The Devil's Excrement

There is no question that this Government has no shame. It is no longer
a matter of whether you are pro-Chavez or not, you simply have to be
unconditional. Judge Maria Mercedes Prado, was handling the case of the
bombings of the Colombian and Spanish Embassies in February 2004.
According to the Government the case was “solved”, it was “clear cut”.
Despite this time went by and no evidence of any worth was presented to
the judge. Even President Chavez got involved in the case in his Sunday
variety show “Alo Presidente”, saying “we have the video that shows who
did it”. But the pro-Chavez judge disagreed. To her, there was little
evidence to charge anyone in the case. Thus, she told te Government
that she was going to rule on the case, saying there was no evidence to
convict any of the suspects.

Big mistake! Judge Prado was fired last week, precisely for not being
willing to rule as the Government and the Prosecutor’s office wanted.
She was mad, she was trying to hold a press conference
today to denounce in the press briefing room of the papalce of Justice
when Judge Belkis Cede�o ordered the electricity to be shut off and the
National Guard to expel the Judge from the Hall of Justice. In so doing
the guards assaulted reporters,
attempted to take their cameras away and kicked them out of the
building. As of today, the press room of the Hall Justice will be
eliminated and reporters will not be allowed in the Hall at al from now
on.

Oh yes, they claim this a democracy! Justice and freedom of speech are
non-existence as the ochlocracy controls everything and has no clue
about what democratic values are. 

I saw this table in a report from J.P. Morgan and I just had to post
it, judge for yourself the list which is separated into two groups: Oil
exporting countries and oil importing countries.Except for a couple of
exceptions, there seems to be an inverse relationshop between the
economic health of each country and the price of a gallon of gas

Oil Exporters	US$/gal
Venezuela	0.16
Iran	0.26
Nigeria	0.76
Qatar	0.78
Algeria	0.83
Saudi Arabia	0.91
Oman	1.17
Ecuador	1.45
Russia	2.27
Argentina	2.65
Mexico	2.65
Malaysia	2.76
Colombia	3.00
Oil Importers
Indonesia	1.73
China	2.04
Thailand	2.16
Philippines	2.23
Bulgaria	3.07
Brazil	3.57
South Africa	3.57
Peru	4.00
India	4.09
Chile	4.54
Korea	5.34
Turkey	7.95

I found this excellent article from Argentina so insightfull that I had to translate it for all.

Politically, a failure for all by Joaquin Morales Sola en La Nacion (Argentina).

If democracy is  an arithmetic of
majorities and minorities even if, from the start, it is not only that, we have
to agree that the US took almost all of the Americas in Mar del Plata, that
Venezuela remains as an isolated �mono� block and that Mercosur has the size of
a small neighborhood party.

The extreme ideology of both sides (in favor and against
ALCA) and certain diplomatic ineptitude managed to give George W. Bush an international
victory, which he had not achieved in a long time, after a number of defeats in
Washington

Instead, if Mar del Plata is observed from a political point
of view, the failure belongs to all of us, including the White House, that was
absent for too long from the rest of America. A document split into two is
certainly a very poor result.

Kirchner had promised to be a kind and aseptic host of the
summit. He would carry with him the success or the failure of the meeting. There
was, in the end, more of the latter than the former, despite the effort to exhibit
a better result. But he changed course in the middle and lost his neutrality in
the opening speech. Like a textbook Argentinean (which is what he is), he
overdid the contemplation of his own navel. He wasted a large part of the
speech, as the owner of the home court, with talking about the urgencies of Argentina and
his misadventures with the FMI. He could have, instead, placed his eyes on the common
conflicts of Latin America. It is the zone of
the planet with the biggest social inequality. It registered, in the last few
years, advances and reversals, both in the economy as well as the quality of
its democracy. And there are different concepts and alternatives for the region
to change the state of things. A consensual piece is what was expected from a
warm host.

Perhaps he did not like that Bush avoided to frontally
commit his position with respect to the FMI; that backing was Kichner�s obsession
up to the point he shook Bush�s hand. Perhaps he liked less that the Chief of
the White House made his the proposals of others foreign leaders and of many
investors about the need for legal protection and clear rules of the game in
the country. And he was certainly petrified with stupor that Bush expressed to
reporters the need to fight against corruption. That word is just not mentioned
in Kirchner�s Argentina.

