyond what Katy says. Only 23 days ago the Government celebrated another military massacre, Chavez’ original coup attempts which also had a tragic end of too many dead and too any injured. Where are those responsible for those deaths? Nobody was punished for them.

And the same can be said for those that died on April 11th. 2002, when our current President activated the so called “Plan Avila” a military repressive plan to control the civilian population. Fortunately, the Generals in charge refused to do it, saving many lives. But that day there were 24 deaths and over one hundred injured and those that were taped shooting that march from Puente El Llaguno, all pro-Government, were found innocent and not a single person was found guilty of those deaths. The infamous “truth commission” in the National Assembly was killed by the current Government, so that we may never find the truth, or those responsible for those deaths.

Similarly, exactly three years ago yesterday, coincidentally the same day as the “Caracazo”, the repressive action of this Government led to many deaths, while a peaceful march trying to deliver a document to the Heads of State meeting in Caracas was met with extraordinary repression, which was simply uncalled for. Just recall Elinor Montes, who holding a Venezuelan flag approached a soldier asking why they were being so repressive to a peaceful march. Imagine her surprise when the soldier wrestled her to the ground, injuring her.

And I will never forget the feeling of impotency and despair I felt, when I first saw the pictures of how Jose Vilas was shot by the National Guard that same day. He was cowardly shot on the back with a military rifle, which was running after the dispersing crowd of a peaceful demonstration. I did not know Vilas personally, but I knew who he was. He was my wife’s co-worker and I know too many people that knew him well. His murder was never even investigated, which simply proves the cynical attitude behind even declaring the anniversary of El Caracazo as human rights day.

El Caracazo: The unseen military cover-up by Katy in Caracas Chronicles

Katy says: Yesterday was the anniversary of El Caracazo,
a day that no Venezuelan can ever forget. On February 27th, 1989,
thousands of poor people poured into the streets to protest a hike in
the prices of gas and public transportation. As the crowds grew larger,
people began looting, and pretty soon Venezuela’s major cities were
undergoing massive riots.

The rioting continued and grew worse
through the night and onto the next day, when newly-inaugurated,
democratically-elected President Carlos Andrés Pérez suspended
constitutional guarantees and installed a curfew. What happened in the
aftermath left a permanent stain on the country’s soul.

To
enforce the government’s curfew, the Venezuelan military began killing
people randomly in a desperate attempt to restore order in the country.
Estimates say that more than 1,000 Venezuelans were killed during those
days, most of them poor, many of them in their homes, while many more
are missing. Numerous bodies were found in mass graves, while some were
never recovered.

Yesterday we had a commemoration of sorts, with
the government holding an official ceremony while at the same time
vowing to end impunity. For all the grandstanding, though, the
government’s record in bringing those responsible to justice is dismal.
The inescapable fact is that after eighteen years, not a single one of
the people who murdered innocent civilians is in jail. More than a few
of them have ended up, instead, in cush revolutionary jobs.

He
has been in power for 8 of the eighteen years since el Caracazo. He has
controlled the courts for plenty long enough to put the people
responsible in jail and to implement measures to ensure abuses like
this never happen again. Voices from inside and outside Venezuela,
including respected human rights campaigner and victims’ defender
Liliana Ortega, have blasted the current administration for not doing enough to bring justice to victims’ families.

Other
criticism has come from an unlikely source: People’s Ombudsman – and
staunch Chávez supporter – Germán Mundaraín. Mr. Mundaraín came out with a report
yesterday blasting the Prosecutor General’s Office for not doing enough
to bring about justice, only to be strongly rebuffed by Prosecutor
General and former chavista Vice-President, Isaías Rodríguez. It was a
rare instance of public disagreement between two men who have always
worked in tandem to defend the government at all costs.

Why
would a government that has made the memory of February 27th so central
a part of its ideological memory fail so badly to bring those
responsible to justice? The reason is that this is a military government, and the main perpetrator of the abuses during those days was the military.

President
Chávez was a Lieutenant Coronel in the Venezuelan army when he tried to
overthrow Pérez in February of 1992. Yet Chávez did not act alone that
day: some of the officers who took part in or sympathized with the coup
are now in the President’s Cabinet, including the Interior, Defense and
Telecommunications Ministers (Secretaries) and the head of the national
tax-collecting office SENIAT. Even more are in positions of power in
official chavista bureaucracy. They are now ambassadors,
under-secretaries, superintendents, governors, mayors and even judges.

If
all these people were active in 1992, they were also active in 1989.
The fact that they remained in the military between 89 and 92 makes
them immediate suspects in the 89 massacre, since they obviously did
not disobey orders to shoot indiscriminately. And while certainly not
all of them participated, it’s safe to bet that some of them did, and
they probably either hold positions of power or are connected to
someone who does.

