The Devil's Excrement

Lina Ron, a controversial and iconic figure of the Chavez revolution is dead at 51 from a heart attack. Ron was one of those revolutionary figures that was hard to comprehend to many Venezuelans. Born in an oil industry family at the same time as Venezuela’s IVth. Republic democracy, Ron was even more “in your face” and provocative that Chavez himself. She first surfaced in 2001, leading a group that burned the US flag after the Sep. 11th. attacks.

Ron and her supporters had a total disregard for the law. She once rescued her husband from a police station where he was being held. She coordinated and participated in a number of attacks on TV station Globovision, as well as on Cardinal’s Urosa’s official home when he was still Archbishop. She always threatened with violence, not only to defend Chavez’ revolution, but to support it if it ever were to lose an election. After the last violent Globovision attack, she was ordered jailed by Chavez, only to be quietly freed a couple of months later.

She seemed like a very authentic revolutionary, but was accused of being funded by the Government to buy weapons and motorcycles. Her obviously fake blond hair was copied by admirers and seemed to some to be inconsistent with her revolutionary stance. It was copied at Carnival and in revolutionary circles. I will never forget taking a reporter around Caracas on election day and finding a large group of Ron look-alikes, with absurdly long blond wigs, dancing and signing in the middle of the street in downtown Caracas.

She was a true anarchist in a Government that uses anarchy, and used her, for its own goals, but always blames it on others. She founded a political party and only a few weeks ago said if Chavez lost the election in 2011 there would be “plomo” (lead, shooting, violence) She was a leader on her own right, even if many of us still have a hard time understanding how she came to be what she was in the Venezuela that we thought we knew.

This post dedicated to Setty. My friend, if this stuff was fiction, nobody would believe it…

I will not bore you with the details, Setty has done an outstanding job in covering (and uncovering!) them, but basically a fund in the US, a very capitalistic hedge-like fund, is halted from operations by the SEC. It turns out that 90% of the money in the fund is money from PDVSA’s employee pensions funds. Then, it turns out that the fund was involved in illegal foreign exchange operations. But with whose money?  PDVSA or the PDVSA pension funds? And when the investment funds are stopped from functioning, two private companies in which the funds invested (the very reason for the SEC intervening) need money that was coming to them, but the money is trapped in the funds.

Who comes to the rescue?

None other than PDVSA, who is willing to “help” on demand, just like that

So, what gives?

The funds are managed by a Venezuelan, Francisco Illaramendi, who acted as an adviser to PDVSA in the past. But these days, he seems to be a vehicle for PDVSA acting. Except that initially PDVSA was hiding behind its pension funds. Or so it seems.

This leads me to ask a simple question: Who was PDVSA acting for, the funds or PDVSA? Who made money from the deals, PDVSA or its employee funds? Why did the funds invest in a company developing small nuclear reactors? Was Illaramendi simply acting on PDVSA’s orders? How was he being paid? (Other than getting US$ 482 million into his funds)

The funny (not funny ha, ha, just weird) thing is that Minister Ramirez said last week in the National Assembly that PDVSA had nothing to do with the managing of the funds. Union workers and pensioners say they have seen no information on how the funds are managed for years, ever since PDVSA’s Treasury Depratment took over its management.

And Ramirez looked very uncomfortable answering these questions. And he should. What the funds/or PDVSA/or Illaramendi were doing was simply illegal in Venezuela and the details of the flow of money could be even more illegal.

But nobody knows. Nobody answers, nobody says anything. Nobody questions it. The Comptroller is nowhere to be seen. Ditto the Prosecutor.

But this memo from the fund’s lawyer shown by Setty is simply priceless, almost as good as a suitcase with $800,000 in cash, opened at customs in a Buenos Aires airport.