But even from before then, things were not looking good. There
were thirty countries, with differences in nuances and plans, in favor of a
free trade agreement for the hemisphere. Four others established intransigent positions
and one was keeping vigil over a corpse which is not dead. The addition and
subtraction pour off a correlation of forces that looks too much like a defeat
for the minority.

There was a lack of diplomacy, even if the argument that
conditions for integration have to be analyzed carefully is reasonable. There
are no identical situations in Latin America.
But watching over the content does not mean you withdraw from the indispensable
dialogue, which is what has not happened in the last few years. Mercosur fell
sleep with its convictions and Washington
with theirs. Despite all, efficient diplomacy always has a formula to dress up its
divergences. Those possible diagonals were what was missing in Mar del Plata. Brazil also suffered a serious
misstep; its efforts to create a South American community of Nations was reduced
to a bunch of photo opportunities. With Bush sitting at the table, that project
turned into air particles. Except the four nations of Mercosur, where the
natural leadership of Brazil
is present, the rest were all just closer to Washington.

Surely there was no political adhesion to Bush on the part of
the majority of the Latin American leaders, but a different vision to the
solution of their national problems. Why not respect them? Why not find the
words that would comprise the interest of some and the others?

Venezuela
is a case apart, from the beginning. But, what is left of the Bolivarian ambitions
of Hugo Chavez when his speech only penetrates a club of excited militants and
no other country in the region is ready to follow him? The only thing left is
his oil and his petrodollars. Without them, Chavez would be less insignificant from
what he already is in Latin America.

Kirchner and Lula will no longer be able to cover up for him
without conditions for much longer; they run the risk of catching the isolation
of the Venezuela
one. Containing Chavez, which was promised by Kirchner, did not work in Mar del Plata: the
populist Venezuelan leader shouted and offended without measure or limit, very
close to the correct and classical Presidents.

Is Mercosur one? Apparently it is. But appearances do not
show everything. There is in Uruguay
a sort of tiredness because of the eternal fights between Brazilians and Argentineans
within Mercosur. On top of that-one has to say it-Tabare Vazquez disappointed both
Brasilia and Buenos Aires with his airs of independence. And
Paraguay established its own
relationship with Washington,
especially in matter of Defense.

In Mar del Plata,
there was a deep fight, which did not compromise Kirchner or Bush. It was staged
by Mexico and Brazil, the two most powerful countries in Latin America. Mexico
had, it needs to be said, more echo than Brazil among Latin American
Presidents. Argentina did
not treat Mexico
well, a country with which it has important trade agreements, which are
essential for its economy. It is true that Kirchner could not offer to have bilateral
meetings with more than 30 Presidents, but Mexico
is not part of the bunch, it is the first economy of Latin
America. Kirchner found time to meet alone, once again, with Chavez,
why not to listen to Vicente Fox?

Fox asked more than a year ago, in the Argentinean city of Igua�u, its incorporation
to Mercosur. Nobody replied anything to him, ever. In that extended Mercosur
meeting, Fox saw first the incorporation of Venezuela to the commercial alliance,
proposed by Lula. Venezuela
will be, in December, a full member of Mercosur. Fox complained, from the
initial discussions of the Mar del
Plata meeting, about the need for regional attention
for the problem of migrations, which is a priority of his Government. They did
not even devote one minute to the matter.

It also happens to be a prejudice without foundation to
suppose that Fox and Chile�s
Lagos act as spokesmen for Washington. Fox and Lagos
gave Bush a notable defeat in the Security Council when Washington tried to give the Iraqi war international
coverage. They have been more firm, when push comes to shove, than the rhetoric
of Kirchner or than the verbal incontinence of Chavez.