Take, for instance, the case of Crisanto
Maderos. Maderos was murdered during those tragic days, a crime for
which three military officers were charged: Col. Pedro Colmenares, Col.
Jesus Francisco Blanco Berroterán and Maj. Carlos Miguel Yánez
Figueredo. All three were active officers in 1992.

The trial
ended in an acquittal, with the judge arguing that the crime had
prescribed. Last July, the Chávez-appointed Supreme Tribunal upheld the
acquittal. This acquittal was unrelated to a lack of forensic evidence;
these guys got off on a technicality: a new low for chavista justice.

It turns out that Colmenares used to be
Venezuela’s military attaché in its Embassy in Washington. Colmenares
has also represented the Chávez administration in the Interamerican
Defense Board, and for a time was part of Chávez’s personal security.
Furthermore, Blanco Berroterán’s brother has recently been appointed
to a government post within the military justice system, having
previously worked as one of the directors of the Palo Verde military
jail, from which imprisoned union leader Carlos Ortega
famously escaped several months ago. Yánez Figueredo, still in active
service, is known for being part of the graduating class that controversially named Fidel Castro as its godfather. It doesn’t take a genius to figure out the real reason these guys got out.

So
while we all remember the terrible days of 1989 with sadness and thirst
for justice, let’s keep one thing straight: the impunity surrounding el
Caracazo is not due to government foot dragging or to the usual delays
of a sclerotic court system. It’s the outcome of a carefully
orchestrated cover-up.

(In Spanish here)

Imagine you could walk into a bank and go to window #1 and hand over a check for 24 million Bolivars (about US$ 11,100 dollar at the official exchange rate) and know that you can come back in eight days and go to window #2 and you will get back at least Bs. 29.4 million Bolivars (about 13,600 dollars at the official rate of exchange) for a hefty 18% minimum return in one week?

This is what the Minister of Finance and Hugo Chavez call “investing” in the upcoming Bono del Sur #2, where if you request a $10,000 unit you pay Bs. 24 million like in the example, and assuming those “small” investors get 90% of their request, they can then proceed to sell the half which is composed of an Argentinian bond in US$ at 95% of its face value and sell that in the parallel market at Bs. 4,000. They can then sell the Bolivar part of the bond, the so called TICC, and take a slight 7% loss on what they paid and they also get the $1,000 they were not assigned back at the official rate.

These approximate numbers are likely to get even better, since the value of the TICC is likely to be higher and most likely if you ask for $10,000 you will get the whole bond, but those are just small details.

Thus, Venezuelans that can come up with the money, are in a frenzy these days so they can place their orders before tomorrow afternoon and enjoy the largess of the revolutionary Government to those that have money.

In fact, it can even be better. If you can find financing, offered by dozens of financial institutions,, you can even get 90% financing for eight days with only a 10% down payment and your return is actually in triple digits!!!

Isn’t that nice!!!

You see, in 2004 the Government decided to sell dollar denominated bonds in exchange for Bolivars as a way of sterilizing the excess liquidity in the monetary system. And it worked. Typically bonds would be sold such that the “implicit” value at which you were purchasing dollars would be Bs. 100 below the parallel exchange rate, which was in the range of Bs. 2,600-2,700, a 4 to 5% difference. and there were risks too, a couple of times so many dollars flooded the market that the parallel rate went down Bs. 100 and people lost money. And they knew this was possible. So there was some risk involved, that is related to calling it investing.

But starting with the first Bono del Sur, the gap has widened. And quite a lot. Today, the parallel rate stands at Bs. 4,000 to the US$ and in the example I gave above, the implicit rate of buying the dollars via the bond is about Bs. 2,700 per US$. Thus the gap has widened to 32-33%, making the play a no brainer. But, given the absence of much risk, you can’t call this an investment, it is more of a giveaway.

Moreover, the more people participate, and they have learned to have their siblings parents, cousins et al fill out the forms to multiply the profits, the more the Government has to give to these small investors, and I should say rich people for Venezuelan standards, and less to companies, which drive the parallel market. Thus, there is little risk of the parallel rate dropping. About the biggest risk is some bad news coming out of Argentina, which will lower the price of 95% for the Argentinian Boden 15, which is part of the revolutionary Bono del Sur 2 Combo.

Thus everyone is looking to put in their request and get their Bs. 5 million to buy that nice plasma TV you always wanted, a PC or another tangible asset that will not lose money in time.

Many will simply keep the dollars, bought at the cheap, in their accounts in the US or wherever. But there is one thing you can be sure of: Almost nobody will keep the Bolivar denominated bond, even if linked to the official exchange rate. It’s coupon is 5%, which means that if people pay 105 for it, it yields in Bolivars less than 5%, when inflation is running at 20%. And you can be sure nobody, absolutely nobody will keep the Argentinean part of the deal. They will sell it to the hedgies.

I guess we could call this “Mision free money for the rich”

You gotta love the silly revolution and their concept of “investment”