It reads:

“As MKG has indicated, in order for STLF (Short Term Liquidity Fund) to conduct Venezuelan currency transactions in the permuta market, it must furnish its own Bolivars…”

Except the permuta market has been illegal since May, so what the hell is this lawyer talking about?

but then, this same memo, dated Jan. 04th. of this year says:

“MKG has stated that the Bolivar providers need to be paid, in no small part to assure that they will be willing participants to future transactions requiring Bolivars”

This says, we have been involved in transactions which are illegal in Venezuela and need to pay our counterparties in order to keep participating in them.

And PDVSA was right in the middle of things. And this is all managed from PDVSA’s Treasury Department and PDVSA’s pension fund contributed 90% of the money to the investment fund.

Not clear enough for you? How about:

“STLF purchased Bolivars from non-US participants at an agreed exchange rate, to be paid at this point in the transactions”

Jeez, last year in May, the Chavez Government shut down 46 brokers and jailed people who were doing legal transactions and banned currency exchange transactions and these guys are doing them now, with PDVSA money to boot?

As far as I know, the only country that trades and accepts Bolivars is Venezuela, where any of these transactions is illegal. Where do these Bolivars flow? In Belaruss? Or Zimbawe? Or is it Lybia? I bet it is more likely to be in Caracas.

And PDVSA is in the middle of all this?

No wonder Ramirez and Giordani talked openly about lowering the parallel market! They are apparently running it!

The revolution never ceases to amaze me!

(P.S. And don’t forget, these same funds invested US$ 1.15 billion dollars in the PDVSA 2017 bond earlier this year. Add it up: US$ 1.15 billion plus 482 billion is 1.632 billion. How much money do these funds have? Is this the revolutionary idea of “diversification”?)

Everyone was a little puzzled by Minister of Finance and Planning Jorge Giordani emphatically saying that Venezuela still has a low debt to GDP ratio of 18.6% and that it has actually improved in the last few years.

This one is only one of many puzzling things he said, he also suggested this Government inherited high inflation from its predecessors, ignoring the fact that not only have 12 years elapsed since then, but the “structural” and “inertial” factors invoked by Giordani to cause the current 27% inflation, were apparently absent when during his tenure as Minister of Planning in 2002, inflation was 12.2% for the full year, the remainder 15% then has to come from other sources, related to the irresponsible printing of money by the Venezuelan Government. The money supply has increased by a factor of 15 (Yes, 1,500%) since 2003. So much for structural or inertial.

Structurally Incompetent perhaps.

But going back to the Debt/GDP ratio and Giordani’s 18.6%, let’s look at some simple numbers:

1) Venezuela’s GDP in 2010 was estimated to be around US$ 355 billion, before the January devaluation. Since the currency was devalued from Bs. 2.6 to Bs. 4.3, this says that Venezuela’s GDP in foreign currency opened the year 2011 at US$ 233 billion.

2) Venezuela’s total debt as of Dec. 2010 was composed of two parts: 1) Bonds outstanding in the amount of US$ 31.1 billion (my calculation) and US$ 5.6 billion in debt with multilateral organizations. bilateral organizations and banks. This gives a total of US$ 36.7 (31.1+5.6) billion for the Republic’s debt, ignoring debt held by Government companies.

If this is all Minister Giordani was talking about, then the ratio is 21.3% (36.7/172.3), using the current “official” exchange rate.

But given the relationship between the Government and PDVSA, one can not separate the two. Thus, we need to take into account PDVSA’s debt:

3) PDVSA’s debt as of today, after the issuing of the PDVSA 2022 bond and ignoring (for now) other debt held by the company, amounts to US$ 20.5 billion.

Thus, between the two PDVSA and the Republic, Venezuela’s debt is US$ 57.22 billion.

But, whether you use last year’s number (which yields 20%) or this years number, which yields 24%, you still can’t get 18%.

But it gets better. First of all, Giordani has this unconventional interpretation that the US$ 20 billion borrowed from the Chinese is not debt.

Huh?