The permanent equilibrium between ideology, history and
practice led the main leaders of Mar Del Plata
to ignore the gravest of all the things that have recently happened in Latin
America: the inexplicable decision by Peruvian President Toledo to extend its
sovereignty of his country over the sea, which directly affects the security of
Chile.
You don�t do that to Chile
without any consequences. Toledo, with his
popularity indices rubbing the bottom of measures, imitated Gaitieri when he
grabbed the Falkland Islands to give oxygen to
his already unpopular dictatorship. The crisis between Chile and Peru places at
risk peace in Spanish speaking America and block any solution of a way out to
the sea for Bolivia , which Jose Maria Insulza had been working on, first from
Chile and now from the OAS. Insulza could ask for help from another intelligent
head in Latin America, Enrique Iglesias, now executive
secretary of Iberoamerican summits.

Bolivia
could be the solution to many Latin American problems, because it has energy
reserves in a region starving for energy. But it could also show, if its destabilization
or its secession were to happen, the tragic specter of broken peace in the
southern part of America.
Argentinean diplomacy has lots to do, if it abandoned its comfortable position
of doing nothing, in Bolivia,
in Peru and in Chile

To do that, Argentinean foreign policy has to stop looking at its navel. The world
is neither a geographical error nor a geographical excess, and Latin America lacks solutions. It does lack indeed
leaders of the stature of Insulza and of Iglesias, ready to accept that it is
not the same thing to put things in their place than to recognize the place for
things.

One of the hallmarks of the Chavista revolution has been its ability to destroy institutions, traditions and methods in Venezuela, without implanting an alternative. Chavez may talk about revolution, third way, XXIst. Century socialism but in the end they are empty words as seven years after his election he still ahs not defined any of them as he switches from one to another in his apparent need to promise something new all the time. Even the Bolivarian Constitution which was specific, is overrun, bypassed, mutilated and spindled daily by its creators. As someone said, the Constitution was written with the frame of mind of being in the opposition, but they happen to be Government.

Case in point is the mural by Venezuelan kinetic artist Carlos Cruz Diez which surrounds the port of La Guaira near Caracas. Cruz Diez, one of the top Venezuelan artists of all times, designed in 1991 a mural which is 2 Km. in length to decorate the wall surrounding the port. He donated his time and supervised its implementation. While I could not find a picture of the original mural, below are three outdoor works by Cruz Diez from the same period and similar in design and spirit than the “Muro de Induccion Cromatica” in La Guaira:

With time the mural, below left, suffered the lack of maintenance by administration after administration as well as its use by most political parties to cover it with advertising. It would have been a simple matter to maintain and repair, the key was in the design, Cruz Diez did not actually paint all of it. It would have been an easy matter to fix it. Instead it is being torn down as shown in the picture below in the right. He has actually been quite gracious about the destruction of his work of art, saying it was a gift and as such people may or may not accept it.

The reasons? A multitude of them from the fact that it block the horrible view of the docks to what lies behind the whole idea as expressed by the President of the Cultural Foundation of Vargas state: “(It) does not identify itself with the idiosyncracy of those that live in Vargas state”. Of course, he makes no definition of what those idiosyncracies are and makes no alternative proposal, as the mural is being replaced by a wire fence. Such is the ways of the revolution

This is simply a barbaric act of ideological revenge and stupidity, where we are seeing wholesale destruction of everything as a way of simply erasing the past. Fixing it would have been rather simple, I am sure art students from all over the Central region of the country would have been delighted to donate their time to fix it. Relocating it with the same dimensions would have been rather easy in Vargas state, which continues to suffer from the devastation of the 1999 floods, as reconstruction has been limited and vast empty spaces with destroyed houses and building remain there for everyone to see as a tribute to the Government’s incompetence. But the easy and symbolic destruction of the mural fits the character and spirit of this soulless revolution. Destroy, destroy and destroy, maybe one day they will realize there is nothing left.

Hugo “Daddy Warbucks” Chavez went to Mar del Plata to preside over the anti-summit, bury ALCA the free trade agreement of the Americas and become leader of the Third World.
With another one of his magnanimous offers, Hugo Warbucks offered a
“modest” US$ 10 billion of our money to promote the anti-Alca, a sort
of trade agreement, not-for profit and without the US.

But
while Chavez relished his triumph in presiding over the marchers, the
fact was that there was little of Summit at the anti-Summit with Chavez
being the only one of the Presidents that participated in it, sitting
next to former soccer star and more recent drug addict Diego Maradona
(below left) and many of the usual suspects,

The
question was where were the rest, the Ortega’s and all of the other
leftwing leaders and aspiring leaders of the Continent? In hiding? What
where they afraid of? Argentina’s
President Kirchner failed to show up, Fidel was not invited and sent
eternal leftwing music icon Silvio Rodriguez to represent him and Lula
Da Silva knows better than risk the well being of his people.

But
Chavez could care less, shouting “Homeland or death”, praising Che
Guevara, using swear words generously and trying to charm the 38,000
present with his enfant terrible attitude. Simultaneously, they staged their own march in Caracas, using the same signs exported to Argentina,
as the dummy below has the same sign as the dummy above did.
Today the local Chavista paper called Vea noted the march and called
Alca “dead” as shown below:

Unfortunately, Chavez may pay the price for all of this. The world was actually watching this time around (Venezuelans were forced to watch as all radio and TV stations were forced to show the whole event) as CNN showed the end of the event and the subsequent riots,
US flag burnings and violent confrontations by over a thousand
protesters, leaving the implied image that Chavez was the leader that
brought them there to riot. This, together with Chavez’ insults towards
the US president clearly did not sit well with the same Western press
that Chavez and his media consultants and spinners have been carefully
cultivating and manipulating for the last few years. Even his “friend”
Jimmy Carter expressed his dismay
at Chavez’ actions, saying it was “completely unjustified” for Chavez
to do this and saying he knew that Chavez was a difficult person from
his own experience. (Spanish version here)

The Chavez bashing had actually started a day earlier
when Ted Koppel in Nightline decided to set the record straight and
said that Chavez had used his program as a launch pad for the
propagation of lies. Two months ago Chavez made the charges that the US had a plan called “Balboa” to invade Venezuela in Koppel’s program and promised to send partial proof of the documents that Venezuela had “discovered” on the issue. Koppel concluded “After many requests over the last two months, we have received nothing”. Koppel also clarified that there was a “Balboa” in military war games between the US and Spain.

And
it continued last night as one TV station after another referred to the
Venezuelan President in negative terms. In fact, none of them was even
careful enough to note that Chavez only participated in the peaceful
part of the protest rally, but blurred over the distinction. It went
even further today when a group of Republican Congressmen called Chavez a clown, leaving aside the usual respect that US Congressmen and Senators have shown for our President.

The
question is whether this sequence of events from Koppel, through Carter
to the US Congressmen was spontaneous or not. We are sure it wasn’t, we
think this was all carefully orchestrated by the US spin doctors to begin putting Chavez in a bad light. And I think they won this round.

And then there is ALCA, the free trade treaty that the US is proposing for the Americas
to compete with the European Union. ALCA was a non-issue for the
Argentinean summit, because its success depends on the success of the
upcoming WTO talks, as pointed out by the Brazilian Foreign Minister
even before the Summit began and reiterated by the OAS Secretary
Insulza, who kept giving interviews saying progress would be difficult
without the WTO talks first.

Chavez and his advisers knew this and Vice-President Rangel called ALCA a corpse in an advanced state of decomposition. Meanwhile Chavez kept saying
he had to come to bury ALCA and promote ALBA for which he offered US$
10 billion as Venezuela’s contribution, money that could certainly be
used to reduce poverty in his own land, but Chavez is certainly too
busy giving it away elsewhere, spending it in foolish state ventures
and wasting it subsidies where corruption takes big chinks of the
money. He no longer seems to relish the role of leader of Venezuela he wants something bigger and he appears to want it now.

Reaction was swift by the US and its partners (part of the same strategy?) as Mexican President Fox quickly went on the offensive and called for the members of Mercosur (Brazil, Argentina, Uruguay, Paraguay and Venezuela)
to stop blocking the free trade agreement and threatening to leave them
out of the pact if they continued their strategy. In fact, Fox called
for a resolution on the issue before the end of the summit and that
ALCA be included in the declaration, basically creating a standoff in the declaration being completed. The President of El Salvador also defended
ALCA saying they had not come to bury it and he was sure 80% of it
would be functioning within two years.  In the end 29 countries
signed for Alca and the Mercosur and Venezuela said  the
conditions are not there for it. But they will be. As the other 29
countries press for it, the mercosur countries will join the fray.