Imagine you borrow money from someone and agree that you will pay for it working for them, it may not be debt, but you are a slave, or not?

Same here, PDVSA has to ship oil to pay for the US$ 20 billion, we Venezuelans own PDVSA, and we have to pump oil to pay that, we are the slaves. It’s pure debt.

But let’s agree with Jorge for a while. Venezuela owes only US$ 57.22 billion, except that PDVSA, besides its bonds has liabilities in long term debt of about US$ 4 billion more, which is owed to banks. (We are ignoring employee liabilities, just straight debt)

Thus, the total debt is US$ 61.22 billion or 26%% of GDP

But wait, is the true exchange rate Bs. 4.3 per US$?

Or is it the SITME rate of Bs. 5.3 per US$. If we use the SITME rate, GDP goes down to US$ 189 billion, so that Debt to GDP goes up to a Debt/GDP ratio of 44%.

And yes, if you let the Bs. float, the equilibrium rate would be more like Bs. 6.5 per US$, thus GDP would drop, this time to US$ 113 billion, which would mean Debt/GDP ratio would go up to 33%. But if you add the 20 billion Chinese loan, then it goes up to 71.7%, which is quite high, very high. In fact, The Economist has taken notice.

And God forbid, the World Bank rules against Venezuelan in arbitration.

From all this, the only thing that is clear is that Giordani’s value is simply wrong. In fact, for a man that likes to talk about equations (Deputes are apparently scared of them) which are simply algebraic sums of factors like the Gini Index, throwing that mysterious 18.6% number out is simply irresponsible. He is simply ignorant or a big liar.

Take your pick.

What is clear is that “the man in charge” is either full of hot air, or has no clue, neither of which is encouraging for those of us concerned about the future of the country.

I am still here. It is not that I will blog less, it has simply been a complicated week as I moved, I have many stories to tell from what was  going on in Venezuela this week, but energy levels are low, after full days of many errands and lots of work.

But I could not pass up the opportunity to thank everyone. My post explaining that I was leaving arose more from the need to be fair to all of you in disclosing my departure, rather than from explaining what or why I was doing it. But I really did not expect the outpouring of good wishes, compliments and cariño that I felt. I admit that I was touched, overwhelmed and humbled by all of you. I consider my blog a labor of love towards my country and I can see that it has generated lots of equally lovable feelings from my readers.

Thank you.

I also wanted to tell in that post a little bit more about who I am. I had tried unsuccessfully to hide who I was as much as possible over the years, some details got out slowly, but with my departure I felt I could tell you a little more about myself. I am still surprised by how many people thought when I meet them that the Devil was young  (no such luck!), lived outside Venezuela (Now I do!) and was an economist (Only an amateur one)

Discussing with various friends the strong reaction to my post, there were over hundred comments and some blog posts by friends Daniel, Alek, Kepler, Instapundit took note and even Nadox in Codigo Venezuela, there seems to be two reasons for the emotional reaction coming from two different poles: Those that have already left, identify themselves with the difficulties and conflicts of my decision, those that are considering leaving, wonder if they should leave too or whether they will one day have to do the same.

I don’t know if the above interpretation is correct, but there clearly was a strong resonance with my farewell post. I liked Daniel’s title “The good Devil moves out of Venezuela”.  I also loved the title of Naldoxx’s post “Even the devil is leaving Venezuela”, he called me a sort of handyman of life, which I take as a very nice compliment. And even if some are worried by the fact that he published my picture, don’t worry, it is a 29 years old picture, all my hair is white by now. And I don’t do low temperature experiments any more.

You can be sure I will make the best of my departure. Despite everything, life is good and beautiful and I have many, many plans. And that includes to keep writing and interpreting Venezuela as well as I can.

Thank You again!

From La Patilla, this magnificent collage of Hugo and his Lybian buddy. As the saying goes: “Dime con quien andas y te dire quien eres”. (Tell me who your friends are and I will tell you who you are)