And while Chavez tried to spin it
as a victory, the truth is that ALCA may not be in the form that even
Chavez’s partners in Mercosur want it, but they all want it and want to
be part of it. Few countries have the luxury of Venezuela
which sells mostly basic commodities and few finished products. Most of
those countries want to diversify exports and need better access to the
US market and that is why they will join ALCA eventually no matter what Chávez says or wants. If Venezuela does not, it will be another step for our country to be closer to being Africa than America.

Thus,
there was no burial of the free trade agreement, but we did see the
beginning of a definite media offensive against the Venezuelan
President led by the US.
Bush did not expect much from the Mar de Plata meeting, but Chavez
thought he would score a victory, but he didn’t. Chavez belived the
final declaration will not have the word ALCA in it, but the it did
with the majority of the countries favoring it. By making it an issue,
he may have lost the battle and
lost part of the large effort he has made in making the international
media love him.

Next year the WTO meeting will take place and that will lead to ALCA being joined by most Latin American countries.

Where Venezuela will be in all of this, is anybody’s guess.

With the excuse that they were looking for reporter Patricia Poleo, 50 members of the intelligence police (DISIP) raided a local hotel where a political act by opposition groups that are calling for people to invoke Art. 350 of the Venzuelan Constitution
was taking place. Art. 350 calls for the people not to recognize any
regime which goes agaisnt the country’s values, democratic rights or
violates human rights. This was simply harrasment, you can find the
pictures in Noticiero Digital. Below two of them, one with a view of
the room as the intelligence police rushed in the room when Antonio
Ledezma was speaking, the other a close-up of the jacket of one of the
cops where someone had stuck a “350” sticker. Way to go!

When he was leaving the Cathedral this morning, the Attorney General Prosecutor Isaias Rodriguez said that
the person being investigated whose inmuminity will need to be removed
is an active General, Gral. Jaime Escanlante the Head of CORE I.
Escalante has been quite visible in large drug busts in the area near
the border with Colombia. Rodriguez also said there were three more
people involved, one from the financial sector, another military and a
third one that “will not surprise anyone.

Rodriguez added that this is the result of a five month investaigation.
Hold it! Did’t he say last Decemeber that the case was “almost solved”.
How about other deatils like Danilos Anderosn’s wealth on a salary of
US$ 1,100 a month? Or the money found in his apartment (US$ 500,000),
his two apartments and ski jets? How about the blocking of streets
prior to the explosion near the site where it took place by the
intelligence police? Or the presence of high ranking authorities like
the Vice-President minutes after the explosion despite the risk implied?

He also said that the explosive device was not made in Venezuela and
that the CIA did not particiapte neither in the explosion, nor in the
activation of the device, only in helping those responsible escape teh
country (But they are here?). There were three meetings, one in
Maracaibo with eight people present, one in Panama with 11 and another
in Miami, no number specified. He closed by saying that the cosnpiracy
was to destabilize and the original goal was Chavez or him, but they
settled on Anderson. This last part is the least plausible and credible
of all the things he said.

The Prosecutor’s Office charged
four people with the murder of Prosecutor Danilo Anderson today. The four are:

-Reporter Patricia Poleo, a well known Chavez critic whose home was raided January by
cops looking for her sources of information. Poleo had said publicly recently
that the Prosecutor will charge her with it and he went as far as holding a
press conference denying
that this was the case, while Poleo insisted that Prosecutor Isaias
Rodriguez ahd told her father, Editor Rafael Poleo about it. Poleo had already
gotten a six month sentence, which she was appealing for defaming the Minister
of Justice Jesse Chacon.

-Banker Nelson Mezerhane, the CEO and majority owner of Banco Federal, which
was mentioned as one of the largest creditors of Refco recently. Mezerhane is
not well known for being involved in politics and has been seen recently at the
Presidential Palace at meetings with Chavez and/r the Vice-President. His name
was mentioned as a possible home to be raided in the days soon after the murder
of Anderson
which was then
denied by the Minister of Justice. He was mentioned in connection with
lawyer Antonio Lopez who was killed days
after the death of Anderson
by local police.

-General Eugenio
A�ez, one of
the Generals of Plaza Altamira who was a General in the National Guard.

-Salvador Romani, who is of Cuban origin and has been accused of being a CIA
agent by the Cuban Government.

Note Added: Poleo says
she will not hide, she had nothing to do with it, she knows “of”
Mezerhane but could not identify him if he was in fornt of her and was
not in Panama at the meeting whrere reportedly this was planned. She
says she has never visited that country and was not at a wedding in the
Dominican Republic where this was also planned.

More: Prosecutor says there are more people involved and
one of them will need his/her inmunity to be removed (Active military
and Deputies have inmunity here, Courts have to remove it with evidence
in order for them to be tried)

I was going to write about this,
but Petkoff did it before me and it is hard to improve on what he wrote. I would
only add, that this is done daily by Venezuelan Government officials and in the
case of our current Minister of Finance, he �claimed�  (The money was never found) that he did the
same diversion of public funds to pay salaries that Chacao�s Mayor is being accused
for, except the minister was talking abut US$ 3 billion and not a few million
as in the Mayor�s case. The second curious item, is that Leopoldo  Lopez is not only successful as Mayor, but if
my memory serves me right, he received the highest number of votes, percentage-wise,
than any Mayoral candidate in Venezuelalast
year.  Clearly the Government fears Primero Justicia, first it was
the skeletons, then this story and now today the President of the
Assembly accuses it, without presenting any evidence of receiving support from the US Embassy. Here is Teodoro on Leopolod Lopez.

Clodo
draws the sword by Teodoro Petkoff in Tal Cual

This small reporter asks himself if Clodosbaldo Russian, when he looks
at himself in the mirror, is capable of looking at himself without looking
down. This guy, that has played dumb in the face of tons of cases of
corruption, that has seen hundreds of payment orders for works never built,
that can not ignore the scandalous proportions that administrative corruption
has reached, that when the Bolivar Plan was investigated, after he killed the
tiger he s� in his pants when he faced the skin and left it at that, without ever
producing a �second report�; this grotesque personality of the oficialist
troupe, found, at last, a �corrupt one� to punish. Yesterday he announced
triumphally, that he had caught Leopoldo Lopez, Mayor of Chacao, in an administrative
crime. I do not know the details of the case but it makes me suspicious given
Russians record that the only corrupt person that he has found happens to be an
opposition Mayor. What a coincidence! And it is also a coincidence that he
banned him politically staring in 2008 (when his terms ends), when young Lopez,
obviously, could aspire to other public positions. Well, the truth is that
after the sentence about the morochas, in the officialist circus, even the hens
are beginning to crow like cocks.

Bandes is the Development Bank of the Government. It owns companies, it manages
money such as the social fund for PDVSA, and it owns bonds, invests and
performs financial operations that are required for the promotion of
development. Ever since it was created as the Venezuelan Investment Fund (Fondo
de Inversiones), it has played an important role in buying and selling the
country’s sovereign debt.

And this makes a lot of sense, a treasury rich, Venezuelan Government
institution should play those markets since the risk is its owner and those
sovereign bonds have some of the highest yields in the world’s emerging
markets. More importantly, the Bandes funds can be used in the Government’s own
strategy to repurchase its own debt, support it and why not, even
manipulate it. After all, who else has such deep pockets and the interest in Venezuela’s
sovereign bonds being strong? Truly nobody. No fund or institution other than
Bandes and maybe now the new Treasury Fund, Foden, has such deep pockets that
can be invested in the Venezuela�s
securities.

Unfortunately, the creativity of corruption knows no bounds and can sidestep
the logic and even the appearance of propriety as in the case and others. As in
the case I reported
last year in which Bandes sold to private groups its portfolio of bonds,
only to have the Republic announce soon after that, the repurchase of
coincidentally the same bonds that had been sold by Bandes a couple of months
earlier. Some of these groups the bonds were sold to, would qualify as what is coarsely
qualified in Venezuela as “Con que culo se sienta la cucaracha” or
“On what ass does that cockroach sit” in terms of the size of the
financial transaction, but everything was structured in such a way that it
could be done by them, without transparency and, of course, no investigation
was ever called on the matter. (And the size of the ass of the cockroach
increased significantly as profits in that transaction alone were in the dozens
of millions of dollars)

Which brings us to today. For quite a while the market has been hearing that
mysterious purchasers had bought structured notes on Venezuelan sovereign bonds
in big sizes from various Wall Street firms. We are talking US$ 100 million at
a time, too big a size for regular investors. But let me explain what this
structured notes entail. Suppose that you are not willing to buy Venezuela’s
2027 bond because it is too risky in terms of maturing in 22 years. But the
yield is attractive. So, you ask a Wall Street firm to issue a structured note
for let’s say three years, in which the Wall Street firm guarantees that you
will receive a certain fixed interest rate lower than the one those bonds offer
over 22 years but still attractive, as long as the country does not default.
Thus, you sacrifice some of the yield for security in the short term. You know
exactly how much you will be paid and at the end of the three years of this
example, you get your capital back.

Now, it does not make sense for Bandes to ask for someone to structure notes.
First of all, with the notes you add another risk to the Venezuela risk,
the risk of the “issuer”, the financial firm that issues the
structured note. There is also the custody risk, as in the recent and fresh
case of Refco, which will show up again at the end of this story. (Actually
Refco could also issue the notes up to recently so the risk is quite real)

Issuing these notes is great business for the issuer, who charges hefty commissions
to the buyer, as well as making money in the trading of the underlying
securities. A few months ago, an acquaintance told me that he had gotten huge
orders for these notes from “unusual” countries, where he did not
think there were investors who woke up in the morning with a strong desire to purchase
say US$ 100 million in Venezuelan sovereign bonds structured notes. He thought
there was something “fishy” about these and his suggestion was some
intermediary or Government official was making a lot of money on these deals
and the end client had to be the Government.

Then, as if to complicate matters, last Saturday the President of Bandes acknowledged
that his institution had sold US$ 662 million of the US$ 1.6 billion in such
notes Bandes owned to none other than the Ministry of Finance. Thus, the mystery of the notes
was unveiled and indeed they were purchased by the Venezuelan Development Bank
and the amount was huge for those markets: US$ 1.6 billion!
Moreover think about it, US$ 1.6 billion in structured notes, where commissions
are of the order of let’s say a couple of percent (US$ 32 million!), versus
buying the bonds outright, where commissions could be as low as 1/16 of a
percent. (Only US$ 1 million). If you are an intermediary there is a huge
difference!

But it actually gets even worse. The Ministry of Finance turned around and sold
those notes (denominated in US$) to “four local banks” at the
official exchange rate in a process that lacked any transparency. Imagine,
just for being one of the “chosen” four banks you were able to
purchase, in bolivars and at the official exchange rate, these notes, which you could then
turn around and sell in US$, get dollars and bring the funds back at a rate
much higher ( 27.9% to be precise!) than that! Nice deal! And then the VP says that local businessmen lack
competitiveness! Why be competitive when life can be so easy? And who
promotes it? None other than the Government itslef!

The case smells so bad, that there
are suggestions that the statements last Friday by the President of Bandes
were simply a way of saying:� I had nothing to do with the placement of the
notes in local currency�. However, the reporter apparently was not knowledgeable
enough to ask why Bandes used these structured notes rather than buying the
bonds outright. Descifrado suggests
today (Subscription area) that the Government may have gotten wind of this
too and the President of Bandes may not last long in his position. But I have
to wonder given the next post, where is Comptroller Russian in all this?

Finally, where does Refco come in all this, you may wonder?
Well, reportedly some of the money and securities that got stuck in the
bankrupt company from Venezuela
is in the form of these same structured notes. And there may be another new story
in that part in the future, as this country never ceases to amaze everyone!